Private ruling: Non-commercial losses
Published: May 2012
Ruling period: Year ending 30 June 2011
Date scheme commenced: 23 December 2008

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your mixed farming activity in your calculation of taxable income for the financial year ended 30 June 2011? | A1: 

Relevant facts and circumstances: You satisfy subsection 35-10(2E) of the ITAA 1997 as you did not earn more than $250,000 in the 2010-11 financial year. You operate a mixed farming business. You passed the assessable income test in the 2009-10 financial year and failed to pass any tests in the 2010-11 financial year when your property was flooded. The flood prevented the normal income producing activities. Reasonable projections for the 2011-12 financial year show the assessable income test will be passed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 35-55(1)(a)

Reasons for decision: Summary: Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under section 35-55 of the ITAA 1997 that it would be unreasonable to defer the loss. Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of the discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other disaster that have materially affected that activity. It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances. The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control and that in the absence of those circumstances it was probable that the assessable income test would have been passed for the income year in question. Therefore the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the financial year ended 30 June 2011.

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