Private ruling: Non commercial losses
Published: December 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2012-13 to 2014-15 financial years? | A1: No. | Q2: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2012-13 to 2014-15 financial years? | A2: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have a primary production business. The global financial crisis flow on continues to impact upon your business. Although you haven't been in drought, your business has been affected by dry conditions. You sold a small number of stock during the past. You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(1). | Income Tax Assessment Act 1997 subsection 35-10(2). | Income Tax Assessment Act 1997 subsection 35-10(2E). | Income Tax Assessment Act 1997 paragraph 35-55(1)(a). | Income Tax Assessment Act 1997 paragraph 35-55(1)(b).

Reasons for decision: Summary: The Commissioner will not exercise his discretion for the years requested due to special circumstances. We consider the market and weather fluctuations to be a normal part of any industry. The Commissioner will not exercise his discretion for the years requested you have received assessable income from your business activity. | Detailed Reasoning - Detailed reasoning: For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · you satisfy the income requirement and you pass one of the four tests · the exceptions apply · the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. The Commissioner's discretion - special circumstances Under paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner's discretion can be exercised where: · the business activity is affected by special circumstances such that it is unable to satisfy any of the tests; and · the special circumstances affecting the business activity are outside the control of the business activity. Taxation Ruling TR 2007/6 sets out the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. Special circumstances are ordinarily those affecting the business activity such that it is unable to satisfy a test and it would be unreasonable for the loss deferral rule to apply. Ordinary economic, weather or market fluctuations that might reasonably be predicted to affect the business activity would not be considered to be special circumstances. These fluctuations are expected to occur on a regular or recurrent basis and affect all business within a particular industry. Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. The Commissioner's discretion - lead time The relevant discretion may be exercised for the income year in question where: · it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests · there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry. This discretion is intended to cover a business activity where there is an inherent period of time between the commencement of the activity and the production of any assessable income. For example, an activity involving the planting of hardwood trees for harvest, where many years would pass before the activity could reasonably be expected to produce income. For the discretion to be applied there needs to be an inherent or innate feature of the activity resulting in an inability to produce income in the year of commencement and (in most cases) a number of years thereafter. Further examples that fall into this category are forestry, viticulture and certain horticultural activities. You have not provided any independent evidence to establish the commercially viable period for this type of business. However, the commercially viable period for your livestock farming begins at the start of the activity and includes the time taken to raise females to a breeding age, allowing for the gestation period of those animals to finish, and finishes when to progeny have reached saleable age. The commercially viable period for your livestock farming is generally 3 to 4 years. Application to your circumstances We do not consider the dry conditions that you have experienced to be special circumstances. The dry conditions are the result of ordinary weather fluctuations that affect all businesses within your industry. It is a circumstance that might be reasonably expected to occur when carrying on a business activity. You state that your business has been affected by the Global Financial Crisis (GFC) and that the downturn is still occurring. This has decreased your sales. Likewise we do not consider the GFC to be special circumstances in relation to your business. We consider exposure to the GFC to be, in itself, a normal business risk and natural feature of the business cycle. Consequently the Commissioner will not exercise his discretion for the years requested. Your actual figures show that you have earned income in past financial years. The discretion is intended to apply to the period of time between commencement of the business and the production of assessable income and you have earned income from your activity. Therefore, having regard to your full circumstances, it is not accepted that it is in the nature of the business activity that has prevented one of the four tests being passed.