Private ruling: Non-commercial losses - Commissioner's discretion
Published: October 2013
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

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 primary production activity in your calculation of taxable income for the relevant financial years? | A1: Yes.

Relevant facts and circumstances: You bought a property in 20XX. Your income for non commercial loss purposes for the relevant years was less than $250,000. You do not meet the exceptions of the non-commercial loss provisions as your other income was greater than $40,000. You expected to meet the assessable income test within the first two years of operation. You did not meet any of the other tests as shown in subsection 35-10(1) of the ITAA 1997. The independent evidence you provided suggests that the commercially viable period for your industry is three to four years. Your business activity was severely affected by circumstances outside your control. These conditions were consistent severe rain and flooding over a three year period. The extreme weather conditions delayed the ploughings, planting and harvesting process as well as total destruction of crops or inability to harvest the crops due to saturated paddocks. This further enhanced a delay in the lead time for the business to make a profit or earn any assessable income.

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

Reasons for decision: Summary: 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, or · 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 financial years under consideration. The relevant discretion may be exercised for the financial year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. For individuals who satisfy the income requirement special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the financial years in question where, but for the special circumstances the activity would have passed at least one of the tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. Consequently the Commissioner will exercise his discretion in the relevant financial years.