Private ruling: Non-commercial losses - Commissioner's discretion - special circumstances
Published: April 2012

Ruling: 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 2010-11 income year? | Yes. | Year ended 30 June 2011 | 1 April 2007 | You run a farm with the main activity being the cropping of high protein wheat and you also run sheep for wool and meat. | In the 2010-11 income year you had a loss due to the continuing drought which meant almost total failure of the wheat harvest and increased costs in feeding stock. | You have provided rainfall records for the 2010 and 2011 years showing monthly rainfalls. The rainfall during the growing period was particularly low. | Your assessable income from this business activity during the year ended 30 June 2011 exceeded $20,000. | You planted your normal area for wheat, but the yield was one tenth of the average yield. You had reduced income from sheep and increased expenses for fodder. | Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 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, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and you do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. | The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control. | For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances: | · your business activity would have made a tax profit | · the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. | Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Further, it is accepted that: | · but for the special circumstances, you would have made a tax profit | · you have met one of the four tests or would have but for special circumstances. | Consequently the Commissioner will exercise his discretion in the year ended 30 June 2011.




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