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Edited version of private ruling

Authorisation Number: 1011547532655

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Ruling

Subject: Commissioner's discretion

Questions and Answers:

Will the Commissioner exercise his discretion under section 35-55 of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to deduct your primary production losses due to special circumstances?

No.

Relevant facts and circumstances

Your income for non-commercial loss purposes was $250,000 or more. You acquired an existing primary production business but did not purchase the secure water right with the property. Due to drought conditions, the business did not meet its profit forecasts and incurred a loss. You were required to purchase water from the previous owner however the amount was not sufficient for your needs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-55

Reasons for decision

Division 35 of the ITAA 1997 is about non-commercial losses. Subsection 35-10(1) of the ITAA 1997 provides the loss deferral rule in subsection (2) applies for an income year unless:

you satisfy subsection (2E) for that year and one of the tests set out in any of the following provisions is satisfied for the business activity for that year:

You satisfy subsection 35-10(2E) of the ITAA 1997 for an income year if the sum of the following is less than $250,000:

Paragraph 35-55(1)(a) of the ITAA 1997 provides a Commissioner's discretion to not apply the loss deferral rule in subsection 35-10(2) where the business activity was or will be affected in the excluded years by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster. However, a note in this section about paragraph 35-55(1)(a) states:

In your case, you did not satisfy subsection 35-10(2E) of the ITAA 1997 because your taxable income for the year ending 30 June 2010 exceeded $250,000. In addition, you satisfied the assessable income test, the real property and probably the other assets test.

It follows the Commissioner cannot exercise the discretion for special circumstances because the note about paragraph 35-55(1)(a) of the ITAA 1997 specifically excludes the exercise of the discretion for special circumstances where a business activity would have satisfied one of the tests.

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