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Edited version of private ruling
Authorisation Number: 1011554205556
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Ruling
Subject: Non-commercial losses - Commissioner's discretion
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 2008-09 and 2009-10 income years?
Yes.
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts
You are carrying on a primary production enterprise.
You originally applied for a private ruling requesting the Commissioner exercise his discretion, under paragraph 35-55(1)(b) of the ITAA 1997, for lead time in relation to your primary production activities. The Commissioner did exercise this discretion for the 2005-06 to 2007-08 income years.
In the 2007-08 income year, your primary production activities did meet the assessable income test.
The area where you conduct your primary production activities has been officially recognised as in drought or marginally in drought for much of the time since your business activities commenced.
As a result of the drought conditions:
· you could not source suitable stock to develop your primary production activities
· the availability of other stock for purchase and resale was reduced, and
· your pastures needed more time to rejuvenate.
Your income from sources other than your primary production activities in the 2008-09 and 2009-10 income years was greater than $40,000.
Your primary production activities did not satisfy any of the tests set out in Division 35 of the ITAA 1997 in the 2008-09 and 2009-10 income years.
Reasons for decision
Are you carrying on a business?
Your previous private ruling has already determined that your primary production activity is carried on as a business and this ruling is made on the basis of accepting this determination.
Commissioner's discretion - Special circumstances
You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 for special circumstances.
The discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised where:
· the business activity is affected by special circumstances such that it is unable to satisfy any of the tests required, and
· the special circumstances affecting the business activity are outside the control of the business activity.
Taxation Ruling TR 2007/6 provides guidelines on how the Commissioner's discretion under paragraph 35-55(1)(a) may be exercised. The following has been extracted from paragraphs 47 to 53 of this Ruling:
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.
In your case, your primary production activities where unduly affected by drought conditions in your local area. While you were able to meet the assessable income test in the 2007-08 income year, the drought conditions limited the number of stock available for sale. These conditions also meant that there was little breeding stock available causing you to postpone your activities.
The drought conditions affecting your local area are considered to be special circumstances for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. It is accepted that these special conditions were outside of your control and as a result, you were unable to satisfy any of the tests required in the 2008-09 and 2009-10 income years.
The information provided demonstrates that there was a reasonable expectation that your business activity would have satisfied one of the tests during this period, had it not been for the drought. Therefore, the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997 has been granted for these income years.
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