Edited version of private ruling

Authorisation Number: 1011588260970

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Ruling

Subject: Commissioner's Discretion - Special Circumstances

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 business activity in your calculation of taxable income for the year ended 30 June 2010?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

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 applied for a private ruling seeking the Commissioner's discretion based on special circumstances for the year ended 30 June 2010. You are claiming that your business activity would have passed the assets test except for special circumstances outside your control, in your case a fungal outbreak due to a higher than expected rainfall for the region.

The following description of the scheme is based on information provided by you.

You are carrying on a primary production business which commenced in 1998.

Due to a fungal outbreak during harvest rendered the majority of the crop unusable. This was a common problem in your area this season. As a result the harvest costs exceeded the crop value.

You provided a report by industry experts regarding a business of the same kind located in the same region. It states that there are two good sites on the property for this business activity. During wetter years the crop can be subject to fungal problems as the crop begins to soften, rot can set in making them unusable. The fungal problems are a management issue and must be countered with the application of well-timed fungal treatments. A local company takes the crop, which is a group of local growers and producers who have invested in a processing plant.

You provided a number of articles from industry journals which reports a severe fungal outbreak and prescribes preventative measures for business owners.

Tax office records show that you are also carrying on a non primary production business activity which generated a net business income in excess of $250,000 for the year ended 30 June 2009. Based on the income trend, it is expected you will not meet the income requirement for the year ended 30 June 2010 as your net business income from your other business activity may exceed $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1

Income Tax Assessment Act 1997 Section 35-10(2E)

Income Tax Assessment Act 1997 Section 35-55(1)

Income Tax Assessment Act 1997 Section 35-55(1)(a).

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Why we have made this decision

Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000.

In your case, you do not satisfy the income requirement as your income for non commercial loss purposes is above $250,000.

Paragraph 35-55(1)(a) of the ITAA 1997 states that in order to exercise the discretion, the Commissioner must be satisfied that the business activity was or will be affected by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster.

Ordinarily you would have satisfied the assets test except for special circumstances outside your control, in your case a fungal outbreak due to a higher than expected rainfall for the region during harvest.

Therefore the Commissioner will exercise the discretion available in accordance with paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your olive growing business in your calculation of taxable income for the year ended 30 June 2010.

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