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Edited version of private ruling
Authorisation Number: 1011813802000
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Ruling
Subject: non commercial losses
Question
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 2010-11 financial year?
Answer: Yes
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
You have operated a business. However over the last few years as the result of the severe drought conditions in the area you have not been able to obtain any work for your business.
You have tried to sell your equipment. You have received an offer. Settlement is after the current harvest season.
Your business activity has passed the assessable income test in the past, prior to the drought.
Relevant legislative provision
Income Tax Assessment Act 1997 paragraph 35-55(1)(a)
Reasons for decision
Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997, will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(a) of the ITAA 1997 that it would be unreasonable to defer the loss.
Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of this discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other natural disaster, that have materially affected that activity.
It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances.
The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control, namely drought conditions, and that in the absence of those circumstances it was probable that a taxation profit would have been made from the activity, or one of the four tests passed, for the income year in question.
Therefore, the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the 2010-11 financial year.
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