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Edited version of private ruling

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Ruling

Subject: non commercial losses - Commissioner's discretion

Question

Will the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include a share of losses from your fruit growing business in the calculation of your taxable income for the 2009-10 financial year?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are a partner in a partnership which grows fruit on an orchard.

The trees reached full production maturity in 200X.

In the 2009-10 financial year there was an a shortage of this fruit. The price you would have received from the sale of your fruit was more than double your estimates.

You appointed a manager to look after all aspects of orchard development, tree maintenance and also handling all sales and marketing issues.

During the 2009-10 financial year, an incident occurred which resulted in significant damage to the fruit orchard. This incident severely affected the 2009-10 harvest and future harvests.

Your income from other sources during the 2009-10 financial year exceeded $250,000.

You predicted you would have made a taxable profit but for the spraying incident.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 35-10(2)

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

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

Reasons for decision

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:

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.

'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster.

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:

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:

Consequently the Commissioner will exercise his discretion in the 2009-10 financial year.

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