Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011834672024

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Non-commercial losses and the Commissioner's discretion

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 fruit growing enterprise in your calculation of taxable income for the 2009-10 and 2010-11 financial years?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts

You acquired a two hectare property and conduct a fruit growing activity in partnership with your spouse and commenced in 20XX.

The property was planted with two types of fruit.

Because your water entitlement was cut to about 30% in the 20YY year, you stopped watering one type of fruit. This caused the trees to die.

You replaced half of one type of tree in 20YY and the other half in 20ZZ with the other type of fruit. This was done in two stages as you were still uncertain about the amount of water you would have access to.

You state that the second type of fruit is particularly heavy bearing.

With operating costs in normal years of around $XX,000, you expect the activity to be profitable and also satisfy the assessable income test in the 2011-12 financial year. In addition to fruit, you expect to plant vegetables when water is available to receive additional income.

The activity was profitable in the majority of financial years. The activity has made a loss in the 2007-08 to 2009-10 financial years when water restrictions applied.

The reduced water applications have seriously impacted on the yields which could reduce to approximately 2/3 of the normal yield.

For the 20YY irrigation season only 30% of water allocation could be taken, for the next season only 20% was available and for following year, the allocation was 60%.

You have requested the Commissioner to exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 of the ITAA 1997 for the 2008-09 and 2009-10 income years.

Your income from sources not associated with the business activity if more than $40,000. Your income for non-commercial loss purposes is less than $250,000.

Relevant legislative provisions

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

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, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests.

Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. That is, the loss of trees because water restrictions made it impossible to water all the trees or produce a crop from them.

Consequently the Commissioner will exercise his discretion in the 2009-10 and 2010-11 financial years.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).