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Ruling

Subject: Commissioner's discretion - special circumstances

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 the calculation of your taxable income for the 2011-12 financial year?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are a full employee and also operate a business as a sole trader.

In the 2010-11 financial year, the business produced assessable income in excess of $20,000.

For several months of the 2010-11 and 2011-12 financial years, you were required to travel overseas, and in 2012, you were required to relocate interstate, as part of your employment, which resulted in absences from the business.

You were unable to operate the business in your usual capacity. The impact on the business was that those left to operate the business, even though qualified, were not as skilled or interested in recruiting clients, therefore reducing the number of paying customers. In the 2011-12 financial year, the business produced assessable income of less than $20,000.

You believe that if you had not been absent from the business during these periods, you would have been able to recruit additional clients and the additional income would have been sufficient for the business activity to meet the assessable income test.

Your income for non-commercial loss purposes in the 2011-12 financial year was less than $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 35

Income Tax Assessment Act 1997 Subsection 35-10(4)

Income Tax Assessment Act 1997 Subsection 35-30

Income Tax Assessment Act 1997 Subsection 35-35

Income Tax Assessment Act 1997 Subsection 35-40

Income Tax Assessment Act 1997 Subsection 35-45

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

Reasons for decision

Under paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner's discretion can be exercised where:

· the business activity is affected by special circumstances such that it is unable to satisfy any of the tests; and

· the special circumstances affecting the business activity are outside the control of the business activity.

Taxation Ruling TR 2007/6 sets out the interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 42 to 47 of this Ruling:

For the exercise of the Commissioner's discretion in regard to the special circumstances limb, the business activity must be affected by special circumstances.

No exhaustive definition of 'special circumstances' is provided in the ITAA 1997. However, the term has received considerable judicial consideration in respect of other legislation.

In the case Employment, Education, Training Youth Affairs, Department of v. Barrett (1998) 82 FCR 524; (1998) 52 ALD 499; (1998) 27 AAR 291 'special' was considered in the context of 'special weather conditions' for the purposes of the Austudy Regulations 1990. Tamberlin J observed at FCR 530 that:

The word 'special' must be read in context. In normal parlance it signifies that the event or circumstances in question are out of the ordinary or normal course.

Tamberlin J went on to say:

The AAT observed in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 (which was approved by the Full Court in Beadle v. Director of Social Security ) (1985) 60 ALR 225):

An expression such as 'special circumstances' is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.

In your case, you have stated that you business failed to meet the assessable income test due to you being away from your business for extended periods to fore fill your employment duties.

As a full time employee in your position, it would not be considered 'unusual, uncommon or exceptional' for you to be deployed overseas, or relocated away from home, for extended periods as part of your duties. In your case, these circumstances are not considered to be 'special' within the meaning of paragraph 35-55(1)(a) of the ITAA 1997.

Therefore, the Commissioner is unable to exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 in relation to your activities for the 2011-12 financial year.

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