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Edited version of your private ruling

Authorisation Number: 1012462220866

Ruling

Subject: Non-commercial losses - 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 farming activity in your calculation of taxable income for the 200X and 200Y financial years?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant legislative provisions

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

Relevant facts and circumstances

You conduct a primary production activity.

Information is provided that your region suffered drought and had rainfall below median throughout the 200Z to the relevant financial year.

You passed the assessable income test for the 200Z and 200V financial years.

Because of the drought during the 200X and 200Y financial years sales were reduced to allow build up of stock and offset lower than expected birth rates and the loss of a number of head of livestock. The remaining livestock were in no condition for sale and were needed to support the growth of the ongoing business enterprise. This was successful as you passed the assessable income test in the relevant financial year.

Your income for non-commercial loss purposes is less than $250,000.

Reasons for decision

For the 2009-10 and later income years, Division 35 of the ITAA 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 years 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.

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.

Consequently the Commissioner will exercise his discretion in the 200X and 200Y financial years.

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