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Edited version of your written advice
Authorisation Number: 1012760607438
Ruling
Subject: Non Commercial Losses - 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 primary production business activity in your calculation of taxable income for the 2013-14 financial year?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You are carrying on a primary production business (the activity).
You provided a report from an independent party which stated the following:
• the activity suffered damage from significant weather events
• damage to the property fences allowed neighbouring animals to enter the property and cause further damage
• part of the activity also suffered severe pest damage, and
• you have implemented measures to rectify the damage since the events.
Since the events, the activity has recovered such that sales have been made.
During the 2014-15 financial year you have made some sales, and have orders for the remainder of the financial year which will result in the activity earning more than $20,000 in income. Further, you expect the activity to be profitable in the 2014-15 financial year.
During the 2013-14 financial year your other income for non-commercial loss purposes was more than $40,000 but less than $250,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Income Tax Assessment Act 1997 paragraph 35-55(1)(a)
Reasons for decision
For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:
• you satisfy the income requirement and you pass one of the four tests
• the exceptions apply, or
• the Commissioner exercises his discretion.
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.
Consequently the Commissioner will exercise his discretion in the 2013-14 financial year.
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