Edited version of private ruling

Authorisation Number: 1011627260545

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Ruling

Subject: NCL - Commissioner's discretion - special circumstances

This ruling applies for the period: Year ended 30 June 2005

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 non-primary production activity in your calculation of taxable income for the year ended 30 June 2005?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2005

Relevant facts

You operate a non-primary production activity. In the year ended 30 June 2005 a circumstance occurred that prevented you from operating your activity for the rest of the year.

You contend that the circumstance was a special circumstance. Had it not for the circumstance you were certain that you would have earned assessable income in excess of $20,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 35-30

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

Income Tax Assessment Act 1997 section 35-10

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

For the Commissioner to apply the discretion in paragraph 35-55(1)(a) of the ITAA 1997, he should be satisfied that the circumstance occurred was special, the circumstance had adversely affected the business activity and the activity would have satisfied one of the tests in Division 35 of the ITAA 1997 but for the special circumstance.

The circumstance in your case was something unexpected and outside your control. Therefore it is a special circumstance as this term is used in paragraph 35-55(1)(a) of the ITAA 1997.

The circumstance adversely affected your business activity and prevented it from earning any assessable income in the rest of the year ended 30 June 2005.

Information you provided indicates that you would have received a guaranteed monthly income had you continued operating your business. On that basis you would have earned at least $20,000, had you continued your activity and would have passed the assessable income test in section 35-30 of the ITAA 1997.

In view of the above the Commissioner will exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 for the year ended 30 June 2005.

Summary of reasons for decision

The Commissioner will exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the year ended 30 June 2005 on the basis that it is accepted that the circumstance occurred was a special circumstance in the sense in which this term is used in Division 35 of the ITAA 1997.

The Commissioner is therefore satisfied that it would be unreasonable to apply the rule in section 35-10 of the ITAA 1997 in relation to your non-primary production activity. This means that any loss for your activity can be taken into account in calculating your taxable income for the year ended 30 June 2005.