Edited version of private ruling

Authorisation Number: 1011667448952

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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 activity in your calculation of taxable income for the 2009-10 income year?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2006

Relevant facts

You commenced a business of vegetable growing in the 2006-07 income year on part of a family-owned property.

In the 2007-08 and 2008-09 income years you passed the assessable income test with sales of produce exceeding $20,000.

In the 2009-10 income year, your vegetable crops failed to mature.

Heavy rains in the months after planting waterlogged the ground making it impossible to spray the crops and making planting of further crops impossible.

You determined that the crop was diseased and the whole crop died.

You have now planted a new crop and you intend to plant further crops in December 2010 and March 2011.

You expect that your income figures for the 2010-11 income year will reflect figures reported for 2007-08 and 2008-09 and you will meet the assessable income test. You also hope to make a profit in the 2010-11 income year.

The crops were the same size as previous years and you devoted weekends to tending the crops, with assistance from a family member.

Your income for non-commercial loss purposes for the 2009-10 income year was less than $250,000.

Relevant legislative provisions

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

Reasons for Decision

Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(a) of the ITAA 1997 that it would be unreasonable to defer the loss.

Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of the discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other disaster that have materially affected that activity.

It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances.

The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control and that in the absence of those circumstances it was probable that a taxation profit may have been made from the activity, or one of the four tests passed, for the income year in question.

Therefore the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997 has been granted for the 2009-10 income year.