Edited version of private ruling

Authorisation Number: 1011673327735

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Non commercial losses

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?

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

Your business is operating a farm.

You have a certified medical condition.

You state that the special circumstances that prevented you from passing a test in the 2009-10 income year was your illness and the drought.

You were unable to grow produce due to the lack of water. You did try growing pastures for hay baling but ironically rain on the cut pastures ruined this as well. You continue to try and grow pasture with the help from others while the property remains listed for sale. You have dropped the price but are yet to sell.

You have been in receipt of Exceptional Circumstances payments for several years and your medical condition affects your ability to work the farm effectively. You believe that had it not been for the drought, and your illness and untimely rain your business would have generated enough sales to pass the assessable income test for the 2009-10 income year.

Your business met the assessable income test in the income years immediately before the onset of the drought and your medical condition arose.

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

Reasons for decision

Summary

Your illness and the drought are considered circumstances beyond your control and it is accepted that if it were not for these special circumstances, your business would have met the assessable income test for the 2009-10 income year. Therefore the Commissioner will exercise the discretion in paragraph 35-55(1)(a) of the 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.

Detailed reasoning

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 section 35-55 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 the assessable income test would have been passed for the income year in question.

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