Edited version of private ruling

Authorisation Number: 1011675197939

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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 particular farming activity in your calculation of taxable income for the year ended 30 June 2010?

Answer

Yes.

Note:

The issue of this ruling of itself does not constitute a decision of the Commissioner under subsection 35-55(1) of the ITAA 1997 that the loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply to you for the income year in question. That decision can only be made in issuing you your assessment, following lodgment of your income tax return for this income year, being that for the income year ending 30 June 2010. You can lodge this return on the basis that the Commissioner is bound to make this decision as set out in this ruling, where the facts set out in the ruling do not differ materially from the actual facts concerning your business activity.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2007

Relevant facts

During the particular year you began a particular farming business on two properties. In the recent year you ceased full-time employment and commenced full time work in the farming enterprise.

You have been significantly affected by bushfires. You have provided a comprehensive report on the damage done to your property. You have lost stock, pastures, fences and buildings. You had to reduce your stock numbers by 90%.

In the 2009-10 income year you do not meet the income requirement under subsection 35-10(2E) of the ITAA 1997. You can pass the assessable income, real property and other asset tests in this year.

You have provided a forecast Profit and Loss Statement on the basis that the bushfire did not occur. The forecast was for a substantial profit.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-1

Income Tax Assessment Act 1997 Section 35-10

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

You have not satisfied the income requirement as your relevant income has exceeded $250,000. Therefore the loss from your activity will not be taken into account in the years ended 30 June 2010 unless the Commissioner will exercise his discretion in section 35-55 of the ITAA 1997.

To apply the discretion in paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner should be satisfied that the business activity is affected in the relevant year by the special circumstances.

Your farming activity was affected by bushfires. Due to the damage and lack of pasture you lost stock and were forced to dispose of others at significantly reduced prices. In the 2009-10 income year you had to restock and meet the extra expenses of repairs. Your income was greatly reduced and your expenses greatly increased due to the bushfires for this year.

The information you have provided confirms the extent of the damage. The forecast profit and loss statement for the year, if there had been no bushfire indicates that a substantial profit would have been derived. The effects of the bushfire was outside your control and therefore it is accepted as a special circumstance, as this term is used in paragraph 35-55(1)(a) of the ITAA 1997.

The Commissioner is satisfied that your farming activity would have made a profit in the year ended 30 June 2010 had it not been affected by the bushfire and that it would be unreasonable to apply the rule in section 35-10 of the ITAA 1997 in relation to your farming 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 2010.