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Edited version of private ruling
Authorisation Number: 1011758498299
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Ruling
Subject: Non-commercial losses - Commissioner's discretion
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 2008-09 financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2009
The scheme commenced on
28 July 1983
Relevant facts
You carry on a cattle farming operation on approximately 70 hectares.
Your activity commenced in 20XX and consists of buying young steers and growing them for resale.
Results over this period have varied with stock prices and weather conditions.
You intend to expand into purchasing cows in calf and selling both cows and the calves either as calves or yearlings.
The property has good pasture and you estimate that the property has the potential to carry 55-60 head.
You generated a loss in the 20XX-XX financial year due to severe bushfires in early 20XX.
The bushfire burnt out approximately 50 hectares of the property and fencing was destroyed.
Your farming operations were severely restricted for the balance of the 20XX-XX financial year.
You expect that your farming activity will show a profit in the 20XX-XX financial year.
After initially deferring your losses you have met the assessable income test in all years since 20XX-XX, except for 20XX-XX, when your business was affected by drought.
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 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 this 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 natural 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.
Your cattle farm was damaged by bushfires and as a result your fences were damaged and operations were severely restricted.
As a consequence your assessable income from the cattle farming activity for the 20XX-XX financial year was reduced.
The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control, namely the bushfires, and that in the absence of those circumstances it was probable that a taxation profit would have been made from your cattle farming activity, or one of the four tests passed, for the financial year in question.
Therefore, the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the 20XX-XX financial year.
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 financial year in question. That decision can only be made in issuing you your assessment, following lodgement of your income tax return for the 20XX-XX financial year. 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.