Edited version of private ruling

Authorisation Number: 1011759975406

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Ruling

Subject: 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 farming enterprise in the calculation of your taxable income for the 2009-10 to 2013-14 financial years?

Answer: Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2009

Relevant facts

You commenced your farming activities a number of years ago.

You currently operate the farm with the assistance of contractors.

In recent years, the property has been greatly affected by drought, as well as being affected by bushfires and a pest infestation.

The bushfires destroyed a considerable amount of fencing on the property and stock numbers were reduced.

The forced destocking following the bushfires and, subsequent restocking, resulted in no stock being suitable for sale in the 2009-10 financial year.

Excellent seasonal conditions, following good rainfall in the 2010-11 financial year, has allowed for re-seeding of fire and drought affected pastures, along with the first fertiliser application in a number of years.

You plan to continue your fertiliser applications over the next few years to build up the drought and fire affected soil. You submitted the anticipated costs for this.

Your projected profit and loss statement for the next few years shows that without these additional expenses your farming activities would have produced a profit.

Your income for non-commercial loss purposes in the 2009-10 financial year was above $250,000 and you expect this to be the case in the 2010-11 to 2013-14 financial years as well.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 35-55

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

Income Tax Assessment Act 1997 subsection 35-10(2)

Reasons for decision

Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000.

In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000.

The Commissioner's discretion in paragraph 35-55(1)(a) may be exercised for the financial year where the business activity is affected by special circumstances outside the control of the operators of the business activity.

Special circumstances are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity. For those individuals who do not satisfy the income requirement, special circumstances are those which have materially affected the business activity, causing it to make a loss.

You have stated that your farming activities have been affected by drought conditions in recent years. These drought conditions were further exacerbated by bushfires and a pest. These circumstances were outside your control and, therefore, are accepted as a 'special circumstances' for the purposes of paragraph 35-55(1)(a) of the ITAA 1997.

As a result of these events, you were forced to destock and then restock your property leaving you with no stock suitable for sale in the 2009-10 financial year. Improved seasonal conditions in the 2010-11 financial year has allowed you to re-seed fire and drought affected pastures. You have also been able to carry out your first fertiliser application in a number of years. You plan to continue your fertiliser applications over the next few years to build up the drought and fire affected soil.

Your farming activities did make a small tax profit in the 2008-09 financial year. Your activities have also produced $X in assessable income in the current financial year and, without the additional fertilizer costs required to build up the soil over the next few years, your farming activities would have been expected to produce a profit. The inherent profitability of the activities, as evidenced by its past performance, leads the Commissioner to conclude that the activity is 'commercial' in the sense indicated by the scheme of Division 35. The Commissioner is satisfied that your farming activities would have made a profit in the 2009-10 financial year, and would have been expected to make a profit in the 2010-11 to 2013-14 financial years, had it not been affected by these special circumstances.

Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 for the 2009-10 to 2013-14 financial years.