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Edited version of private ruling
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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 business activities in your calculation of taxable income for the 2008-09 and 2009-10 financial years?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts
You commenced your business activities in 2006.
In the 2006-07 financial year, your activities produced more than $20,000 in assessable income and an overall profit.
In the 2007-08 financial year, your activities produced more than $20,000 in assessable income and an overall loss.
Over the 2008-09 and 2009-10 financial years, you ceased some business activities to reduce possible losses as a result of the global financial crisis (GFC) with only limited income of less than $20,000 being produced. However, many expenses continued to be incurred during this time.
You have recommenced full business activities in the 2010-11financial year.
Your business activities have not satisfied any of the four tests under Division 35 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 35
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(a)
Reasons for decision
Under paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner's discretion can be exercised where:
· · the business activity is affected by special circumstances such that it is unable to satisfy any of the tests; and
· · the special circumstances affecting the business activity are outside the control of the business activity.
Taxation Ruling TR 2007/6 sets out the interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this Ruling.
Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity.
…ordinary economic, weather or market fluctuations that might reasonably be predicted to affect the business activity would not be considered to be special circumstances. These fluctuations are expected to occur on a regular or recurrent basis and affect all business within a particular industry.
In your case, your business activities failed to meet one of the four tests (in particular the assessable income test) in the 2008-09 and 2009-10 financial years. You have stated that you ceased some business activities to reduce possible losses as a result of the GFC. The GFC was outside of your control and may be considered to be 'special circumstances', within the meaning of paragraph 35-55(1)(a) of the ITAA 1997, in some situations. However, it was your decision to cease some business activities that prevented your activities from meeting one of the tests and not the GFC. While this cautious approach was taken to limit business losses during this time, this decision was within your control and is not considered to be 'special circumstances'.
Therefore, the Commissioner is unable to exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 in relation to your activities for the 2008-09 and 2009-10 financial years.