| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011872454491
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: 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 the calculation of your taxable income for 2009-10 and 2010-11 financial years?
Answer: Yes.
This ruling applies for the following periods
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
1 July 2009.
Relevant facts
Your business activities involve you being the owner operator of equipment. The equipment is hired out with you as the operator.
A few years ago, you suffered an illness and have been unable to work much since.
You have been receiving income protection payments which have been used to cover ongoing business expenses. These payments have now ceased.
You are now attempting to return to work.
Your income for non-commercial loss purposes is less than $250,000 for the 2010 and 2011 financial years.
Your business did not passed any of the four non-commercial loss tests in the 2009-10 or 2010-11 financial years.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 35-1.
Income Tax Assessment Act 1997 - Subsection 35-10(2E).
Income Tax Assessment Act 1997 - Subsection 35-55(1)
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(a).
Reasons for decision
You have requested that the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 for special circumstances.
The discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised where:
· you satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 and the business activity is affected by special circumstances such that it is unable to satisfy any of the tests required; and
· the special circumstances affecting the business activity are outside the control of the business activity.
You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 as your income for non-commercial loss purposes was less than $250,000 in the 2009-10 and 2010-11 financial years.
Taxation Ruling TR 2007/6 set out the Commissioners interpretation of the exercise of the Commissioners discretion under paragraph 35-55(1)(a). The following has been extracted from paragraphs 47 to 54 of this Ruling:
Special circumstances are ordinarily those affecting the business activity such that it is unable to satisfy a test and it would be unreasonable for the loss deferral rule to apply. 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.
Although not limited to natural disasters, paragraph 35-55(1)(a) 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.
However, the use of the word 'including' indicates that the type of circumstances to which the special circumstances limb of the discretion can potentially apply is broader than those which are natural disasters. For example, circumstances such as oil spills, chemical spray drifts, explosions, disturbances to energy supplies, government restrictions and illnesses affecting key personnel might, depending on the facts, constitute special circumstances of the type in question.
A few years ago, you suffered an illness and, as a result, you have been unable to operate the equipment and, therefore, generate business income for a period of time. TR 2007/6 states that an illness affecting key personal might constitute special circumstances, depending on the facts. Your business activities rely on your ability to operate the machinery available for hire. Your illness is considered to be special circumstances for the purposes of paragraph 35-55(1)(a) of the ITAA 1997. It is accepted that the special circumstances were outside of your control and as a result, you were unable to satisfy any of the non-commercial loss tests required.
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 and 2010-11 financial years.