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Edited version of your private ruling
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Ruling
Subject: Non commercial losses
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 your share of any loss from your animal hunting business in your calculation of taxable income for the 2010-11 financial year?
Answer: Yes
This ruling applies for the following periods:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You commenced carrying on an animal hunting business many years ago.
The kills are sold directly to a processing company on a per carcass basis.
The following events affected the operation of the business during the 2010-11 financial year:
A nation which imports the carcasses announced a ban. This ban is still in place.
This ban significantly reduced the demand for the carcasses.
There was also extreme flooding in the area where you carry on your business.
Due to this natural disaster you could not access the hunting locations during the floods and for a significant time after as the grounds were too wet.
Due to previous droughts in the area which resulted in a drop in animal numbers, kill quotas were introduced. However, due to rainfall over the last year, animal numbers are expected to rise again.
Due to these unexpected events you will not generate a profit in 2010-11 and are unable to satisfy any of the Division 35 non-commercial loss tests. If these events did not occur simultaneously, you would have either made a profit or satisfied the assessable income test.
Your projection for 2011-12 shows you expect to satisfy the assessable income test, however, you may not make a profit due to the ban still in effect during this year.
You expect by 2012-13 that the ban will be lifted and the business can once again operate at full capacity.
You meet the < $250,000 income requirement.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2).
Income Tax Assessment Act 1997 Subsection 35-30.
Income Tax Assessment Act 1997 Paragraph 35-55(1)(a).
Reasons for decision
For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:
· you satisfy the income requirement and you pass one of the four tests
· the exceptions apply, or
· the Commissioner exercises his discretion.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the year of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion.
The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control.
'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, including drought, flood, bushfire or some other natural disaster.
For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year in question where, but for the special circumstances the activity would have passed at least one of the tests.
Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these events prevented you meeting one of the four tests.
Consequently the Commissioner will exercise his discretion in the 2010-11 financial year.