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Subject: NCL - 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 primary production activity in your calculation of taxable income for the 2010-11 income year?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 April 2007

Relevant facts

You have not satisfied the income requirement as your relevant income has exceeded $250,000.

You purchased a property in partnership.

The property is being run as a cereal grain and oil seed grain growing enterprise along with sheep grazing for prime lamb production.

In the 2010 and 2011 year the grain and oil seed crops were looking extremely good until an extended period of extremely wet weather when the crops were ready for harvest caused severe loss of quality of the grain as well as quantity. If it hadn't been for these extreme circumstances of nature, a profit would have been achieved in 2011. Due to the weather damaged crop, loss of quality and quantity an operating loss resulted. One crop resulted in half the expected income and another also half the expected income with a significant loss of expected income.

You have enclosed;

· Letter from a fertilizer company dated 10 September 2010 describing the property

· Financial statements covering 2007 to 2011 years

· Projected income and expenses 2012, 2013 years

· News article detailing problems with 2010 grain harvest and the extremely wet December experienced in your district in December 2010 and the fact that the district was declared a natural disaster zone due to flooding in December 2010.

Relevant legislative provisions

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

Reasons for decision

Summary

The Commissioner will exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the year ended 30 June 2011 on the basis that it is accepted that the circumstances are special circumstances in the sense in which this term is used in paragraph 35-55(1)(a) of the ITAA 1997 and these circumstances prevented you from making a profit in this year.

Detailed reasoning

You have not satisfied the income requirement as your relevant income has exceeded $250,000. Therefore the loss from your activity will not be taken into account for the 2010-11 income year unless the Commissioner exercises his discretion in section 35-55 of the ITAA 1997.

To apply the discretion in paragraph 35-55(1)(a) of the ITAA 1997, the Commissioner should be satisfied that the business activity is affected in the relevant year by special circumstances.

You have provided a copy of a report dated 6 December 2010 that details:

· the recent wet weather has devastated wheat crops across the relevant areas

· disruptions to the harvest this year and the implications for quality

· farmers who can harvest have seen their crop quality downgraded to stock feed.

It is accepted that these weather conditions would be special circumstances for the purposes of this section.

You have estimated that your income was down by over $150,000. Your income tax loss from the activity was approximately $140,000 for the year. Therefore the Commissioner is satisfied that you would have been able to make a profit had it not been for the effect of these special circumstances.