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Authorisation Number: 1012131682078

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Subject: Non-commercial losses - 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 adjusted taxable income has exceeded $250,000.

You run a farm with the main activity being the cropping of high protein wheat and you also run sheep for wool and meat.

In the 2010-11 income year you had a loss due to the continuing drought which meant almost total failure of the wheat harvest and increased costs in feeding stock.

You have provided rainfall records for the 2010 and 2011 years showing monthly rainfalls. The rainfall during the growing period was particularly low.

Your assessable income from this business activity during the year ended 30 June 2011 exceeded $20,000.

You planted your normal area for wheat, but the yield was one tenth of the average yield. You had reduced income from sheep and increased expenses for fodder.

Relevant legislative provisions

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 Income Tax Assessment Act 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, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and you do not come under any of the exceptions. Your business 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.

For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances:

· your business activity would have made a tax profit

· the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests.

Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Further, it is accepted that:

· but for the special circumstances, you would have made a tax profit

· you have met one of the four tests or would have but for special circumstances.

Consequently the Commissioner will exercise his discretion in the year ended 30 June 2011.