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Edited version of private advice
Authorisation Number: 1012644205743
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 any losses from your business activity in your calculation of taxable income for the 2012-13 financial year?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a livestock business that commenced in the 200X financial year.
You expected to make a tax profit in the 2012-13 financial year however you now expect to be profitable in the 2103-14 financial year.
You suffered an illness in 20XX that affected your ability to conduct your business.
Livestock income was also impacted by the inability to sell some stock and injury.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 35-10(1)
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2E)
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 the discretion.
In your situation, you do not satisfy the income requirement and you do not come under any of the exceptions. 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 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 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.
It is not accepted that failure to sell and injury with your livestock is a special circumstance. Rather it is considered to be a normal business risk associated with livestock business. However having regard to your personal medical 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 the discretion in the 2012-13 financial year.