Edited version of your written advice

Authorisation Number: 1012732289891

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 primary production business activity in your calculation of taxable income for the 2013-14 financial year?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2014.

The scheme commences on

1 July 2013.

Relevant facts and circumstances

Your business is primary production. The drought caused loss of pasture and resulted in buying fodder to feed the livestock.

The drought across the state has forced many farmers to destock. This large increase in numbers of stock being sold has resulted in this business getting a lesser average price per head in relation to previous years.

You expect to make a profit in the 2014-15 financial year.

You have made a profit in one year (the 2011-12) since the 1999-2000 financial year.

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 financial 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 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 financial 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.

Paragraph 41D of Taxation Ruling TR 2007/6 Income Tax: non-commercial business losses: commissioner's discretion (TR 2007/6) states;

For individuals who do not satisfy the income requirement, the factors that must be satisfied before deciding whether to exercise the special circumstances limb of the discretion for an income year are that:

• the business activity is affected by special circumstances such that it is unable to produce a tax profit; and

• the business activity either satisfies at least one of the tests or is affected by special circumstances such that it is unable to satisfy any of the tests; and

• the special circumstances affecting the business activity are outside the control of the operators of the business activity.

Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. However, it is not accepted that you have provided evidence that, but for the drought, you would have produced a tax profit for the financial years in question.

You have made a profit in one year since the 1999-2000 financial year of primary production. For the discretion to be exercised you must be able to show that had the special circumstances not occurred your primary production activity would have made a profit in the 2013-14 financial year.

From the information supplied and as you have produced a profit in one year in the 14 years since the 1999-2000 financial year it is not possible to identify and determine that special circumstances prevented a profit in the 2013-14 financial year.

Therefore the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the year in question.