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Edited version of your written advice
Authorisation Number: 1012811517016
Ruling
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 business activity in your calculation of taxable income for the 2013/14 financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
The scheme has commenced
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• The application for private ruling and attachments received
You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
The business is primarily concerned with primary production activities.
You commenced business operations in the 2012/13 financial year.
You submit that you were affected by special circumstances (drought) in the 2013/14 financial year.
You have submitted the following evidence to substantiate your claim:
• The area was drought declared in 20XX and was still drought declared at the time the livestock were forced to be sold during 20XX - 20XX.
You submit that the special circumstances impacted on the profitability of your business in the following ways:
• As a consequence of the seasonal conditions there was a lack of weight gain in the livestock purchased and they had to be sold for a price very similar to the purchase price. The losses are equivalent to the operating expenses for the period.
The sales income from the livestock exceeded $20,000 in the 2013/14 income 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 (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 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.
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 2013/14 financial year.