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Edited version of your written advice
Authorisation Number: 1012998684774
Date of advice: 14 April 2016
Ruling
Subject: Request for Commissioner's discretion
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 2015-16 and 2016-17 financial years?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
You operate a primary production business which commenced in a prior income year.
You have provided details of your activity including the commencement date, location and scale of operations.
Your activity has satisfied the assessable income test in previous income years.
You have provided independent evidence for the special circumstance.
You have described how the special circumstance adversely affected your activity. You have stated that had it not been for the circumstance, your primary production activity would have been able to satisfy the assessable income test for the years ending 30 June 2016 and 30 June 2017.
You satisfy the income requirement in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997).
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) and
Income Tax Assessment Act 1997 - Paragraph 35-55(1)(a).
Reasons for decision
Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to losses from certain business activities. Under the rule in subsection 35-10(2) of the ITAA 1997, non-commercial losses from a business activity will be deferred 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, none of the exceptions apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion.
Paragraph 35-55(1)(a) of the ITAA 1997 sets out the relevant discretion as follows:
The Commissioner may decide that the rule in section 35-10 does not apply to a business activity for one or more income years if the Commissioner is satisfied that it would be unreasonable to apply that rule because:
(a) the business activity was or will be affected in that or those income years by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster.
For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income years in question where, but for the special circumstances, the activity would have passed at least one of the tests.
Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Furthermore, the Commissioner is satisfied that had it not been for the special circumstances, your activity would have been able to satisfy the assessable income test in section 35-30 of the ITAA 1997 for the years ending 30 June 2016 and 30 June 2017.
In view of the above facts the Commissioner is satisfied that it would be unreasonable to apply the deferral rule in section 35-10 of the ITAA 1997 in relation to your business activity for the 2015-16 and 2016-17 financial years. Consequently, the Commissioner will exercise his discretion in the 2015-16 and 2016-17 financial years. This means that any 'loss' for that activity can be taken into account in calculating your taxable income for those years.