Edited version of your written advice

Authorisation Number: 1051192829945

Date of advice: 21 February 2017

Ruling

Subject: Non-commercial losses

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) 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 20WW-XX and 20XX-YY financial years?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20XX

Year ended 30 June 20YY

The scheme commences on

1 July 20WW

Relevant facts and circumstances

Your income for non-commercial loss purposes for the 20WW-XX and 20XX-YY financial years of is over $250,000.

You are carrying on a business of primary production (the activity).

You submit that you were affected by special circumstances in the 20WW-XX and 20XX-YY financial years.

The business has been adversely affected by drought conditions for some years and this has impacted on sales, production and profitability. In the period from early 20VV to mid 20YY, your town has been drought declared by the State Government.

You have submitted the following evidence to substantiate your claim:

● profit and loss statements for the 20VV, 20WW, 20XX, 20YY and 20ZZ financial years

You intend to return to profit in the 20YY-ZZ 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 (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 20WW-XX and 20XX-YY financial years.