Edited version of private advice

Authorisation Number: 1052338536033

Date of advice: 5 December 2024

Ruling

Subject: Non-commercial losses - special circumstances

Question 1

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 to allow you to include any losses from a business activity in the calculation of your taxable income for the YYYY income year?

Answer 1

No.

Question 2

Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 to allow you to include any losses from a business activity in the calculation of your taxable income for the YYYY income year?

Answer 2

Yes.

This ruling applies for the following period:

DD MM YYYY to DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Background information

Your background

Since DD MM YYYY, you and your spouse have operated a farming enterprise in partnership, xxx (the business).

Your income for non-commercial loss purposes in the YYYY income year was more than $250,000.

You were born and bred on farming land and obtain general advice from family members.

You operate the farm full-time and work xxx hours per week. Your spouse works xxx hours per week.

The partnership's business

The partnership conducts a livestock farming business activity.

The livestock farm is conducted on farmland at xxx and xxx.

The objective of the business is to build up quality livestock for breeding and selling. The nature of breeding means that several years pass between buying, breeding and selling to produce assessable income.

The business has generated the following losses since commencing its operations:

•                     YYYY income year: $xxx

•                     YYYY income year: $xxx

•                     YYYY income year: $xxx

•                     YYYY income year: $xxx

•                     YYYY income year: $xxx

•                     YYYY income year: $xxx.

The business's cash flow has been significantly impacted. Due to circumstances you had not anticipated, the following factors have contributed to the business incurring significant losses:

•                     drought in the region in which the business operates in the YYYY to YYYY years - this has affected land quality, decreased livestock production growth rates due to reduction in feed volume and nutritional value available, and increased costs incurred in improving land quality through irrigation, fertiliser, seeding and purchasing substitute feed. This was supported by drought indicator maps produced by the Department of Primary Industries of New South Wales.

•                     market downturn due to COVID-19 - the movement restrictions and isolation resulted in a decline in demand for livestock as the processing plants struggled with employment shortages and restaurant closures. The impact on the economy increased pressure in household budgets, causing changes in consumers' purchasing behaviours.

•                     ban on Australian commodities by China, including lifestock imports during the YYYY to YYYY years - the trade impediment impacted Australian exports with impacts on the local livestock producers.

The business's profit and loss statement for the YYYY income year shows that a gross profit of $xxx was generated predominantly from the sale of livestock. However, the business reported a loss due to its operating expenses.

To mitigate the risk and damage caused by the weather and trading events, you have contributed a significant amount of personal funds to the business by withdrawing dividends from your family company.

A large proportion of the funds have been invested in improving and maintaining the soil health and grazing pressure to ensure good long-term land management. You have purchased farm machinery, seed and fertiliser. Additional funds were invested in initial livestock purchases and improve the farm's operations.

The business's financial forecast for the YYYY to YYYY income years estimates a gradual increase in the business's net profit commencing from the YYYY income year.

You expect to generate the following net profit for the YYYY to YYYY income years:

•                     YYYY income year: $xxx - livestock sales are expected to generate income of $xxx

•                     YYYY income year: $xxx - livestock sales are expected to generate income of $xxx

•                     YYYY income year: $xxx - livestock sales are expected to generate income of $xxx.

The business is forecasted to generate a good profit from the YYYY income year with a stock level of xxx to xxx heads of livestock due to improved weather and trading conditions, and predicted increases in meat prices in the YYYY to YYYY income years.

The business met the following business activity tests in the YYYY income year:

•                     Assessable income test - the assessable income from the business activity was at least $20,000

•                     Real property test - property owned or leased has a value of at least $500,000 and was used in the business activity, and

•                     Other assets test - total value of other assets used on a continuing basis in the business was at least $100,000.

The business has a business plan and cashflow budget and maintains its business accounting records in a software system that is regularly reviewed by an accountant. The accountant reviews the business operations and provides advice on a regular basis.

Independent evidence

According to the industry Manual published by Meat & Livestock Australia (MLA), an independent company which regulates standards for meat and livestock management in Australian and international markets, livestock businesses typically take more than 5 years to become commercially viable.

The business cycle of livestock breeding involves the following phases:

•                     startup - period of trial and error can last up to X years or until the sale of marketable livestock

•                     expansion - period of X-X years requiring additional investment in infrastructure as the herd grows

•                     mature - X years plus to focus on management of the herd in terms of number and characteristics to ensure maximum profitability.

It is the MLA's view that in most breeding operations, it will take X to X years to recover the cost of initial investment ranging from livestock costs, equipment and land quality investment.

According to the 'Unearthing Farm Potential Blog', it can take a few years to make a profit from livestock investments due to the delay from initial purchase of stock to breeding and growing to the vitality of stock prices.

Resource Consulting Services Pty Ltd, which provides coaching and advisory services to the agricultural industry, confirmed the need for strategic direction and the unpredictability of livestock breeding.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 35

Income Tax Assessment Act 1997 section 35-10

Income Tax Assessment Act 1997 subsection 35-10(2E)

Income Tax Assessment Act 1997 section 35-55

Income Tax Assessment Act 1997 paragraph 35-55(1)

Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

Income Tax Assessment Act 1997 paragraph 35-55(1)(c)

Income Tax Assessment Act 1997 paragraph 35-55(1)(c)(i)

Income Tax Assessment Act 1997 paragraph 35-55(1)(c)(ii)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.

Question 1

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 to allow you to include any losses from a business activity in the calculation of your taxable income for the 2023 income year?

Summary

Division 35 prevents losses from a non-commercial business activity carried out by a taxpayer (alone or in partnership) from being offset against other assessable income in the year in which the loss is incurred, unless:

•                     a taxpayer's income for non-commercial loss purposes is less than $250,000 and the business activity satisfies one of the 4 required tests[1]

•                     the exception in subsection 35-10(4) applies for the income year, or

•                     the Commissioner exercises the discretion in subsection 35-55(1) to not defer the losses.

Income requirement

The income requirement set out in subsection 35-10(2E) will be satisfied for an income year if the sum of the taxpayer's income for non-commercial loss purposes, comprising income, reportable fringe benefits, reportable superannuation contributions and net investment losses, is less than $250,000 for that income year (the income requirement). Where this requirement is satisfied and they satisfy one of the 4 tests, a taxpayer may include losses from a business activity in the calculation of their taxable income.

However, if a taxpayer has an adjusted taxable income of $250,000 or more in the most recent income year ending before the application is made, any loss from the taxpayer's business is quarantined, unless the Commissioner exercises the discretion not to apply the non-commercial losses rules.

Exception in subsection 35-10(4)

For an income year in which a taxpayer, carrying on a primary production business, has assessable income of less than $40,000 from sources not related to their primary production business (excluding capital gains), an exception in subsection 35-10(4) provides that their losses from non-commercial business activities can be claimed against other income.

Commissioner's discretion - special circumstances

For taxpayers whose adjusted taxable income is $250,000 or more, the business activity must have been materially affected by special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income years in question where, but for the special circumstances:

•                     the business activity would have made a tax profit

•                     the business activity passes at least one of the four tests, and

•                     the special circumstances affecting the business activity are outside the control of the operators.[2]

Special circumstances is not defined in the legislation. However, in accordance with judicial consideration, it is accepted that special circumstances are those that are unusual, different, uncommon or exceptional.[3]

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.[4] Drought, floods, bushfires and other natural disasters are specifically mentioned as special circumstances.[5]

The circumstances have to be special. As such, ordinary economic, weather or market fluctuations are not considered to be special circumstances. These fluctuations are expected to occur on a regular or recurrent basis when carrying on a business activity and affect all businesses within a particular industry.[6] However, substantial unexpected fluctuations of a scale not regularly encountered previously may qualify on a case-by-case basis.[7]

Special circumstances are not limited to these listed natural disasters but may include other circumstances of a special nature. For example, circumstances such as government restrictions and illnesses affecting key personnel might, depending on the facts, constitute special circumstances of the type in question.[8]

Where a business activity is carried on by a taxpayer whose adjusted taxable income is $250,000 or more, and the business activity would have made a loss even if the special circumstances had not occurred, it is unlikely that the Commissioner would consider it to be unreasonable for the loss deferral rules to apply.[9] Therefore, the Commissioner is unlikely to exercise the discretion.

However, in some cases, the business activity may still be within the lead time for the industry and because of the nature of the activity would therefore have failed to satisfy a test or produce a tax profit even if the special circumstances had not occurred. In such cases, the special circumstances may extend the time within which that particular business activity could objectively be expected to pass a test, and the Commissioner could exercise the discretion under paragraph 35-55(1)(a).[10]

The following is noted in respect of a business that makes recurring losses:[11]

If the facts were that the business had not made a profit in recent times, and moreover, was not reasonably expected to do so in the future, the mere fact that, for example, the business satisfied the real property test, or the other assets test, would not, in itself, indicate that it was unreasonable for losses from the business to be deferred. This would be so, even if the business activity was affected by special circumstances to some extent, but not to the extent that these circumstances caused what would otherwise be a profitable activity to be one which made a loss.

Paragraph 35-55(1)(a) requires consideration of whether special circumstances beyond the control of the operator of the business activity were present. This conveys the point that the circumstances cannot be a consequence of the operator's actions or inactions. It also requires consideration of whether special circumstances affected the business activity that are out of the ordinary or normal course of business. In considering whether special circumstances affected the business activity, the Commissioner will look to indicators of the effects of the special circumstances on the business activity.

Application to your circumstances

You have applied for the Commissioner to exercise the discretion in paragraph 35-55(1)(a) for the YYYY income year on the basis that the business activity was affected by special circumstances outside the control of you and your wife, the business operators.

Income requirement

You did not satisfy the income requirement as your income for the purposes of subsection 35-10(2E) was more than $250,000 for the YYYY income year. The fact that the business activity satisfied three tests, being the assessable income test, real property test and other assets test in the YYYY income year for which you are seeking the discretion does not automatically result in the loss deferral rule in subsection 35-10(2) not applying.

As you do not meet the income requirement, you cannot access any of the four tests.

Exception in subsection 35-10(4)

An exception exists for primary production business activities being carried on and the assessable income (excluding any capital gain) from sources that do not relate to that activity is less than $40,000 in subsection 35-10(4).

In the YYYY income year, you had more than one source of unrelated assessable income, comprising interest and dividends. The exception in subsection 35-10(4) does not apply to you as you had received more than $40,000 from your passive investments in the YYYY income year.

Commissioner's discretion - special circumstances

The business losses from the business activity will be subject to the deferral rule under subsection 35-10(2) in the YYYY income year unless the Commissioner exercises his discretion in section 35-55(1)(a).

In the YYYY income year, the business activity was affected by drought, which caused you to spend more than anticipated on fertiliser and seed to improve and maintain the condition of the land long-term. Additionally, the consequences from the unexpected market downturn arising from COVID-19 and ban of livestock export by China led to a reduced demand for livestock products, which significantly affected your business and its cash flow. All 3 of these events created volatility in domestic and overseas markets, and affected the average sale price per head that could be obtained for your livestock. Consequently, the business made a loss for the YYYY income year.

However, it must be demonstrated that special circumstances outside of your control, in the form of drought, market downturn due to COVID-19 and the ban on Australian livestock exports by a vital overseas market, caused the business activity to make the loss in question, where, but for those circumstances a profit would have been made.

The Commissioner notes the inherent profitability of the business from selling livestock to export abattoirs. The business commenced in the YYYY income year, but income increased significantly from the YYYY income year, after which income steadily increased until the YYYY income year commensurate with business growth. The business's profit and loss statement for the YYYY income year showed a decrease in the income of the business due to the lower demand for livestock products domestically and internationally.

It is accepted in your case that the adverse weather conditions, the market downturn from COVID-19 resulting in consumers reduced discretionary spending, and pandemic lockdowns reducing demand in a key export market had an adverse impact on the business operations, and constitute special circumstances. The Commissioner must be satisfied that the business activity would have made a profit but for the special circumstances. That is, the special circumstances discretion in paragraph 35-55(1)(a) can only be exercised where it can be seen that it was only the special circumstances which caused a loss to be made.

The foreign government's trade restrictions and the impact of COVID-19 adversely affecting consumers' purchasing behaviours constitute 'substantial unexpected fluctuations of a scale not regularly encountered previously' and are special circumstances of the type in question.[12] These two events have delayed the business from generating business income from the sale of livestock as set out in the business plan.

However, the culmination of the drought, impact of COVID-19 and foreign government's trade ban on livestock products are not sufficient for the discretion to be exercised. The business activity has not produced a tax profit since it commenced in the YYYY income year. In the YYYY income year, being the xxx year of operations, a tax loss was reported albeit the amount of the tax loss was half of that reported in the YYYY income year. You expect the business activity to produce a modest profit commencing from the YYYY income year.

Further, the special circumstances alone did not prevent the business from making a profit. If the expenses that are related to the special circumstances, such as the additional costs incurred by the business in respect of depreciation, fodder and silage, and seed and fertiliser were deducted from the total operating expenses for the YYYY income year, the business would still be in a loss situation.

Although the Commissioner accepts that your business activity was affected by special circumstances that were unusual and outside your control, it was not probable that the business would have been, or would be, profitable in the YYYY income year.

Therefore, the Commissioner will not exercise the discretion under paragraph 35-55(1)(a) for the YYYY income year. As a result, you are unable to include the loss from the business activity in the calculation of your taxable income for the YYYY income year.

Question 2

Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 to allow you to include any losses from a business activity in the calculation of your taxable income for the YYYY income year?

Summary

Having considered your circumstances, it is accepted that it is the nature of the business activity that has prevented your business from making a tax profit. It is also accepted that your business will make a tax profit within the commercially viable period for its industry.

Consequently, the Commissioner will exercise the discretion in paragraph 35-55(1)(c) to allow you to include any losses from your primary production business in the calculation of your taxable income for the YYYY income year.

Detailed reasoning

Commissioner's discretion - lead time exception

In the context of a taxpayer who does not satisfy the income requirement in subsection 35-10(2E) as their income for non-commercial loss purposes is $250,000 or more for that year, the Commissioner may exercise the discretion in paragraph 35-55(1)(c) for the income years in question for a business activity that has started to be carried on if:

•                     because of its nature, the business activity has not produced, or will not produce, assessable income greater than the deductions attributable to it, and

•                     there is an objective expectation, based on evidence from independent sources (if available), that the business activity will produce a tax profit within a period that is commercially viable for the industry.

Meaning of 'because of its nature'

For the failure to produce a tax profit to be 'because of its nature', the failure must be because of some inherent characteristic that the taxpayer's business activity has in common with other business activities of that type. Such activities have an inherent characteristic that cannot be overcome by conducting the business activity in a different way but only by changing the nature of the business.[13]

The consequences of business choices made by an individual, such as a consequence of starting out small and needing to build up a client base, or business choices made by an individual that are not consistent with the ordinary or accepted practice in the industry concerned, are not inherent characteristics of a business activity and would not result in the requirements of subparagraph 35-55(1)(c)(i) being met.[14]

The discretion under lead time is intended to cover business activities which, by their nature, require a number of years to produce assessable income. Examples of activities which would fall into this category are forestry, viticulture and certain horticultural activities.[15]

This is reiterated by the note under paragraph 35-55(1)(c) that states:

... (c) [is] intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income. For example, an activity involving the planting of hardwood trees for harvest, where many years would pass before the activity could reasonably be expected to produce income.

Therefore, the phrase 'because of its nature' refers to inherent characteristics of the type of business activity being conducted by the taxpayer, which are common to any business activity of that type. These inherent characteristics must be the reason why the activity is unable to produce assessable income greater than the deductions attributable to it. The discretion is not intended to be available where a failure to produce a tax profit is for other reasons, such as the way the operator has chosen to carry on their business activity.[16]

Where both an inherent characteristic and some other factor are identified, this in itself will not mean that the requirement in subparagraph 35-55(1)(c)(i) is no longer met. It is only where it is clear that the reason the activity is unable to produce a taxation profit is not because of any inherent characteristic, but because of some other factor, that this requirement will not be met.[17]

Objective expectation

The Commissioner must be satisfied that an objective expectation exists, for each of the years in question, that the business activity will satisfy a test or produce a tax profit within a period that is commercially viable for the industry concerned. If the business activity is not expected to produce a tax profit within this period, then the discretion may not be exercised.

The objective expectation must be based on independent information, where such information is available.[18]

The 'period that is commercially viable for the industry concerned'

The period that is commercially viable for the industry concerned under subparagraph 35-55(1)(c)(ii) is the period in which it is expected that any business activity of that type, which is carried on in a commercially viable manner, would be expected to produce a tax profit. It is not determined having regard to best practice in the industry concerned.[19]

The period to be commercially viable does not require determining how long it takes a product to be available to generate assessable income. This is seen in one case where the commercially viable period for olive growing and production was accepted as 10 years, despite olive trees taking 3-5 years to produce their first harvest.[20]

In practice, when calculating this time period within which any business activity in the industry could produce a tax profit, it may be necessary to ignore one off profits that can occur in some industries.[21]

Accordingly, the timeframe available for a business activity to satisfy a test or produce a tax profit should not be shortened by the occurrence of a one off satisfaction of a test or production of a profit. As noted already, the question posed by subparagraph 35-55(1)(c)(ii) only concerns the time by which the business activity is objectively expected to make a tax profit.[22]

Similarly, the independent evidence may not always allow for the identification of any one year in which business activities in the industry concerned, operating in a commercially viable manner, are typically expected to produce a tax profit. Instead, this evidence at best may point only to the period that is commercially viable for the industry concerned, being a range of years, for the purposes of subparagraph 35-55(1)(c)(ii).[23]

Meaning of the 'industry concerned'

What business activities make up the 'industry concerned' for the purposes of the expression 'the period that is commercially viable for the industry concerned' in paragraph 35-55(1)(c) will depend largely on the facts. However, the context and purpose of paragraph 35-55(1)(c) does not suggest that an overly broad grouping of comparable business activities is always called for when identifying those making up the 'industry concerned'.[24] For example, in a comparison of the expected future performance of the business activity concerning 'cultivating macadamia nuts', with what can objectively be expected in relation to 'the commercially viable period for the macadamia nut industry'. Notably, a broader grouping of businesses, such as the 'nut industry', was not put forward as the relevant industry against which to compare expected future performance.[25]

As the purpose of the provision in this respect is to find an appropriate basis of comparison in terms of the expected future performance of the business activity, it will be important to identify a collection of businesses which are carried on in a commercially viable manner. They will also have broadly similar characteristics in terms of such relevant factors as the assessable income they are typically likely to produce and the type of expenses they are typically likely to incur, which is relevant to the production of a tax profit.[26]

Evidence from independent sources

For each income year in respect of which the taxpayer seeks the exercise of the discretion, they must establish that there is an objective expectation that the activity will produce a tax profit and that this will occur within a period that is commercially viable for the industry concerned. This expectation must be based on evidence from independent sources, where it is available. This is not limited to just the predictive model type of material but can also include relevant historical evidence of how the industry in question has performed in the recent past.[27]

In order to demonstrate that the objective expectation exists, a business operator should produce evidence showing that the business activity will produce a tax profit, showing the period within which a commercially viable business would do so. Preferably, this evidence will be documented at the time, and the evidence that the business activity will produce a tax profit within a certain time will be consistent with evidence from independent sources relating to activities of that type. Appropriate independent sources include industry bodies or relevant professional associations, government agencies, or other taxpayers conducting successful comparable businesses.[28]

Application to your circumstances

Income requirement

You have not met the income requirement as your income for the purposes of subsection 35-10(2E) for the YYYY income year, which was the most recent income year ending before your application was made, was not less than $250,000.

Exception in subsection 35-10(4)

As previously discussed, the exception for primary production business activities in subsection 35-10(4) does not apply to you as you received more than $40,000 of non-farm income in the YYYY income year.

Commissioner's discretion - lead time exception

Your business losses are therefore subject to the deferral rule under subsection 35-10(2) unless the Commissioner exercises his discretion in section 35-55(1)(c). For the Commissioner to exercise the discretion, the Commissioner needs to find that you have demonstrated that:

•                     the business will not be profitable because of its nature, and

•                     there is independent evidence that justifies an objective expectation that the business will produce assessable income within the period that is commercially viable for the industry concerned.

The business commenced its operations in the YYYY income year. Since that time, the business has not produced a tax profit.

It is accepted that it is inherent in the nature of breeding and selling livestock that livestock may not grow to the desired weight or fat requirements expected by the export abattoirs in order to achieve an ideal sale price per head. Various factors have contributed to the losses since commencement of the activity, such as the consequences arising from the drought, market downturn from COVID-19 and China's trade restrictions. Although these may have been contributing factors, we conclude that the main reason the business has continued to produce losses in its xxx year of operation was due to the nature of the business activity.

A newly established business breeding and selling livestock requires a lead time of at least X years to become commercially viable. According to the MLA, an independent company that regulates standards for meat and livestock management in Australia and overseas, livestock businesses typically take more than X years to be commercially viable.

You have provided industry information from MLA regarding the 3-stage business cycle of livestock breeding:

•                     The startup phase is a period of trial and error that occurs for up to X years. This early phase of development includes the initial capital and operational costs. It is recognised that the nature of livestock farming requires substantial capital investment, such as livestock, land, fencing, holding pens, water troughs and machinery. According to the MLA, most breeding operations take between X to X years to recover the cost of initial investment

•                     The expansion phase, which aims to retain and invest in quality livestock while increasing the herd. This phase can last between X to X years. Extra investment in infrastructure and feed is required as the herd grows and to meet desired livestock characteristics, and

•                     The mature phase occurs X years after commencement and focuses on management of the targeted herd by continuing to improve weaning rates, feed quality and weight gains to ensure maximum profitability.

Therefore, as there are inherent characteristics that prevent the business from making a tax profit, and due to extraordinary circumstances outside of your control that delayed the start time for the business to generate a tax profit, the business activity meets the requirements of subparagraph 35-55(1)(c)(i).

Subparagraph 35-55(1)(c)(ii) requires that you demonstrate that the business activity will produce a tax profit within the timeframe that is commercially viable for the industry in which it operates. This should be supported by evidence from independent sources, where available.

As shown by the industry analysis and the independent evidence supplied, livestock breeding conducted in a commercially viable manner would be expected to be able to produce a tax profit more than X years until such time that the livestock meet the desired guidelines for weight, teeth, age and fat requirements as set by abattoirs. It is recognised that it is a long-term investment to achieve a desirable herd to generate maximum prices for the best quality livestock, and the delay from initial purchase of livestock to breeding and growing to the vitality of stock prices.

Your accountant has prepared a business plan for the YYYY to YYYY income years based on the business's performance in the YYYY income year and information from industry experts. The financial forecast was adjusted due to initial setbacks involving strengthening high quality stock, improved weather and trading conditions. The business plan shows the business should make a moderate tax profit in the YYYY income year. A strong positive operating cash flow is anticipated for the YYYY income year due to an increase in meat prices forecasted for the next 3 to 4 years.

To satisfy the requirements of subparagraph 35-55(1)(c)(ii), there needs to be an objective expectation that the business will make a tax profit within a period that is commercially viable for the industry concerned. While the information obtained from MLA shows that business activities in the same industry would not often be expected to make a profit by year X, the evidence supports a conclusion that the period that is commercially viable for breeding operations can span from commencement to years X to X of operations to recover the cost of initial capital and operational costs.

As such, there is sufficient information for the Commissioner to be satisfied that there is an objective expectation that, within the period that is commercially viable for livestock breeders, the business activity will produce a tax profit from year xxx after the sale of marketable livestock, which is the year in question and within the period referred to in subparagraph 35-55(1)(c)(ii).

Therefore, you have satisfied the criterion in subparagraph 35-55(1)(c)(ii).

Accordingly, it is considered appropriate for the Commissioner to exercise the discretion under paragraph 35-55(1)(c) for the YYYY income year as it would be unreasonable to apply the loss deferral rule.

[1] Paragraph 35-10(1)(a).

[2] Paragraph 41D of Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion (TR 2007/6).

[3] Paragraph 46 of TR 2007/6.

[4] Paragraph 13 of TR 2007/6.

[5] Paragraph 35-55(1)(a).

[6] Paragraph 47 of TR 2007/6.

[7] Paragraph 47 of TR 2007/6.

[8] Paragraph 54 of TR 2007/6.

[9] Paragraph 50A of TR 2007/6.

[10] Paragraph 51 of TR 2007/6.

[11] Paragraph 129E of TR 2007/6.

[12] Paragraph 47 of TR 2007/6.

[13] Federal Commissioner of Taxation v. Eskandari (2004) FCA 8.

[14] Paragraph 78 of TR 2007/6 and paragraph 2.35 of the Explanatory Memorandum for the New Business Tax System (Integrity Measures) Act 2000 (Explanatory Memorandum).

[15] Paragraph 1.51 of the Explanatory Memorandum.

[16] Paragraph 82 of TR 2007/6.

[17] Paragraph 80 of TR 2007/6.

[18] Paragraph 20 of TR 2007/6.

[19] Paragraph 21 of TR 2007/6.

[20] Bentivoglio v. Federal Commissioner of Taxation [2014] AATA 620.

[21] Paragraph 93 of TR 2007/6.

[22] Paragraph 96 of TR 2007/6.

[23] Paragraph 97 of TR 2007/6.

[24] Paragraph 99 of TR 2007/6.

[25] Example 1.6 of the Explanatory Memorandum.

[26] Paragraph 100 of TR 2007/6.

[27] Paragraph 103 of TR 2007/6.

[28] Paragraph 104 of TR 2007/6.