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27 Nov 14 Decision Impact Statement - Bentivoglio

The ATO has published a Decision Impact Statement in relation to the decision of the AAT in Bentivoglio and FCT [2014] AATA 620; 2014 ATC 10-373.

The decision concerned an appeal in respect of a private ruling where the Commissioner ruled that he would not exercise his discretion that the non-commercial loss provisions in the ITAA 1997 did not apply to the taxpayer. Specifically, the key issue for the AAT was whether, by reference to the scheme as identified by the Commissioner in the private ruling, the discretion in s 35-55 of the ITAA 1997 should be exercised in the taxpayer's favour.

The taxpayer was a medical practitioner who, for the past 15 years, also carried on an olive growing and olive oil production business in Rylstone, near Mudgee.

The taxpayer argued that the discretion should be exercised because special circumstances existed which affected his olive production business in the relevant income years. The special circumstances were said to be the extraordinary challenges facing the olive industry, the infestation of the olive trees by the olive lace bug, the prolonged drought and dry conditions, the loss and damage of many trees from bushfire, the extraordinary hot weather event experienced in November 2009, spot fires from lightning strikes in February 2007 and November 2009 and the resulting smoke, and a hailstorm in January 2011.

The AAT considered the taxpayer's personal circumstances, and found that the pest infestation, the drought and adverse weather events (fires, hail, hot weather), and the illness of the taxpayer's wife were all circumstances that affected the profitability of the taxpayer's olive-growing business.

However, the AAT concluded that the economic challenges facing the olive industry were not special circumstances, as they are not unusual, uncommon or out of the ordinary, and did not affect the business activity but merely the profitability of the olives.

Having regard to the impact of the special circumstances on the taxpayer's business activity in the relevant years, and to the financial outcomes that could have been expected had those special circumstances not occurred, the AAT was satisfied that the discretion in s 35-55 of the ITAA 1997 should be exercised in each of the income years except the 2014 year.

The ATO view of the decision is stated as follows:

"The decision is one decided on its facts and does not have wider ramifications.

Although the Deputy President's view on how the discretion in section 35-55 of the ITAA 1997 is to be construed is not consistent with the Commissioner's view in paragraphs 13A and 41D of TR 2007/6, the paragraphs in the ruling are consistent with the decision in Heaney and Commissioner of Taxation [2013] AATA 331. The ATO does not intend to amend the ruling."

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