Private ruling: Non-commercial losses - over $250k - special circumstances
Date of advice: 8 October 2025
Published: 17 November 2025
Ruling period: Year ended 30 June 2023 | Year ended 30 June 2024 | Year ended 30 June 2025
Date scheme commenced: 1 July 2022

Ruling: Q1: 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 2023, 2024 and 2025 financial years? | A1: No.

Relevant facts and circumstances: The total of your taxable income (not including losses from the business activity), reportable fringe benefits and superannuation amounts, and your net investment losses is greater than $250,000 for the 2023, 2024 and 2025 income years. You commenced commercial farming using leased land. Years later, you purchased your own farmland and you have been developing it for efficiency, sustainability and profit. You have invested in fencing and water infrastructure to enable use of regenerative and rotational grazing practises which aim to result in higher commercial returns through higher stocking rates, while simultaneously promoting soil, pasture and animal health. The average rainfall in your area is approximately XXXmm annually, as evidenced by the Bureau of Meteorology (BOM) reports, however in the 2024 financial year you experienced the driest 12 months on record. You have submitted the following evidence to substantiate your claim: • The rainfall received for the 2023 income year was XXXmm as evidenced by BOM. This amount is higher than the annual average. • The rainfall received for the 2024 income year (to May 2024) was below average. • Your area received the lowest amount of rain on record in the 2024 income year as evidenced by BOM. Special circumstances impacted on the profitability of your business in the following ways: • In the 2023 financial year the cattle market saw a reduction in values ahead of a forecast El Nino which saw revenues halved compared to the prior year. • You ran out of supplementary feed that is produced on the farm by the end of spring 2023 (2024 income year), which normally lasts over 12 months. You had to buy feed for the next 9 months. In the 24 months since April 2023 to April 2025, BOM has reported the agricultural regions in your area have experienced severe or serious rainfall deficiencies, with rainfall totals in the lowest 5% or 10% of periods since the year 1900. In April 2025 the Government announced a funding package to support drought affected farmers and communities in your area. Due to the continued drought in 2025, you moved your young stock onto agistment. This was less expensive than feeding and enables you to take the cattle through to finishing weights instead of selling them at discounted drought pricing. You have not made a profit in the years 2020 to 2025. You intend to make a profit in the 2026 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 subsection 35-10(4) | Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

Reasons for decision: Summary: 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 • an exception under subsection 35-10(4) applies (for example, the activity is a primary production or professional arts business and your assessable income from other sources is less than $40,000), or • the Commissioner exercises their discretion. In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses, exceeds $250,000) and you do not come under any of the exceptions in section 35-10(4). 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 (but not limited to) 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; and • the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. Taxation Ruling TR 2007/6 sets out the Commissioner's interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity, to the extent that the loss has been caused by them. In your case, the forecasted El Nino weather event caused the value of cattle to be reduced in the 2023 income year compared to the prior year. In the 24 months since April 2023 to April 2025, BOM has reported the agricultural regions in your region have experienced severe or serious rainfall deficiencies, with rainfall totals in the lowest 5% or 10% of periods since the year 1900. Due to the severe weather, you ran out of supplementary feed which normally lasts over 12 months. As a result, you had additional feed expenses in the 2024 and 2025 income years. It is accepted in your case that the severe rainfall deficiencies constitute special circumstances. However, this in itself is not sufficient for the discretion to be exercised. The Commissioner must also be satisfied that your activity would have made a profit but for the special circumstances. That is, the special circumstances discretion will be exercised where the Commissioner considers that the loss would not have been produced, but for the special circumstances. The following considerations lead us to believe that had the special circumstances not occurred the business still would have returned a loss: • In all years (2020 to 2025), a loss was made • In the 2024 and 2025 years, it is acknowledged that the increase in X costs was due to the drought conditions, however, if the expense was added back, the activity would still have produced a loss. For these reasons, we do not believe you would have made a profit but for the special circumstances. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the years in question.