Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 20 May 2019
Published: June 2019
Ruling period: Financial year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion to allow you to include any losses from your cattle breeding business in the calculation of your taxable income for the 2017-18 financial year? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 , due to a one off lump sum payment. You commended a primary production activity (the activity) during the 2014-15 financial year, and have since expanded the activity across multiple properties consisting of mixed grazing and dryland cultivation country. There are multiple paddocks, with stock rotated around these paddocks to maximise production while managing and conserving pasture. Forage crops are grown on the cultivation land for direct feeding and/or hay production. The purchase of hay is strategically made to supplement on-farm feed availability, and is use in weaning to maintain the breeding herd, or to supplement cattle until they are able to be sold. The carrying capacity of the combined land totals XXX stock. The activity commenced with the purchase of X stock at 12 months of age in June 2015. A further X stock were purchased at 14 to 17 months old in October 2015. The stock was joined as soon as they had reached the threshold joining weight in October/November 2015 at approximately 16 to 18 months. Stock are pregnancy tested each year and any empty stock are sold, and the best stock are retained as replacements. The selling age of progeny has varied as dictated by seasonal conditions, varying from being sold unweaned at 6 to 8 months to weaned at 10 to 12 months. Due to severe drought conditions which commenced in 2016, the fodder crop failed and you were forced to destock your lands, with all remaining stock being supplementary fed. This increased the livestock expenses (including fodder and veterinary costs) more than fourfold in the 2016-17 financial year, and has impacted on the length of time needed for your activity to become commercially viable. Had it not been for the drought conditions the activity was projected to be profitable by the 2018-19 financial year, which is within five years of the commencement of the activity. The profit and loss statement for the period 1 July 2018 to date shows a cash profit from the activity of approximately $X,000. However after taking into account decline in value, it may be in a small loss situation. To date the fodder expenses are approximately half of the total expenses for the activity. The activity is forecast to earn more than $20,000 in assessable income in future financial years.

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)