Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 3 October 2018
Published: November 2018
Ruling period: Financial year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise the discretion to allow you to include losses from your cattle fattening business in the calculation of your taxable income for the 2017-18 financial year? | A1: Yes. Having regard to your full circumstances, the Commissioner has granted his discretion as it is accepted that your business activity was affected by special circumstances outside your control which prevented your business activity from commencing in the 2017-18 financial year, resulting in you failing to satisfy one of the tests. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 . During the 2017-18 financial year you intended on commencing a primary production business activity (the activity). In preparation for commencing the activity you planted perennial grass in early 2018 ready for the autumn rain, which would have resulted in the required feed source for the stock you intended on purchasing later in the 2017-18 financial year as per your business plan. Soon after your area encountered the driest autumn in recorded history and was later declared in drought. You were not in drought prior to the beginning of 2018. The perennial grass you planted failed, leaving no feed for the stock you intended on purchasing for the 2017-18 financial year. As it was no longer commercially viable to commence the activity in the 2017-18 financial year, you delayed purchasing some of the required stock until early in the 2018-19 financial year. As the rainfall improves into spring and summer and pasture becomes denser, you will acquire more stock to supplement your existing herd and potentially run up to the intended number for the 2018-19 financial year. Any stock ready for sale will be sold periodically during times of strong market prices leading up to the end of the 2018-19 financial year. Had you purchased the stock in the 2017-18 financial year, you would have fattened them for six to 12 months before turning over to maximise the activity income and profit. As a result your activity would have earned more than $20,000 in assessable income for the 2018-19 financial year. If you decide to hold onto some of the stock until later in the 2018-19 financial year, the weight gains will be more as will the business income and profit. You incurred expenses in preparing the land and planting the perennial grass in the 2017-18 financial year in preparation for the commencement of the activity.

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(2B) | Income Tax Assessment Act 1997 subsection 35-10(2E) | Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 subsection 35-55(2)