Private ruling: The Commissioner's discretion to apply non-commercial losses
Date of advice: 23 March 2020
Published: April 2020
Ruling period: 30 June 2019
Date scheme commenced: 1 July 2018

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 business activity in your calculation of taxable income for the income year ending 30 June 2019? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted the discretion. It is accepted that the recent drought your farm has been subjected to has altered the nature of your business activity and that you will pass a test or make a tax profit in the 12 months following the drought. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: The partnership runs a business on a property located State A. The property is used to grow forage in order to 'fatten' up the stock for sale. The partnership is actively seeking to expand the business by buying or leasing additional holdings. This increased land holding will enable the business to run 50 to 100 breeders. Business commenced XX/XXX / 2015. Business practice is to purchase stock, fatten them up and sell them in the following income year when they meet a saleable weight. In the summer that spanned 2018 and 2019 the business purchased stock as normal as there was an expectation of a break in the season. The business sold this stock prematurely as water supplies were failing due to drought in the region. Cattle purchased in early 2018 income year were also sold prematurely. This stock was sold at the end of the income year. Typically the business would not sell this stock until the Spring of the following year. The independent income of the partners in the partnership is less than $250,000. Apart from the 2019 income year, the business has met with the assessable income test every year since the commencement of business activities. The business expects to meet with the assessable income test in the 12 months following a break in the drought. Bureau of Meteorology data confirms that the business is in a region has been in drought across this period.

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)