Private ruling: Non-commercial loss - special circumstances
Date of advice: 24 July 2023
Published: 11 September 2023
Ruling period: 1 July 2022 to 30 June 2026
Date scheme commenced: 1 July 2022

Ruling: Q1: Will the Commissioner exercise the discretion relating to special circumstances to allow you to include losses from your business activity? | A1: Yes, having investigated the information supplied it has been determined that your business has been affected by special circumstances (weather events) resulting in a tax loss. The Commissioner will exercise their discretion to allow for the losses to be applied for the requested years.

Relevant facts and circumstances: The business was purchased as a partnership entity. The partners have qualifications in the industry. You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 The business had established trees, but due to neglect most trees required hard pruning or replacement. The trees were significantly impacted by the drought conditions, in which young trees died, and crop yields were reduced. The business had purchased new trees after the drought but there was a delay in the availability and the trees where not planted until later in the season. The business was also affected by the restrictions during COVID with the connection to the hospitality industry and not being able to sell the growing crop. The period in which the orchard is commercially viable is approximately 4 years. The declared La Nina weather events caused significant flooding of the property. It set back fruit production by 3 to 4 years. This weather event has resulted in the loss of several young and mature trees The other trees have suffered damage and have also developed fungal rot due to the water saturation of the soil. The older trees have also continued to die off after the weather event requiring investigation to see if the event has caused additional long-term damage. To recover from the loss of the trees from the weather event you plan to plant new trees over the next couple of years which will allow for the business to recover but will take time due to required matured of the trees to produce fruit. You did and will make a loss in the relevant years. You have a detailed business plan which aims to create a viable/profitable small farm business within the commercially viable time frame.

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)