Private ruling: Non-commercial losses
Date of advice: 25 January 2019
Published: May 2019
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise the discretion in section 35-55 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 2018 and 2019 income years? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted that your business activity was affected by special circumstances outside your control which caused you to make a loss. 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 <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a primary production business in Australia. The business is primarily concerned with livestock breeding. You intend to make a tax profit in the 2020 income year. Your projected income and expenditure are based on the actual figures to date and reasonable estimates going forward. The income will come from the sale of livestock. The expected proceeds are based on the current market including prices realised to date. You commenced business operations in the 20XX income year with an initial purchase of livestock which you purchased to bread up. They were purchased in the 20XX income year and sold in the 20YY income year whereupon you switched to breeding them directly; but with the same objective. There was no change of purpose. In the 20YY income year you purchased more livestock. The livestock were intended to breed with the other livestock and produce offspring. You had a problem with the death of livestock (and some of the pregnant animals) due to the size of the offspring at birth. This was in turn due to the size of the livestock used to impregnate. The livestock you purchased was compatible but in your case did not work out. After losing the majority of animals at birth during the 20ZZ income year, you took steps to mitigate the issue by seeking alternate advice and purchasing a different animal in the 20YY income year. As you could not have known this would happen, the losses were due to factor outside your control. You took steps to remedy the problem by seeking advice and acquiring another more suitable replacement animal. In 20XY income year you had a number of animals, and you intend on running a larger amount of animals each year. The death rates in the livestock reduced following the new animal purchase, and the small amount of deaths that did occur were due to snakebite, a normal business risk for that industry.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(2E) | Income Tax Assessment Act 1997 section 35-55