Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 27 June 2019
Published: August 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 primary production 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. It is also noted that your activity was affected by special circumstances, being drought. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You are an equal partner in a partnership that has previously undertaken a commercially successful primary production business. You ceased this business and relocated to a different state. In the 2016-17 financial year you commenced a different primary production breeding activity (the activity) on your new property (property A) under the same partnership arrangement. Both you and your partner were equal beneficiaries of a deceased estate (the Estate) which disposed trading stock and plant and equipment to your partnership at market value. This resulted in a large taxable income for the Estate, which was consequently distributed to you and your partner in the 2017-18 financial year, causing you to fail the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 . You expect to satisfy the less than $250,000 income requirement in later financial years. In addition to the above acquisition you inherited a property (property B) from the Estate, which together you used as a part of the activity. The trading stock you acquired from the estate was in a relatively poor state due to the then ongoing drought, and as a result the focus of your activity has been to improve the state of the herd and build up stock numbers. Consequently the activity incurred losses in 2017-18 and 2018-19 financial years. Due to the ongoing drought in your state, significant expenditure has been incurred to date on fodder and other costs associated with carrying stock through the drought. Significant transport costs have also been incurred recently in relocating stock from the property A to property B where recent heavy rains have resulted in useable pasture. This recent rain will also help to bolster the medium term profit outlook of the activity, and you expect the activity to be profitable by the 2020-21 financial year, which is five years from the commencement of the activity. During the 2017-18 financial year the Partnership made a tax loss. You do not have any off-farm income and the primary production business constitutes your entire livelihood.

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 Subsection 35-55(1)