Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 3 October 2019
Published: November 2019
Ruling period: Year ended 30 September 2019 | Year ending 30 September 2020
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the Commissioner exercise his discretion to allow you to include losses from your primary production business in the calculation of your taxable income for the 20XX-XX and 20XX-XX financial 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 prevented you from passing a test. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997). You commenced a business (the activity) on in the 20XX-XX financial year. You operate the activity on a large property. The Commissioner has previously exercised the discretion at paragraph 35-55(1)(a) of the ITAA 1997 due to drought conditions affecting the activity. With the above ruling application you provided a letter from an industry expert stating that you could have achieved the budgeted profitable turnover if you'd had good seasonal conditions. The drought conditions have continued and worsened into the 20XX-XX and 20XX-XX financial years, resulting in a number of stock dying and you having to destock your property. You are now hand feeding the remaining stock at great expense due to high fodder costs. When destocking you were forced to sell the stock before they had gained the weight required to meet the $20,000 assessable income test, which you have consistently passed in prior years. Further at the time of sale, there was a flood of stock to the market because of the drought conditions and as a result the price per kilo your stock fetched was very low. You contend that had you not been affected by the drought conditions the stock deaths would have been much lower, you would have fattened the herd for longer resulting in a greater return per beast, and the per kilo price for the stock would have been greater. This would have resulted in business income similar to that of prior years where you passed the $20,000 assessable income test. Further the activity is expected to produce a tax profit once the drought breaks.

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), and | Income Tax Assessment Act 1997 paragraph 35-55(1)(a).