Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 7 December 2018
Published: April 2019
Ruling period: Financial year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are your sole trader and X partnership primary production business activities considered ‘business activities of a similar kind’ for non-commercial loss purposes, for the 20XX-XX financial year? | A1: Yes. Having considered your circumstances and the relevant factors, the Commissioner considers that the primary production business activities are of a similar kind. Further information on similar business activities for non-commercial loss purposes can be found by searching ‘QC 55241’ on ato.gov.au | Q2: Will the Commissioner exercise his discretion to allow you to include any losses from your sole trader and partnership primary production business activities in the calculation of your taxable income for the 20XX-XX financial year? | A2: 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. 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 less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for the 20XX-XX financial year. However you satisfy the less than $250,000 income requirement for the 20XX-XX and 20XX-XX financial years. In the 20XX-XX financial year you commenced a primary production businesses activity as a sole trader, which you ran across the numerous properties in which you had ownership interest. During the 20XX-XX financial year you commenced a primary production businesses activity (the activity) under a partnership arrangement with your spouse, with the purchase of a large number of stock. On 1 July 20XX you and your spouse both transferred all stock in your names to the activity, using the section 70-100 of the ITAA 1997 election, bringing the total stock in the activity to more than X. The objective of consolidating your stock with the stock in the activity was to derive benefit from substantial herd related efficiencies, and from the reduction in the administration costs associated with having separate herds grazing on land that is owned by the same family. During the 20XX-XX financial year your sole trader business activity made a significant loss. During the 20XX-XX financial year the activity made only a small amount of income, but incurred significant expenses, causing a large loss. During the 20XX-XX financial year the activity sold a number of stock, resulting in substantial net sales proceeds. However you invested in depreciating assets and re-growth control to ensure the business was more self-sufficient, in addition to making the activity more resistant to the ongoing and severe drought. This resulted in a significant loss for the activity in the 20XX-XX financial year. Whilst the activity has suffered from the drought, it has shown a profit in the 20XX-XX financial year.

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 35-10(3) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c)