Private ruling: Calculating taxable income
Date of advice: 16 April 2026
Published: 6 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your non-primary production business activity in your calculation of taxable income for the relevant financial year? | A1: Yes


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)

Reasons for decision: Summary: Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and these prevented you from making a tax profit. Consequently, the Commissioner will exercise their discretion in the specified income year. | Detailed Reasoning - Detailed reasoning: A non-commercial business loss happens when you run a side business or activity that costs more money than it makes. Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer (alone or in partnership) from being offset against other assessable income in the year in which the loss is incurred, unless: • the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (paragraph 35-10(1)(a)) • an exception in subsection 35-10(4) applies; or • the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years Under paragraph 35-55(1)(a) the Commissioner may exercise discretion to allow losses to be offset against an individual's other income where the business activity was affected by circumstances outside the control of the operators. This discretion is intended to provide for such a scenario where a business activity would have satisfied one of the tests if it were not for the special circumstances. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion (TR 2007/6) provides guidelines as to how the discretion under subsection 35-55(1) may be exercised. TR 2007/6 also provides further guidance on special circumstances. Of note, at paragraph 49 of TR 2007/6, an indicator that could lead to the exercise of discretion is the destruction of stock or equipment. | Detailed Reasoning - Application to your circumstances: You are carrying on a business of specific farming activities in a partnership and you satisfy the less than $250,000 income requirement. Your business experienced destruction of stock and infrastructure by bushfires in a specified year, which further resulted in water contamination from fire retardants poisoning, invasive organism infestation. This resulted in native species mortality and unusable infrastructure. Your business was impacted by severe floods during the specified income years, which destroyed the shed and all its contents. This further resulted in environmental disruption, equipment and stock washed out to sea, including debris from neighbouring properties. In light of the circumstances outlined above, the Commissioner considers that your business activities were impacted by special circumstances outside your control that prevented you from meeting one of the four tests in the relevant income tax year. As such the Commissioner will exercise the discretion under subsection 35-55(1) of the ITAA 1997. Accordingly, you will be able to offset your business losses against your other income in the relevant income tax year.

You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. | You commenced a primary production business on a specified date. | You carry on a business of specific farming activities in a partnership, producing specific products. | The scale of the activity is modest and consistent with a small family-run specific forming operations. | The business activity involves specific farming activities and growing specific products, a process that typically takes approximately three to four years from initial start to sale. | You had established and prepared a property with adequate plant and equipment to effectively conduct the business. | Your business was impacted by natural disasters since a specified year which prevented the business from satisfying any of the four tests and producing a profit. | Your business experienced destruction of stock and infrastructure by bushfires in a specified year, which further resulted in water contamination from fire retardants poisoning, specific native ecosystems. This resulted in native species mortality and unusable infrastructure. | You performed ongoing remediation to restore water quality and prepare for future farming activities. These farming activities requires an extended lead time to recover. | Your business was impacted by severe floods during specified income years, which destroyed the shed and all its contents. This further resulted in environmental disruption, equipment and stock washed out to sea, including debris from neighbouring properties. | Prolonged periods of freshwater reduced salinity levels, resulting in increased stress on farming stock and contributing to elevated mortality rates. | Specific assets were ripped out during these events, further disrupting business operations and delaying recovery and production timelines. | At the time of the flood events, both partners were actively involved in the day-to-day farming activities of the partnership, performing core operational through the production cycle over a period of approximately three to four years, culling and shaping stock, grading stock, drying stock, maintaining stock leases, purchasing additional stock where insufficient native species could be caught, and repairing machinery and farm infrastructure to ensure the leases remained compliant with regulatory requirements. | Following the flood events, partner A's role has primarily focused on maintenance and repair activities, including rebuilding infrastructure, replacing damaged equipment, and maintaining the leases in a tidy and compliant condition in accordance with regulatory standards. | Partner B's current duties include training subcontractors, grading and culling stock, drying stock and catching and selling stock to market, organising the purchase of additional stock where required, and maintaining the leases in a tidy condition in line with regulatory requirements. | Stock purchases after flood on a specified date amounted to specified amounts from a specific supplier. | The partnership operates specific leases totalling specified hectares, with an estimated current value of a specified amount per hectare, representing the value of the lease area only and not including stock. | You received a small business bushfire support grant from NSW Government of a specified amount. | You have received financial assistance from Farmer Assist, Rural Aid of a specified amount on a specified date. | Your partnership received a Supply Chain Support Grant for a specific farming activity from NSW Government Rural Assistance Authority for a specified amount. | Your partnership received a Special Disaster Grant of a specified amount for severe weather and flooding during a specified period. | Your business is expected to be profitable after a specified financial year. This is within industry standard whilst taking into account climate and market conditions. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for a specified person. | This is to explain how we reached our decision. This is not part of the private ruling. | Question: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your non-primary production business activity in your calculation of taxable income for the relevant income year?