Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 11 December 2017
Published: May 2018
Ruling period: Year ended 30 June 201Y
Date scheme commenced: 1 July 201X

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 primary production activity in your calculation of taxable income for the 201X-1Y financial year? | A1: Yes. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. It is also accepted that, but for the special circumstances, you would have made a tax profit, and you have met, or would have met one of the four tests. Consequently the Commissioner will exercise his discretion in the 201 X-1Y financial years. For more information on non-commercial losses, please visit our website at ato.gov.au and search for quick code QC 33774.

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 have been carrying on a business of cattle breeding on a property for a number of years. You generally run approximately 500 breeding cattle on the property and sell approximately 470 per year. For the 201X-1Y financial year you submit that you were affected by special circumstances (drought), causing your business to make a loss. You submit that the special circumstances impacted on the profitability of your business in the following ways: ● you sold only a small number of cattle due to a calving rate of A% (normally B%) and natural deaths of C% (normally D %) ● the average sale price was between $362 and $480 per head due to poor condition of cattle from limited pasture and watering, compared to an average of $700 per head ● a number of expenses increased significantly due to the dry conditions. You advised that similar businesses producing similar cattle in a non-drought affected areas were getting achieving sales value of between $700 and more than $800 per head. You have provided profit and loss statements that show had it not been for the reduction in the number of cattle available to sell because of deaths and low calving rates, the reduction in sale price because of quality of cattle, and the increase in expenses, the business would have been profitable.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-10(2E) | Income Tax Assessment Act 1997 Section 35-55 | Income Tax Assessment Act 1997 Paragraph 35-55(1)(a)