Private ruling: Non-commercial losses - Commissioner's discretion special circumstances
Date of advice: 14 July 2020
Published: August 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion to allow you to include any losses from your primary production business activity in the calculation of your taxable income? | 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. For more information on non-commercial losses, please visit our website ato.gov.au and enter quick code "QC 33774" in the search area at the top of the page.

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). You carry on a livestock primary production business activity. Seasonal conditions limit the number of livestock that can be present on the property. A primary production activity has been conducted by members of your family for nearly two centuries. A Partnership was established in 20xx to conduct the business activity with you holding a significant ownership interest in the Partnership. You submit that you have been affected by drought conditions since 20XX, only interrupted by a short-wet spell in the first few months of 20XX. The calendar year to December 20XX has seen significant reduction in rainfall. Rainfall in seven out of eight of the past calendar years to December 20XX has been below average. It has been widely reported that higher than normal temperatures have exacerbated the effects of lower rainfall. That 20XX calendar year was the driest and hottest year on record for Australia with regions in severe drought. The drought conditions have resulted in a significant loss of natural pasture which can take time to properly re-establish. Pasture re-establishment work is constrained due to the demand for contractors once favourable conditions occur. The cost of fodder increased significantly due to the drought conditions. With the associated supplementary feeding and increased animal health cost resulting in a significant increase of expenditure for the 20XX-XX financial year compared to the previous financial year. You incurred additional cost in providing improved water reticulation to ensure adequate drinking water to livestock with the associated additional labour and contractor costs due to more frequent livestock movements and feeding out. The business was profitable in the 20XX-XX financial year. You have advised that had it not been for the extra expenses as a result of the drought conditions, the business would have been profitable for the 20XX-XX financial years. You provided a projected profit and loss statement that show the business will be profitable 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 paragraph 35-55(1)(a)