Private ruling: Non-commercial losses - special circumstances
Date of advice: 19 February 2024
Published: 8 April 2024
Ruling period: Year ending 30 June 2022
Date scheme commenced: 1 July 2021

Ruling: Q1: Will the Commissioner exercise his discretion in subsection 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity at the property in the calculation of your taxable income for the relevant income 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. Consequently, the Commissioner will exercise his discretion.

Relevant facts and circumstances: You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 in the relevant income year. You purchased a XXXX farm property as a mature orchard. You conduct a primary production activity on the property as a sole trader. Commissioner's discretion in subsection 35-55(1)(a) of the ITAA 1997 was exercised for the previous years allowing you to include losses from your business activity due to the damage to the orchard caused by severe storm and flooding in the region. You expected to meet the assessable income test, real property test and other assets test in the relevant income year. As per the business plan, you have forecast to make a profit for the relevant income year, however the region experienced severe localised storm in that year. The severe storms and major flooding caused extensive damage, additional costs and a loss of production estimated at 50% which resulted in an operating loss. The damage to the orchard consisted of XXX being washed away or plugging into the saturated ground, resulting in them being lost, unrecoverable or spoiled. The business activity returned an operating profit for the following income year.

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