Private ruling: Non-commercial losses - special circumstances
Date of advice: 10 September 2025
Published: 27 October 2025
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

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 the partnership in the calculation of taxable income for the 20YY 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 accepted that but for the special circumstances, you would have made a tax profit. Consequently, the Commissioner will exercise his discretion for the 20YY income year.

Relevant facts and circumstances: The partnership operates a XX and grazing business. The activities in the partnership include XX cattle, XX cattle, grain production and hay production. The partnership was registered in 20XX. You do not satisfy the below $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997, for the 20YY income year. As a result of the farm experiencing good rainfall in the 20YY income year, the partnership achieved a taxable income of over $X. In the 20YY income year, you have submitted the partnership experienced special circumstances outside the control of the operators of the business, and as a result the partnership sustained a loss. The special circumstances experienced include severely low rainfall, theft of XX cattle, health and mental wellbeing challenges. In regards to rainfall, you have submitted the evidence from the Bureau of Meteorology's Monthly rainfall for your location to substantiate your claim. You plant winter grain crop in April to May, while establishment and growth of that crop relies on good subsoil moisture at the time of planting and regular rain during the growing season (May to October). Harvesting of the grain crop generally occurs in October. In the 20YY calendar year, sufficient rainfall occurred in the four months prior to planting, with XX millimetres falling in May 20XX with rain progressively falling in the growing season during June, July, August and September of the 20YY calendar year. A profit was made in the 20YY income year. However, for the 20YY income year, you submit that special circumstances impacted on the profitability of your business. Rainfall • Rainfall prior to planting (early 20YY) was below average, so subsoil moisture was below optimum level. • Rain in May 20YY gave some optimism that germination could occur. However, seed germination did not occur universally or evenly due to the low sub-soil moisture • The almost complete absence of rain during June, July, August and September 20YY meant that even if the grain germinated it did not have enough moisture the grow to maturity. • Due to absence of sufficient rain, no grain crop was harvested in October 20YY. The failure of the grain crop during the 20YY calendar year meant that there would be no grain sales for the 20YY financial year. • For the 20YY income year, no grain sales were made, due the crop failure. - The forecast grain sales were based on standard inputs (seed and fertiliser), prevailing grain prices, and anticipated yields from both the new harvest and carried-over stock held in grain silos from the prior year. • Grass growing season is during October to April. The lower-than-average rainfall in February, March and April 20YY caused grass growth to be below average. • The grain in storage on 1 July 20YY had a value of $X, and this grain would normally be sold during the 20YY financial year in addition to grain produced during that year. • The absence of sufficient rainfall led to the livestock consuming all of the grain that was on hand as at 1 July 20YY to maintain them through the drought period. • Due to the lower pasture and grain availability, livestock weight was reduced. As a result, sale weights were lower. • In the 20YY income year the average sale prices of XX cattle sold was $X, compared with an average sale price of over $X per head for XX cattle sold in the 20YY financial year. You have plans in place for late 20YY to apply for an irrigation licence and complete dam development. This will assist in conserving water when rainfall occurs, and to utilise that water in times of drought to irrigate the grain and hay production. Theft • In around November or December 20YY, you noticed a reduction in XX cattle. A theft of cattle had occurred. • In around May or June 20YY, you were able to recover some head of XX cattle, leaving several head unrecovered. • The loss of the livestock is worth approximately $X. • The recovered XX bulls were originally intended for sale at an average of $X each, but now are expected to only fetch around $X per head through saleyards. • Theft has stripped out a large portion of your core breeding herd. • The XX cattle recovered could no longer be sold for their original intended amount as they were impacted by an unfamiliar environment, has diminished growth rates and absence of shine and thrift associated with XX cattle. • The theft had an effect on the sales for the 20XX income year. • It is estimated that it will be at least X years before the XX cattle would be in the same position to be ready for sale. Health & Mental Wellbeing • You were undergoing medical treatment for a serious illness throughout 20YY. This limited the partnerships' ability to operate at the normal capacity or make strategic decisions. This event affected both key personnel of the partnership, both physically and mentally.

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