Private ruling: Non-commercial losses
Date of advice: 21 April 2026
Published: 20 July 2026
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 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 business activity in your calculation of taxable income for the 20XX-XX to 20XX-XX financial year? | A1: No.

Relevant facts and circumstances: You inherited the farm from your family. You and your spouse operate a farm in partnership on 2 properties. The business commenced on X XXX 20XX. The partnership conducts a livestock farming business activity. The business has not yet produced a profit. You hold a large heard of livestock and a few other animals. In the 20XX financial year you sold one of the properties. Your income for the 20XX income year was more than $250,000. Profit and loss statements for the relevant years have been provided. The livestock trading account has been provided. Rainfall figures for the relevant period have been provided. You exceeded the income threshold of $250,000 due to a capital gain made on the sale of XXXX Farm. The real property that you own or lease has a value of at least $500,000 which is used in business activities. The exceptionally weather conditions have resulted in a large fodder bill for the year and a drop in breeding survival rates reducing the income fromlivestock sales. Projected figures demonstrate you will make a profit 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)

Reasons for decision: Summary: 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. In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses exceeds $250,000) and you do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. You have requested the Commissioner to exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 in the 20XX to 20XX financial years, on the basis of 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. For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances: • your business activity would have made a tax profit; and • the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. It is accepted in your case that the drought constitutes special circumstances. However, this in itself is not sufficient for the discretion to be exercised. The Commissioner must also be satisfied that your activity would have made a profit but for the special circumstances. That is, the special circumstances discretion can only be exercised where it was only the special circumstances which caused a loss to be made. The following considerations lead us to believe that had the special circumstances not occurred the business still would have returned a loss: Your business made a loss in the 20XX income year and a loss in the 20XX income year. Based on the information provided the business was not affected by any special circumstances in these years. The income derived from the business decreased in 20XX. However, the gross profit from livestock trading increased in 20XX as compared to previous years. While we acknowledge additional fodder costs were incurred and the income derived by the activity was slightly reduced, given the information provided the Commissioner is not satisfied that the special circumstances caused a loss in the 20XX income year. Further based on the information provided the business will make a profit in the 20XX financial year. The Commissioner does not need to consider the discretion for a year where the activity is profitable. Having regard to your full circumstances, it is not accepted that your business activity was affected by special circumstances outside your control and that these prevented you from making a tax profit. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the years in question.