Private ruling: Commissioner's discretion to allow losses from primary production activities
Published: July 2013
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2013

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 2013-14 to 2017-18 financial years? | A1: Yes.

Relevant facts and circumstances: You commenced your primary production activity several years ago. From the commencement of your primary production activity the Commissioner exercised the discretion for lead time then extended this due to drought. This was again extended due to bushfires that destroyed much of the stock. Restoration of the activity commenced by transplanting from your nursery however transplanted products suffered stress and remained dormant for approximately X years after planting. The remaining burned stocks were severely stressed and have not produced any yields since the bushfire. Your previous assessment of the recovery of the stocks underestimated the severity of the damage the bushfire had caused and the recovery of the stocks is slower than first expected. Experience from fire damage in other states indicates that whilst stocks may survive the fire damage they will take at least two to three seasons to return to cropping and may have seriously reduced potential. The damaged stocks require constant monitoring as they may collapse from secondary problems after their initial recovery and therefore not all the burned stock will survive. An assessment plan that was done in correlation with a government department resulted in the expectation that the produce would pass the assessable income test in the 20XX financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(a) | Income Tax Assessment Act 1997 section 35-10 | Income Tax Assessment Act 1997 section 35-30 | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · you satisfy the income requirement and you pass one of the four tests · the exceptions apply, or · the Commissioner exercises his discretion. In your situation none of the exceptions would apply and although you satisfy the income requirement you do not meet any of the four tests in the financial years under consideration. Your losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the financial year in question where your business activity is affected by special circumstances outside your control. 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 satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context the Commissioner may exercise this discretion for the financial years in question where, but for the special circumstances the activity would have passed at least one of the tests. In your first application you provided an independent source that said a commercial crop could be expected within six years from the time of planting. The destroyed stocks that represent Y% of your crops were replaced and they would be expected to produce in the sixth year of planting. However as they have been transplanted from nursery stock the commercial harvest will be delayed a further two to three years due to transplanting stress. The remaining fire affected stocks will continue to recover however their productivity is under constant assessment. These together with the transplanted ones are expected to produce sufficient yield that will allow you to pass the assessable income test in the 20XX financial year. Having regard to your full circumstances it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. Consequently the Commissioner will exercise the discretion for the relevant financial years.