Private ruling: Non-commercial losses and the Commissioner’s discretion
Date of advice: 29 November 2017
Published: April 2018
Ruling period: 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 2014

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 20XX-XX to 20X-XX financial years? | A1: Yes. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control, and that these prevent you meeting one of the four tests. Consequently the Commissioner will exercise his discretion for the 20XX-XX to 20XX-XX financial years. For more information on non-commercial losses, please visit our website www.ato.gov.au and enter quick code ‘QC 33774’ in the search area at the top of the page.

Relevant facts and circumstances: You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a primary production business. You commenced the activity in XXXX. You began the activity when you purchased an orchard which had a number of trees. Upon acquiring the orchard you became aware that the trees had been neglected and due to lack of maintenance the trees were affected. Most of the trees were rundown and required care to preserve them. In the first year of production you became aware that the trees were affected by a soil disease. In order to salvage the trees you undertook steps to resolve the contamination contained in the trees. The work that was required to be undertaken on the trees has affected them and will now need at least two years to mature. During this time you were also affected by a natural disaster, damaging the regrowth of the trees, resulting in an additional two years for the trees to produce a commercial quantity of produce. As such you expect the business activity will incur tax losses for the XXXX-XX to XXXX-XX financial years. You have provided a projected profit and loss statement which indicates that the business will meet the assessable income test in the XXXX-XX financial year. Further it will also be profitable in the XXXX-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)