Private ruling: Commissioner's discretion for non-commercial losses
Date of advice: 24 July 2020
Published: August 2020
Ruling period: Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025
Date scheme commenced: 1 July 2012

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 productionbusiness activity in your calculation of taxable income for the 2020-21to 2024-25 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 this has prevented you meeting one of the four tests. It is also accepted that, but for the special circumstances, you would have met one of the four tests. Consequently the Commissioner will exercise his discretion to extend the lead time for the 2020-21to 2024-25 financial years inclusive.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced a primary production activity in 2013, planting a number of trees. These trees started bearing fruit over the summer of 2014. In late 2015 the Commissioner exercised discretion to allow you to include any losses from the business activity in the calculation of your taxable income for the 2014-15 to 2019-20 financial years inclusive. In that application it was stated that the business intended to make $20,000 in assessable income in the 2020-21 financial year. In that application you also provided independent evidence from the State Department of Primary Industries that the lead time for the trees to reach full commercial cropping levels is between 9 to 10 years, and prior to that, the yields can be highly variable. At the time of submitting that application for Commissioners discretion you had an order for a number of additional trees which you intended be planted in the spring of 2016, and your forecast was to have in excess of 500 trees. You submit that you were affected by special circumstances in the 2016-17, 2017-18, and 2018-19 financial years. You have submitted the following evidence to substantiate your claim: · A map from the State Department of Primary Industries confirming that the area where you conduct your business activity has experience severe adverse conditions from mid- 2017 to mid- 2020. · A map from the Australian Bureau of Meteorology confirming that the area where you conduct your business activity had below average minimum temperatures in mid- 2017 and mid-2018. · A map from the Australian Bureau of Meteorology confirming that the area where you conduct your business activity had very much below soil moisture in 2017. · You submit that the special circumstances impacted on your business in the following ways: · Due to three consecutive years of severe weather conditions in the area where you conduct your business activity in the 2016-17, 2017-18 and 2018-19 financial years, approximately 80% of your trees were lost which has set back your production by an estimated 5 to 6 years. This is further detailed below. · In early- to -mid 2016 you planted a number of saplings which were approximately 2 years old. · In winter 2017 you lost most of the trees from the planting in early-to-mid 2016 due to extreme and adverse conditions (which was from mid-2017). · In early- to- mid 2018 you replanted the saplings that were lost in 2017. · However in winter 2018 you lost most of those re-plantings due to extreme weather conditions. · As at mid-2016 you had over 200 trees/saplings planted, however as stated above you lost a significant number of those in winter 2017 and you also lost a further significant number of those in winter 2018 due to extreme and adverse weather conditions (approximately 80% of your trees). · The quick onset of the severe and adverse weather conditions in mid-2017 was harsh, and that coupled with the extremely cold overnight temperatures plus much below average soil moisture profile saw the saplings that were planted in 2016 perish. The original number of trees planted in 2013 (now 4 years in the ground at that stage) survived but suffered as a result and were nonetheless affected by those conditions, which was evidenced by the lower rate of produce. · In 2018 you lost the majority of the 2017 plantings of saplings due to the severe and adverse weather conditions, extremes in temperature, and lack of moisture. One mature tee also died. · In 2019 the drought continued, and a decision was made not to replant due to this. · Due to intended new plantings of trees since that time, you now expect to be profitable by the 2027-28 financial year. You intend to make $20,000 in assessable income in the 2025-26 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)