Private ruling: Non-commercial losses and the Commissioner’s discretion
Date of advice: 22 August 2018
Published: October 2018
Ruling period: 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 business activity in your calculation of taxable income for the 20XX-XX 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 also accepted that, but for the special circumstances, you would have made a tax profit, and you have met, or would have met one of the four tests. Consequently the Commissioner will exercise his discretion for the 2016-17 financial year. For more information on non-commercial losses, please visit www.ato.gov.au and search quick code QC 33774.

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. Your business has passed the assessable income test, the profits test and the other assets test in the 20XX-XX financial year. You carry on a primary production business, having commenced in the 20XX-XX financial year. You submit that you were affected by special circumstances in the 20XX-XX financial year, a number of years after having commenced your business. You advise that the severe and unpredictable weather conditions were above average rainfall recorded in your area in 20XX, along with a very hot and dry period in later in the same year, and early in the following year. You have submitted the following evidence to substantiate your claim: ● A daily rainfall report from the relevant Government department for the 20XX calendar year. ● A document confirming typical weights of various size hay and silage bales from the relevant Government department. ● Actual profit and loss statements for the income year in question and the income year immediately prior and a projected profit and loss statement for the income year subsequent. You submit that the special circumstances impacted on the profitability of your business in the following ways: ● The severe changes in conditions resulting from the increase in rainfall and the cold climate caused flooding in your area, causing your pastures to go putrid. ● As a result additional feed was required to be purchased and fed out to the livestock. ● During this time the costs to purchase small amounts of fodder, along with the cost of handfeeding had increased dramatically. ● In order to reduce your costs, you purchased special machinery so you could access cheaper fodder that could be produced both by you and outside sources, which resulted in a large decrease in feeding costs. ● The dry months in late 20XX and early 20XX forced you to start feeding out the hay over these months. ● As the average weight of the fodder units is very heavy, feeding your livestock would not have been possible without the special machinery. ● You also incurred other expenses during the 20XX-XX financial year which was a one off expense as a direct result of the severe weather conditions. Your business was profitable in previous financial years. You anticipate returning to 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)