Private ruling: Commissioner's discretion - non-commercial losses
Date of advice: 10 November 2025
Published: 5 January 2026
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

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 2024-25 financial year? | A1: No

Relevant facts and circumstances: Your income for the purpose of subsection 35-10(2E) of the ITAA 1997 was over $250,000. You carry on a primary production business. In the relevant financial year, you received less than the average expected rainfall for your region. You have calculated from records kept in a nearby regional centre and records you have kept on your property that you have received approximately 60% of the average expected rainfall. The Bureau of Meteorology rainfall charts showing above and below average rainfall in deciles over a grid across Australia indicate average levels of rain fell in your region from for several months in the relevant financial year then below average rainfall in the following month. This lower-than-average rainfall in the relevant financial year impacted your business activity, compelling you to reduce the extent of your primary production activity and reducing the yield of that activity that you have undertaken. You have also incurred expenses associated with improving water retention on your property. Considering these factors into account, you estimate that you would have made a profit from your primary production activity if you had not experienced lower than average rainfall. You estimate the relevant financial year will result in significant loss. You have not made a profit from your primary production activity since it commenced more than X years ago. You have experienced dry conditions in the succeeding X years after commencement of your business activity. You have also taken advantage of the temporary full expensing of the business assets you purchased, and this contributed to your losses. You are unsure when you can expect to make a profit but hope that it will be within X years. You have full-time employment in another state on a xxx basis.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-10(1)(a) | Income Tax Assessment Act 1997 subsection 35-10(4) | Income Tax Assessment Act 1997 subsection 35-55(1) | 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 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 2024-25 financial year, 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. Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion sets out the Commissioner's interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 48 to 53 of this ruling: Although not limited to natural disasters, paragraph 35-55(1)(a) of the ITAA 1997 refers to special circumstances outside the control of the business activity, including drought, flood, bushfire or some other natural disaster. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph. These events are taken to be special circumstances outside the control of the operators of the business activity. The special circumstances must have affected the business activity. The State A Government Local Drought Declaration Committee guidelines make a distinction between ordinary rainfall and climate variation and the persistent severe rainfall deficiency that constitutes a drought. For the purposes of these guidelines a drought is considered to have occurred when the rain received in a 12-month period is less than 10% of the long-term rainfall average for a region. According to these guidelines there is a probability of such a severe rainfall deficiency recorded over a 12-month period occurring once in every 10 to 15 years. Droughts are declared in State A by the Minister of Primary Industries taking advice from Local Drought Committees and rainfall and climate date into account. In State A a drought declaration can be made for an area, a shire, a part of a shire, or an individually affected property. In the relevant financial year, no part of State A has been under a drought declaration. In your case you have received lower than average rainfall in the relevant financial year and this has resulted in lost income and additional expenses for your primary production activity. The question that must be addressed is whether the situation described is considered special circumstances. While it is accepted that the lower-than-average rainfall you have received in the relevant financial year has adversely affected your primary production activity these circumstances do not constitute special circumstances in the way this term is used in the legislation. The rainfall variations such as those you have experienced are standard risks of carrying out a business in your industry and not unusual or out of the ordinary. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the years in question.