Abnormal primary production income

As a primary producer, you need to understand how any unusual income, called 'abnormal income', is taxed. Depending on the nature of the abnormal income, you may be able to spread that income over multiple income years. In some circumstances you may lose your eligibility to spread abnormal income.

Disaster relief payments

Following a disaster, you may receive assistance from government authorities, charitable institutions, employers, a trade union or other sources. Common types of government disaster relief are:

• Australian Government Disaster Recovery Payments (DRP)
• Disaster Recovery Allowance (DRA)
• payments under the Natural Disaster Relief and Recovery Arrangements (NDRRA)
• other ex-gratia relief payments.

Most one-off assistance payments are tax-free, but regular Centrelink payments are taxable.

Grants and subsidies

Generally, amounts you receive through grants or subsidies will be assessable income, however some may be exempt from tax.

The payer of the grant, subsidy or other payment will usually provide you with advice about the tax implications.

For more information, see:

• Sustainable rural water use and infrastructure program
• TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business.

Profit from forced disposal or death of livestock

You can elect to spread or defer profits if you're forced to dispose of livestock or livestock dies because:

• your land is compulsorily acquired or resumed under an Act
• a state or territory leases land for a cattle tick eradication campaign
• pasture or fodder is destroyed by fire, drought or flood and you will use the profits mainly to buy replacement livestock or maintain breeding stock for the purpose of replacing the livestock
• they are compulsorily destroyed under an Australian law for the control of a disease (including bovine tuberculosis) or they die of a disease
• you receive official notification under an Australian law dealing with contamination of property.

This election is available to individuals, companies, partnerships and trusts that hold livestock as assets of a primary production business carried on in Australia.

If you make any profit from this disposal or death of livestock, you can elect to either:

• spread the profit earned over a period of 5 years
• defer the profit and use it to reduce the cost of replacement livestock in the disposal year or any of the next 5 income years.

If you choose deferral, any unused part of the profit is counted as assessable income in the fifth income year.

When a deferral election is made in relation to a forced disposal by bovine tuberculosis, the deferral period is extended from 5 years to 10 years.

Disaster – fire, drought or flood

In the case of fire, drought or flood, your election should be supported by objective evidence that the available pasture or fodder on your property was affected by the disaster and those conditions caused the disposal of your livestock.

This applies whether or not there is a Government disaster declaration.

Evidence you could use to support your election may include:

• weather reports for the period
• news reports or public notices
• records of low pasture or fodder levels due to the disaster
• photos showing damage to the pasture or fodder due to the disaster.

For more information see ATO ID 2002/780 Income Tax: Forced disposal of livestock - drought conditions.

Insurance payments

If you receive an insurance payment for the loss of livestock or trees, and you have claimed the cost of the insurance premiums as a tax deduction, the payment amount you receive will be treated as assessable income.

If the payment is for assets of a primary production business, for example, trees lost to a fire or forced disposal of livestock, you can elect to spread the payment over 5 years (for example, 20% each year).

If you don't elect to do this, the whole amount is treated as assessable income in the year you received the payment.

You must make the election on or before the date you lodge your first tax return after receiving the insurance payment.

However, if you're eligible to elect to spread your income, you may later become ineligible (see Losing your eligibility).

Double wool clips

If you're a wool grower, you can elect to defer the profit on the sale of the second clip to the next year, where:

• your assessable income for an income year would otherwise include the proceeds of the sale of 2 wool clips
• you shear your sheep at a time earlier than normal because of fire, drought or flood impacting the area in which you carry on business.

This will smooth out the abnormal income between the 2 years.

This election is available to individuals, companies, partnerships and trusts that hold livestock as assets of a primary production business carried on in Australia.

You should keep objective evidence that the fire, drought, or flood was the reason for bringing your second wool clip forward.

Losing your eligibility

You may become ineligible to spread abnormal income over multiple income years if you:

• become bankrupt, insolvent or die
• permanently depart from Australia
• cease to carry on the primary production business the election relates to.

This may apply if you're a:

• sole trader
• partner in a primary production partnership
• trustee or beneficiary of a primary production trust.

In the case of a trust, you can apply to us to make a determination that you can still make an election if we consider it is fair and reasonable to do so.