Edited version of private advice

Authorisation Number: 1051631341993

Date of advice: 30 January 2020

Ruling

Subject: Non-commercial business losses and the Commissioner's discretion

Question

Will the Commissioner exercise the discretion to allow you to include any losses from your primary production activity in the calculation of your taxable income for the 2018-19 to 2020-21 financial years?

Answer

Yes. Having considered your circumstances and the relevant factors the Commissioner has granted the discretion. It is accepted that your business activity was affected by special circumstances outside your control which caused you to make a loss. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997).

During the 20XX-XX financial year you commenced a primary production business activity (the activity) under a partnership arrangement.

During the 20XX-XX and 20XX-XX financial years you planned to increase the number of stock that the business will run from X to more than Y.

In 20XX the Commissioner exercised his discretion under paragraph 35-55(1)(c) of the ITAA 1997to allow any losses from the activity for a number of financial years.

In line with your business plan, in 20XX you purchased a large number of stock on advice from a livestock agent, increasing the breeding flock by approximately 40%. However on delivery you observed that they were not purebred stock, but rather a crossbreed of less commercial value.

Because of the risk of disease you carried them for one season and then sold them at a loss.

Due to their inferior genetics you did not retain any of the progeny to increase breeder numbers, extending the time needed to acquire sufficient stock to become profitable.

Further, the activity has been affected by severe weather conditions which have impacted on your capacity to increase livestock in line with your business plan.

As a result you were required to reduce stock numbers as it was not economical to carry them through this period.

Further, due to the lack of rain you were required to hand feed your stock, which resulted in them putting on less weight then when they were grass feed. As a result the stock was sold below weight, resulting in a reduction in proceeds from their sale.

In the last financial year low spring and summer rainfall has also resulted in poor finishing to stock.

As a result you may have to review your capacity to carry higher numbers through summer and autumn in 20XX.

You have provided a projected profit and loss statement for the 20XX-XX and 20XX-XX financial years which includes additional expenses that will be incurred for more hand feeding due to an already dry season in 20XX. You project a return 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)(c)

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