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Edited version of private advice

Authorisation Number: 1051816806422

Date of advice: 18 March 2021

Ruling

Subject: Commissioner's discretion for non-commercial losses

Question

Will the Commissioner exercise the discretion to allow you to include any losses from your business in the calculation of your taxable income for the 20XX financial year?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your income for non-commercial loss purposes exceeded $250,000 in the 20XX financial year (this financial year).

You carry on a business of cattle farming, which commenced in 20XX.

The business made over $20,000 in assessable income in this financial year.

The area where you conduct your business operations is in XX.

You claimed that your business activities were affected by special circumstances - drought affected the area in which you carry out the business in this financial year.

Your tax agent provided Bureau of Meteorology's statistics of historical monthly rainfall of XX (the statistics of rainfall) and an industrial consultant's reference letter (the reference letter).

The statistics of rainfall show that the 20XX and 20XX calendar years' annual rainfall was the second and third lowest respectively, within the past 75 years.

The reference letter claims that

•         The 20XX and 20XX calendar years' annual rainfall was well below the average and both years were in the lowest 5 percentile.

•         With supplement from regular, effective rainfall events, it typically requires equivalent to 150% of High Reliability water right to effectively grow pasture for the growing season. However, in both years, while rainfall was in severe deficit in the growing season, water allocations for irrigation were at 100% for High Reliability water and 0% for Low Reliability water. It resulted in dramatically reduced pasture growth.

•         The impact of the reduced pasture growth and yield is a reduced stocking rate, increased purchased feed inputs or both.

•         Availability of feed and fodder for purchase in the drought of 20XX and 20XX financial years was severely restricted and was at its highest price.

•         Purchasing feed to maintain stock numbers was therefore not an option for you and most of other graziers.

•         Profitability of most beef/sheep grazing enterprises was hit dramatically, by increased costs and reduced income.

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)

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