Edited version of private ruling

Authorisation Number: 1011521048407

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Ruling

Subject: Forced disposal of livestock

Can you elect to spread the income from the forced disposal of livestock due to drought over five years?

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You carry on a business of cattle grazing.

During an income year you sold cattle resulting in a net profit.

You state that this income was derived from the forced sale of livestock.

You have provided a letter from the relevant state government department stating that the area where your cattle are kept was drought declared in the income year the cattle were sold.

You advised that you had no choice but to destock as, due to drought, the owner of the land you agist your cattle on advised you that you had to (destock).

You also stated that you had an intention to restock when conditions improved and you have commenced restocking.

Your sales have begun to increase.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 385-95(1)

Income Tax Assessment Act 1997 Section 385-100

Income Tax Assessment Act 1997 Section 385-105

Income Tax Assessment Act 1997 Section 385-150

Reasons for decision

Summary

We have determined in your circumstances that you are entitled to elect to defer the profit from the forced disposal of livestock over five years, commencing in the year of the disposal.

This is because you disposed of the stock due to drought conditions and you had an intention, at the time the stock was disposed of, to use the proceeds of the disposal mainly to purchase replacement stock when conditions improved.

Detailed reasoning

Subsection 385-95(1) of the Income Tax Assessment Act 1997 (ITAA 1997) prescribes that where a taxpayer in a primary production business is forced to dispose of live stock because 'pasture or fodder is destroyed by fire, drought or flood', an election may be made to spread the tax profit from such forced disposal over five years.

A taxpayer's property does not need to be officially acknowledged as in drought by a competent authority before the taxpayer makes the election under subsection 385-95(1) of the ITAA 1997, if objective evidence supports the conclusion that the property is in fact drought affected, and those conditions caused the disposal of the livestock.

An election to spread or defer profits can be made where you dispose of the stock because pasture or fodder is destroyed by drought and you will use the proceeds of the disposal mainly to buy replacement stock or to maintain breeding stock for the purpose of replacing the livestock.

Therefore, for an election to be available due to drought, the Commissioner must be satisfied not only that the disposal of the stock was due to drought conditions but that you had an intention, at the time the stock was disposed of, to use the proceeds of the disposal mainly to purchase replacement stock when conditions improve or to maintain breeding stock.

Section 385-150 of the ITAA 1997 provides that the Commissioner may allow a taxpayer further time to make the election.

In your case, the owner of the land you agist your cattle on advised you that you had to destock due to the drought conditions and you had an intention to restock when conditions improved.

Subsequent to the forced disposal, you had extenuating circumstances contributing to a delay in enquiring about the election.

Due to the circumstances outlined above, we will allow you to elect to spread the income from the forced disposal of livestock due to drought over five years, commencing in the year of the disposal.