Edited version of private advice

Authorisation Number: 1051502717581

Date of advice: 22 May 2019

Ruling

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

Question

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

Answer

Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his 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 period:

Financial year ended 30 June 20XX

The scheme commences on:

1 July 20XX

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.

You purchased an established but neglected primary production activity (the activity) in the 20XX-XX financial year under a partnership arrangement.

Your business plan was to undertake the necessary maintenance required so that the activity would become profitable within one to two years of operation.

You submit that you were affected by special circumstances in the 20XX-XX and 20XX-XX financial years, which impacted on the profitability of the activity in the 20XX-XX financial year.

You have submitted the following evidence to substantiate your claim under Appendix C:

• list of natural disasters for the purposes of Item 19A of Schedule 3 to the Australian Citizenship Regulations 2007 issued by the Australian Government Department of Immigration and Border Protection. The list includes the January 20XX rain event.

• Bureau of Meteorology Monthly Rainfall statistics and ABC online news articles showing the effect of the weather events on your activity

• Appendix B:

·         actual and projected profit and loss which show the impact on the profitability of the activity for the 20XX-XX financial year. The projected sales (data had the weather events not occurred) was based on the expected volume of produce per hectare and the pre agreed sale price for each variety.

·         The detailed forecast volume of crop for each variety which was anticipated prior to the January 20XX rain event compared to the actual amounts received. The table illustrates the impact the rain event had on the level of crop which was ultimately harvested as well as the decrease in sale price due to the reduction in quality.

Weather event - Hail Storm

The activity suffered an extreme hail storm which damaged up to 70% of the flowering buds which significantly impacted the yield for the 20XX-XX financial year.

Further the damp conditions caused by the storm led to mildew and other mould diseases which required additional spraying.

You undertook additional spraying, trimming and mowing of the affected hectares to ensure disease didn't take hold and spread to the remaining hectares that you were able to salvage.

You continued to farm the damaged hectares to ensure you would be able to crop it in the subsequent year.

Weather event - Rain Event

The property recorded rain which was described by the Bureau of Meteorology as a 1 in 50 year rainfall event. The rainfall received represented 12x the monthly average at your location and occurred during the period that the crop was ripening in preparation for harvest.

Approximately 59% of the crop (which were presold) was lost due to mould infection. The mould was caused by the rain and increased humidity due to moisture.

Additional expenses were incurred to save the remainder of the crop, which included labour costs (200+ hours) to remove rotting fruit and apply additional sprays to reduce humidity within the fruit canopy.

Quality of the remaining fruit was impacted and as a consequence the overall prices obtained at harvest were less than the pre-season agreed price. The reduced price was agreed a few days prior to the harvest at the final inspection.

The projected profit and loss for the 20XX-XX financial year shows that but for the above weather events, the activity would have made a profit.

The activity earned more than $20,000 for 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)(a)