Edited version of private advice

Authorisation Number: 1051862663824

Date of advice: 8 July 2021

Ruling

Subject: Non-commercial losses

Question

Will the Commissioner exercise the discretion to allow you to include your share of partnership losses from the primary production business in the calculation of your taxable income for the financial year ending 30 June 20XX?

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 the business 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 ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A operated a XX primary production business (the business) as a sole trader, in the 20XX and 20XX financial years. The business made a tax profit in the 20XX financial year.

The area of the business, XX, was affected by severe drought since 20XX financial year. As a result, the business incurred much higher expenses in buying fodder to feed the livestock and made a tax loss of $XX in 20XX financial year (the previous year).

The business as a sole trader operated till XX 20XX. On XX 20XX, the business was restructured from sole trader to partnership, in which Person A and a family member became the partners of the partnership.

The partnership continued with the business of XX from the same farmland.

The drought weather condition continued into the 20XX financial year. A drought map from the XX Government was provided to support the claim of drought condition.

Within the 20XX financial year,

•         in the period that the business operated as a sole trader, that is 1 July 20XX to XX 20XX, due to a major sale event, in which the business sold most of its saleable livestock, it recorded a tax profit of $XX.

•         in the partnership period, that is XX 20XX to 30 June 20XX, the business had limited saleable livestock remaining. It therefore resulted in a lowered sale revenue and a tax loss of $XX.

•         the business made an overall tax loss of $XX (partnership period loss minus sole trader period profit) due to the unimproved drought condition, an amount similar to the previous year loss.

The weather condition started to improve towards the end of the 20XX financial year. It is expected that the business could be break-even in the following financial year and make tax profits from the 20XX 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)