Edited version of private advice

Authorisation Number: 1052007293687

Date of advice: 19 July 2022

Ruling

Subject: Commissioner's discretion - non-commercial loss

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA1997) to allow you to include any losses from your business activity in your calculation of taxable income for the 20XX financial year?

Answer

Yes.

Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you from making a tax profit. Consequently, the Commissioner will exercise his discretion in the 20XX financial year.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences in:

XXXX 20XX

Relevant facts and circumstances

Your income for non-commercial loss purposes is more than $250,000.

Your partnership business is a cattle farming and grazing enterprise. The farm runs around XXXX head of cattle. Your business started in 20XX and has been building its breeding herd cows. Instant asset write off for business assets has contributed to losses in previous years.

The business has strong governance standards, you regularly consult with Agronomists to assist with farming advisory and refer to banks and accountants to manage the farming profitability.

You both have a long history of farming experience. XXXX has a degree in agribusiness management and has previously managed a multimillion-dollar agricultural business.

The business activity was affected by special circumstances outside your control, for example, flood and other events. The flood disaster saw 75% of the farm going under water, including the entire sown crop.

Crop production was severely impacted. The floods reduced quality, yield and sales of oat and wheat; the quality was severely downgraded to cattle feed.

There was a significant increase in cropping costs in 20XX due to:

1. COVID - The cost of Glyphosate and other chemicals have increase dramatically, more than 100%.

2. Weed management - Because of the flood, there were access issues to the paddocks, you were not able to apply your weed management policy and apply chemicals when it was most cost effective. Therefore, you needed to use more chemical at heavier rates because the weeds were more established. Furthermore, aerial application was used rather than ground application which incurs significantly higher costs (typically double). The flooding also damaged farm machinery, internal fences and some external fences. Further fencing repairs are yet to occur because the land is still too wet to get the adequate machinery to site.

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 subsection 35-30

Income Tax Assessment Act 1997 paragraph 35-55(1)(b)