Edited version of private advice

Authorisation Number: 1052118099873

Date of advice: 26 May 2023

Ruling

Subject: Non-commercial losses - special circumstances

Question

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

Relevant facts and circumstances

You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You carry on a primary production business with the produce being planted prior to you acquiring the property. The property is located within the NSW.

The business is operated as a partnership.

You traded in the 20XX-XX financial year.

You advised of weather issues that occurred in your region which impacted the business.

You advised of massive landslides locally and in surrounding areas. The 20XX harvest which commenced in early 20XX was impacted by floods and proceeding rain that started in a specified month in City A. The wet weather continued for months after which resulted in the harvest having to be done by hand for a majority of the season.

The harvest season usually runs for a 6 month period and is carried out by machine every 4 weeks when possible.

Conditions must be dry to machine harvest. Hand harvesting was very slow and the crop sat on the ground too long causing the quality to be compromised to the point a lot of the product was unsellable.

The 20XX-XX harvest was completed in a specified month and sent for processing. Due to massive staff shortages in the area, the processed product were not received back for distribution and sale until 5 months later.

The process of marketing and setting up the online sales platform commenced; however, there were delays with the website developer in getting the site up and running. The 20XX harvest was not as large as expected due to the major hailstorm events in the previous financial year.

The ability to distribute the sales that were generated from the online sales platform was severely hampered due to being cut off from a particular locality and the Post Office for many months. Furthermore, once the rain event and flood waters began to subside the attention was on repairing major land slides on the property so that safe access around the property and various paddocks was restored. The reduction in revenue is difficult to quantify, however, you not had to deal with the extreme weather conditions you would have been able to apply all of your time promoting and marketing your products.

Not all the 20XX-XX harvest was sold in the 20XX-XX financial year. A substantial amount of sales rolled over to the 20XX-XX financial year.

Even after dealing with the extreme weather conditions experienced in the region, you were

able to produce a successful harvest in the 20XX harvest season resulting in healthy sales for this period.

Your business was impacted in the 20XX-XX financial year in the following ways:

•         extreme weather conditions

•         due to the delay in the processing of the packed product being returned by the processor to the business 5 months later

•         a further delay in the set up of your online marketing and sales platform.

Your business has not previously made a profit.

Your business met at least one of the four non-commercial loss tests and it was expected, if not for the special circumstances, your business would have made a tax profit in the 20XX-XX financial year.

You expect to make a profit in the 20XX-XX financial year.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-55(1)(a)

Income Tax Assessment Act 1997 subsection 35-10(2E)