Forced disposal of livestock - drought conditions

Can a taxpayer's property be considered drought affected for the purposes of Subdivision 385-E of the Income Tax Assessment Act 1997 (ITAA 1997) if it has not been officially acknowledged as such by a competent authority?

Yes. The taxpayer's property will satisfy the requirements of Subdivision 385-E of the ITAA 1997 providing objective evidence supports the conclusion the property is drought affected.

The taxpayer is in the business of primary production. Current fodder levels are extremely low due to very dry conditions. There is a forced disposal of live stock because of the low fodder levels. The taxpayer's property has not been officially declared in drought by a competent authority.

Subdivision 385-E of the ITAA 1997 encompasses sections 385-90 to 385-125 and is titled, 'Primary producer can elect to spread or defer tax on profit from forced disposal or death of live stock'. Subsection 385-95(1) prescribes that where a taxpayer in 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. The subsection does not require official acknowledgment of drought by a competent authority.

In Case 60 (1963) 11 CTBR (NS) 361; Case P25 (1963-64) 14 TBRD 127, Member Mr R.E. O'Neill stated: 'In considering whether a disposal of livestock is "in consequence of the loss or destruction of pastures or fodder" by reason of drought, it seems to me that a sound approach is to consider, not the magnitude of rainfall deficiency in a particular period, but rather the effects upon pastures of any rainfall deficiencies in light of other factors....'

As such, the 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.