Private ruling: Non commercial losses - special circumstances
Date of advice: 26 August 2021
Published: November 2021
Ruling period: XXXX to 30 June XXXX

Ruling: Q1: Will the Commissioner exercise the discretion for special circumstances under section 35-55 of the Income Tax Assessment Act 1997 to allow a loss from your event management activity in the calculation of your taxable income for the XXXX financial year? | A1: Yes Having regard to your full circumstances, it is accepted that special circumstances outside your control have prevented the business activity from meeting at least one of the four tests (the assessable income test, the profits test, the real property test, the other assets test) or making a tax profit. The Commissioner accepts that the business activity would have satisfied the assessable income test if the bushfires and COVID had not occurred. You will be able to offset the loss from his business activity against your other income. Although your activity may currently be a business, you can change from conducting an activity as a hobby to that of being in business and vice-versa over time, as your level of activity changes. Therefore, you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business. You could also consider the type of entity that is appropriate for your activity i.e. sole trader, partnership. An entity can only claim deductions that it has incurred in relation to earning its assessable income.

Relevant facts and circumstances: You are carrying on an event management business as a sole trader. You have special circumstances including bushfire and COVID, which were outside your control that have prevented the business activity from meeting at least one of the four tests or making a tax profit in 2020. Included is also the forecast for the year when you expect to produce a tax profit. In each of the past three years the activity has been able to generate assessable income greater than $20,000. Your income for non-commercial loss purposes in the income year prior to the income year for this application was received by the Commissioner was less than $250,000.

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)