Private ruling: Non-commercial losses - commissioner discretion - commencement
Date of advice: 15 September 2025
Published: 17 November 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your epoxy floor coating business activity in your calculation of taxable income for the 2025 financial year? | A1: No

Relevant facts and circumstances: You started acquiring essential equipment for your business activity. Your business activity requires you to have specific equipment before you can start operating. You have not acquired the specific equipment. You are unable to generate revenue from your business activity until the specific equipment has been obtained.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35

Reasons for decision: Summary: Division 35 of the ITAA 1997 applies only to an individual who is carrying on a business activity in an income year, either on their own or in a general law partnership. For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • You satisfy the income requirement, and you pass one of the four tests. • The exceptions apply. • The Commissioner exercises his discretion. For this division to apply, your activity should be carried on as a business. Taxation Ruling TR 2001/14: Income tax: Division 35 - non-commercial business losses provide the Commissioners view on when a business activity has commenced. Specifically, paragraph 69A of TR 2001/14 broadly requires you to have: • made a decision to commence the business activity • acquired the minimum level of business assets to allow that business activity to be carried on; and • actually, commenced business operations. A mere intention to start carrying on a business activity will not be sufficient. Decision to commence The commencement of a business activity typically begins with an intention to start a business. Your intention and purpose in engaging in the activity are relevant, but intention alone is not enough to establish that a business has commenced there must be activity (paragraph 101 of TR 2001/14). Esso Australia Resources Ltd v . FC of T 97 ATC 4371 at 4382; (1997) 36 ATR 65 at 77-78 stated: 'While the taxpayer may have had the intention ultimately to engage in production, that is not sufficient in itself to constitute a business activity.' Whitfords Beach Pty Ltd v. FC of T , emphasized that determining when a business has commenced requires examining both the taxpayer's purpose and their activities. Some actions may be merely preparatory and not part of the business itself. Therefore, the commencement of a business is marked not just by intention, but by tangible actions that reflect a commitment to carrying out the business. Acquisition of a minimum level of business assets to allow that business to be carried on A business must have a structure or "profit-yielding subject" in place. This typically involves capital assets, which may vary depending on the nature of the business. In Calkin v CIR [1984] 1 NZLR 440 ('Calkin') at 446-447, Richardson J stated: 'Clearly it is not sufficient that the taxpayer has made a commitment to engage in business: he must first establish a profit-making structure and begin ordinary business operations.' For a business activity to commence, an appropriate business structure should be in place and begin ordinary business operations. As to what the business structure will consist of, and its size, will be a question of fact and degree, and will depend on the nature of the business activity. Commencement of Business Operations As noted in Inglis v . FC of T 80 ATC 4001 the level of activity is important. The extent of activity will also determine whether a business activity has commenced and is in its start-up phase. Activity will support claims to have commenced a business activity, Inglis case emphasised this. Based on the decision in Calkin the level of activity required will vary from case to case, however there are two different types of activities that are relevant: • acquisition of the minimum level of 'business assets'; and • the commencement of 'business operations'. Both are necessary to be able to conclude that a business has commenced. Preparatory activities Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production outlines that expenses may be incurred before commencing a particular business. For example, expenses associated with experimental or pilot activities which do not amount to a business and do not result in any assessable income being produced are not deductible (paragraph 41 of TR 97/11). TR 97/11 provides an example at paragraph 45-46 of preparatory activities. Example 5: Between 1980 and 1985, Lindsay and Loretta were not carrying on a business, as their activities were considered preparatory rather than indicative of an active business. Although they had a clear intention to engage in cattle farming, they acknowledged that significant groundwork-such as land clearing, infrastructure development, and building construction-was necessary before stocking cattle. Crucially, there was no income, no livestock, and no regular or cattle-related activity during this period. The business only commenced in 1986, when the property was stocked with 100 cattle, marking the start of actual business operations. Application to your circumstances You started the setup phase of business activity by acquiring essential equipment to carry out your activity. You are unable to begin earning revenue until you obtain the required equipment, which you have not yet obtained. You have not undertaken your business activity in the 20XX financial year. It is the Commissioner's view that in your circumstances, you have not yet acquired the minimum level of assets to have commenced, not have you actually commenced an epoxy floor coating activity for the purposes of the non-commercial loss provisions in Division 35 of the ITAA 1997. The non-commercial loss (NCL) rules apply only where a business activity has been commenced and is being carried on. This is a threshold requirement. If the activity has not genuinely commenced or is not being carried on as a business, the NCL provisions do not apply, and any losses are not deductible under general principles.