Private ruling: Non-commercial business losses and the Commissioner’s discretion
Date of advice: 20 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: 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 retirement village activity in your calculation of taxable income for the 2016-17 financial year? | A1: Yes. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. It is also accepted that, but for the special circumstances, you would have made a tax profit, and you have met one of the four tests. Consequently the Commissioner will exercise his discretion in the 2016-17 financial year. For more information on non-commercial losses, please visit our website www.ato.gov.au and enter quick code “QC 33774” in the search area at the top of the page.

Relevant facts and circumstances: Your income for non-commercial loss purposes for the financial years 2016-17 is more than $250,000. You have been carrying on a business activity for a number of years. The activity consists of leasing products to clients for a lump sum amount. When the lease ceases, the lease amount is transferred back to the lessee less “deferred management fees” and other fees. Its main source of income is the re-leasing of the product. The activity has been profitable in previous years. During the 2016-17 financial year the activity endured special circumstances, causing it to make a loss. You have advised that had the special circumstances not occurred, the activity would have been profitable.

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)