Private ruling: Commissioner's discretion for non-commercial losses
Date of advice: 14 August 2020
Published: September 2020
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)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your primary productionbusiness activity in your calculation of taxable income for the 20XX-XX 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, and that this has prevented you meeting one of the four tests. It is also accepted that, but for the special circumstances, you would have met one of the four tests. Consequently, the Commissioner will exercise his discretion to extend the lead time for the 20XX-XX financial year.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a wellbeing business which commenced in early 20XX, in the 20XX-XXfinancial year. You offer two main services as part of your business, the first being the provision of delivery of training packages to a specific sector (service 1), and the second being delivery of personal one on one services (service 2). You estimate that most of your revenue will be derived from service 1, with the remainder to be derived from service 2. You have a website which outlines your complete range of services that are available. You hold relevant qualifications as listed on your website You have been advertising for client's via social media, email marketing campaigns, direct contact with businesses who you would deliver service 1 to, along with other on- line networking. You currently have a few businesses who have current bookings with you to deliver service 1, along with a couple of clients who you will deliver service 2. You submit that you were affected by special circumstances (COVID-19) in the 20XX-XXfinancial year. You have submitted the following evidence to substantiate your claim: · A screen shot from an Australian Industry Association online form (related to service 2) in early 20XX which includes comments from other business operators within that sector regarding a reduction in client's due to the impact of COVID-19. · An on-line article from mid- 20XX, which confirms that private practitioners who also deliver service 2 were reporting a loss of clients due to the impact of COVID-19. · Several on-line article's sourced from a major Australian on-line media source in early 20XX which confirm that the industry sector who will be delivering service 1 to have been affected financially by the impact of COVID-19. You submit that the special circumstances impacted on your business in the following ways: · In early 20XX you resigned from your full-time salaried position to focus solely on your business, as you had several organisations interested in your services. · Unfortunately, COVID-19 has had a detrimental impact on your business taking off given its effect on the industry sector who you will be delivering service 1 to specifically (given that most of your expected income will be sourced from service 1) along with the overall economy (including the sector relating to service 2). · In early 20XX (when the effects of COVID-19 started to take effect) the interested businesses withdrew their interest in regards to service 1 and families were generally being quite careful with their funds in regards to service 1, all due to the impact of COVID-19. · You incurred significant expenses in establishing the business and marketing it, which included undertaking necessary training courses, establishing the website, marketing materials, purchasing resources, point of sale facilities and furniture. · You have offered service 1 sessions to your clients on-line via an on-line platform. However, in regards you delivering service 2, you are restricted by the accrediting body. As such service 1 had to be delivered face to face at the relevant businesses. · Overall, other businesses who deliver service 2 in a private practice are seeing a significant downturn in the number of client's they are seeing due to a number of reasons. · In addition, the sector who you will be delivering service 1 to is bracing itself for an economic downturn. Specific businesses within that sector (where you initially received the most interest from) are very concerned about their own financial position, and as such they are therefore very hesitant to outlay money on the delivery of service 1. You intend to make $20,000 in assessable income in the 2020-21 financial year.

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)