Private ruling: Deductibility of your isolated transaction
Date of advice: 11 July 2016
Published: August 2016
Ruling period: Year ending 30 June 2016.
Date scheme commenced: 1 July 2015

Ruling: Q1: If your isolated investment is not profitable, are your losses an allowable deduction? | A1: Yes.

Relevant facts and circumstances: You are an Australian citizen for tax purposes. You entered into a Private Investor's Deed ('the Deed') with the company Under the Deed, you: • invested a specific amount • will receive a profit from the investment's gross receipts. • will recoup your initial investment amount from the gross receipts. Assumption(s) The project may not generate a profit.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 15-15

Reasons for decision: Summary: If the project you invested in does not generate a profit, you can claim losses as a deduction. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 92/4 examines whether losses incurred in relation to an isolated transaction are deductable. A loss from an isolated transaction is generally deductible under if: (a) in entering into the transaction the taxpayer intended or expected to derive a profit which would have been assessable income; and (b) the transaction was entered into, and the loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. In your case, the Commissioner determined in a previous private ruling that any profits made on your projects investment with the company would be considered assessable income under section 6-5 of the ITAA 1997 pursuant to Taxation Ruling TR 92/3 as profits from an isolated transaction. In addition, you entered into a Deed which states that you are entitled to recoup your initial investment plus a share of the director's share of the profits. Whilst you were not carrying on a business of investment, it is considered that this was a transaction with a commercial character. Therefore, as both requirements set out in TR 92/4 have been met, any losses incurred in relation to the investment are an allowable deduction. | Detailed Reasoning - Further information: When completing your tax return, you should include the loss incurred from the investment in the year it was incurred at 'Other deductions - not claimable at items D1 to D14 or elsewhere on your tax return. This was question D15 on the 2015 tax return.