Private ruling: Non-commercial losses
Date of advice: 21 December 2016
Published: June 2017
Ruling period: Year ended 30 June 201X
Date scheme commenced: 1 July 201X

Ruling: Q1: Did you satisfy the income requirement under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for non-commercial loss purposes in the 2013-14 financial year? | A1: Yes.

Relevant facts and circumstances: You have been carrying on a primary production business for more than 40 years and this has been your sole source of income over this period. In the past you were required to hold shares in an industry co-operative. You are now no longer required to hold the shares in order to supply your produce. You sold your shareholding and used the money to pay primary production debts. The assessable capital gain on the sale of the shares is in excess of $250,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Subsection 35-10(2E) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: The income requirement in subsection 35-10(2E) of the ITAA 1997 is met when, in a given income year the sum of the individual's taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses is less than $250,000. When calculating whether an individual has met the income requirement, they must disregard any excess deductions that are subject to Division 35. In your case, you sold your shareholding in the company as you are no longer required to hold shares in the company in order to supply the company with your primary production product. The assessable capital gain on the sale of the shares is in excess of $250,000. Assessable income is defined in section 995-1 of the ITAA 1997 to include statutory income as well as ordinary income (paragraph 61 of Taxation Ruling TR 2001/14). The assessable income from your primary production business activities will include both ordinary income and statutory income received in connection with the business. It is accepted that purchasing shares in the co-operative is a direct consequence of carrying on the primary production business. This is because you were required to hold a minimum number of shares, and to continue to purchase shares in order to supply your produce to the co-operative. The number of shares the held in the co-operative was a direct result of the quantity of produce supplied to the co-operative. It follows that any capital gain made on the disposal of the shares is also a direct consequence of carrying on the business. For the purposes of calculating whether you have met the income requirement, the capital gain will be offset against any excess deductions from your primary production business activity first. As a result, your income in the 201X-1X financial year for non-commercial loss purposes is less than $250,000, satisfying the income requirement under subsection 35-10(2E) of the ITAA 1997.