Private ruling: Non-commercial losses - Commissioner's discretion
Published: June 2013
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

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 business activity in your calculation of taxable income for the 2011-12 and the 2012-13 financial years? | A1: Yes.

Relevant facts and circumstances: You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. You have applied for and received a private ruling where the Commissioner's discretion was exercised under paragraph 35-55(1)(c) of the ITAA 1997 for the 2010-11 financial year. Since the Commissioner's discretion was exercised for the 2010-11 financial year you have encountered protracted delays from the council in obtaining building permits and planning approvals. You estimate that you will make a tax profit within the next two to four years and have supplied a budget to substantiate this claim.

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)(c) Reasons for decision | 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 meet the income requirement and you pass one of the four tests | · the exceptions apply | · the Commissioner exercises his discretion. | In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. | The relevant discretion may be exercised for the income year in question where: | · it is in the nature of your business activity that there will be a period before a tax profit can be produced | · there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry. | Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. | Consequently the Commissioner will exercise his discretion in the 2011-12 and the 2012-13 financial years.