Private ruling: NCL Commissioner's discretion - special circumstances
Published: January 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

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 business activity in your calculation of taxable income for the 2013-14 financial year? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(a).

Reasons for decision: Summary: In your application, you answered 'yes' to the question 'Are you carrying on a business' and the ruling is issued on this basis. Also, we have not considered the expenses that you have claimed to create the loss. It is assumed that you have considered them fully and they are allowable expenses under relevant income tax legislation. Please note the following explanation regarding the carrying on of a business. It should be applied on an annual basis. If an activity continuously runs at a loss, it may become questionable that it is considered a business, if there is no prospect of a profit. Whether a business is being carried on depends on the large or general impression gained ( Martin v. Federal Commissioner of Taxation (1953) 90 CLR 470; (1953) 10 ATD 226; (1953) 5 AITR 548) from looking at all the indicators of carrying on a business, and no one indicator will be decisive ( Evans v. Federal Commissioner of Taxation 89 ATC 4540; (1989) 20 ATR 922). Taxation Ruling TR 97/11 provides the Commissioners view of the factors used to determine if you are in business for tax purposes. In the Commissioner's view, the factors that are considered important in determining the question of business activity are: • whether the activity has a significant commercial purpose or character • whether the taxpayer has more than just an intention to engage in business • Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity • whether there is regularity and repetition of the activity • whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business • whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit • the size, scale and permanency of the activity • whether the activity is better described as a hobby, a form of recreation, or sporting activity. No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression. | Detailed Reasoning - Non-commercial losses: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. The Commissioner may exercise discretion to allow the inclusion of the losses. A person will satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if their income for non-commercial loss purposes is less than $250,000. In your case, you do satisfy the income requirement as your income for non-commercial loss purposes was less than $250,000 in the 2013-14 financial year. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on the evidence available, that your business activity would have produced assessable income of $20,000 or more in the year, except for the impact of the special circumstances (paragraph 35-55(1)(a) of the ITAA 1997). In your case, it is accepted based on the assessable income derived in the previous years that your business activity would have passed the assessable income test except for the special circumstances. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(a) of the ITAA 1997 in relation to your business activity for the 2013-14 financial year.

Relevant facts: Your business has commenced. | Your other income for NCL purposes is less than $250,000 and greater than $40,000. | You have been impacted by special circumstances to the extent that it was uneconomic to carry on business as normal. | You have passed the assessable income test in the previous three years. | You have provided information which evidences the special circumstances.