Private ruling: Non-commercial losses - Commissioner's discretion - commercially viable period
Published: October 2014
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

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 2012-13 financial year? | A1: Yes.


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: Summary: 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 2012-13 financial year.

Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | • The application for private ruling and all attached documentation. | • Information provided in response to the request for further information. | You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. | You acquired an acreage property. | Some years later, you applied for a Development Application for the approval for the subdivision into lots. | This required the engagement of professionals such as: consultation with council officers, legal, surveyors, engineers, valuers, etc. Upon approval of council, the land was marketed by a real estate agent and upon achievement of pre-sales, finance arrangements were put in place to allow the subdivision to take place. You engaged contractors to undertake the necessary sub-division work and commenced sales of the blocks. | You have provided actual figures for the first year and projected figures for the next two years, to show that profits could be made in the latter two years.