Private ruling: Non-commercial losses
Published: June 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can the dollar amount as stated in the exception of subsection 35-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) be extended beyond $40,000? | A1: No.

Relevant facts and circumstances: You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. However your income for the relative years is greater than $40,000. In 200X you sought to commence a business. You undertook to build a portfolio of work through funding a start-up sole-owned business creating short versions of production that would serve the longer term commercial objective of larger productions. However these short versions do not necessarily make a profit, but are critical in gaining recognition that opens doors to investment and/or funding towards fully-fledged commercial projects. In 20XX you undertook your first professional short project which you self-funded by investing over $X in the project. You did not offset expenses against your other income nor did you defer the losses. You did this as you felt you could only refer to the ongoing business you had undertaken as commercially orientated if you continued to produce additional products.

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)(b) | Income Tax Assessment Act 1997 subsection 35-10(4)

Reasons for decision: Summary: Subsection 35-10(4) of the ITAA 1997 states that the rule in subsection (2), (2A) or (2B) does not apply to a business activity for an income year if the activity is a primary production business, or a professional arts business and your assessable income for that year (except any net capital gain) from other sources that do not relate to that activity is less than $40,000. There is no discretion available in the ITAA 1997 that would allow you to use the exemptions of subsection 35-10(4) of the ITAA 1997 in any manner other than those as stated.