Private ruling: Non-commercial losses and the Commissioner's discretion
Published: November 2013
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 share trading business in the calculation of your taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: You and your spouse entered into a partnership of farming in the 200X financial year. You decided to change to animal grazing in the 20XX year and closed the farm. You sold some of the animals in the 20XX financial year and the rest in the 20YY year and bought other animals for fattening. You expect to make a tax profit in the 20ZZ financial year. You do not satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2012-13 financial year.

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

Reasons for decision: Summary: For the 2009-10 and later income 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 relevant financial year.