Private ruling: Non-commercial losses
Published: April 2014
Ruling period: Year ended 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 in the calculation of your taxable income for the 2012-13 income year? | A1: 


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

Reasons for decision: Summary: You have established that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry. Therefore, the Commissioner will exercise the discretion and allow the losses from your business activity to be included in the calculation of your taxable income for the 2012-13 financial year. | Detailed Reasoning - Detailed reasoning: 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. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). In your case, you commenced your business some time ago. You have provided evidence from an independent source that suggests the commercially viable period for your industry/business can be up to ten years. In your projected income and expenditure statements, you anticipate that your business activity will produce a tax profit in the 2013-14 financial year, or after nine years which is within the ten year viability period. Taking into consideration the information you have provided, the Commissioner is satisfied that your business activity will produce assessable income greater than the deductions attributable to it within a period that is commercially viable for this industry. Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income for the 2012-13 financial year.

You have a high number of stock and the stock is worth a substantial amount of money. | You received a favourable private ruling regarding the commercially-viable period for previous financial years. | You have extensive experience in the industry and you also engage many professionals to assist with the ongoing management of the business. | Your business made a loss in the 20XX financial year and you expect to make a taxable profit in the 20XX financial year and beyond.