Private ruling: Non-commercial losses
Published: March 2015
Ruling period: Year ended 30 June 2011 - Year ended 30 June 2015
Date scheme commenced: 1 July 2010

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 2011 to 2015 financial years? | A1: No.

Relevant facts and circumstances: 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 projected income statement, and • the strategic business plan. Your income for non-commercial loss purposes is less than $250,000. You do not satisfy any of the four tests for the relevant years. You carry on a business. You commenced operations in the 20XX financial year. In 20XX, the area experienced a significant flood event. Your projections indicate you will not pass the assessable income test in the 2015-16 financial year, however you expect to pass it in 2016-17.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

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 satisfy the income requirement and you pass one of the four tests • the exceptions apply, or • the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the financial years under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the financial year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the financial years in question where, but for the special circumstances the activity would have passed at least one of the tests. It is accepted in your case that the situation you have described constitutes special circumstances. However, this in itself is not sufficient for the discretion to be exercised. The Commissioner must also be satisfied that your activity would have passed a test but for the special circumstances. From the evidence provided we believe that had the special circumstances not occurred the business would still have failed the four tests. The projected income statement shows assessable income of less than $20,000 for the 2015-16 financial year. Therefore, the Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the years in question.