Private ruling: Non-commercial losses - Commissioner's discretion - lead time
Date of advice: 17 July 2015
Published: July 2015
Ruling period: Years ended 30 June 2013 to 2016
Date scheme commenced: 1 June 2013

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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 income years ended 30 June 2013 to 2016? | 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)(b)

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; or • the Commissioner exercises his discretion. In your situation, you satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, is less than $250,000), but you will not pass any of the four tests in the excluded years 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 financial year in question where: • it is in the nature of your business activity that there will be a period before one of the four tests can be passed; and • there is an objective expectation your business activity will pass a test or produce a tax profit within the commercially viable period for your industry. Having regard to your full circumstances, it is accepted that it is something inherent in the nature of the business activity that has prevented you from passing a test. It is also accepted that based on the information you have provided, you will pass a test or make a tax profit within the commercially viable period for your industry. You have undertaken your activity in a business-like manner applying all the research to enable you to make a success of the activity in this industry. Consequently the Commissioner will exercise his discretion in the 2012/13 to 2015/16 financial years to allow you to utilise your losses from your business activity.

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: | • Application for a private ruling on the Commissioner's discretion for non-commercial business losses | • Non-commercial losses: evidentiary checklist | • Actuals and forecasts of income and expenses | • Copies of articles from relevant authorities | • Newspaper articles on the production and sales | • Copies of e-mails verifying work done and research undertaken in establishing the business. | You purchased a property on which you conduct the business. | You undertook research to determine the best business to conduct. | You established that there was a wholesale market through an established producer and exporter in the area. | You developed a business plan and have made forecasts of income and expenses to show when the business will be profitable. | You have sought advice from established businesses in the area and other professional persons involved in the industry.