Private ruling: Non-commercial losses
Published: June 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2010-11 financial year? | A1: No

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced a business during the 2009-10 financial year. During the 2010-11 financial year you developed a few applications. You were unable to properly market your business in the 2009-10 financial year due to contractual work obligations. These obligations came to an end on 30 June 2011. You earned well under $20,000 in income for the 2010-11 financial year and made an overall loss. Your 2010-11 financial year turnover will exceed $100,000.

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)(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 years of income 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 income 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 income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests. Having regard to your full circumstances, it is not accepted that your business activity was affected by special circumstances outside your control. Contractual obligations are standard practise in business and are not unusual, uncommon or exceptional. Furthermore, the signing of such a contract was entirely within your control. Therefore, the Commissioner will not exercise the discretion available under paragraph 35-55(1)(a) of the ITAA 1997.

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