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

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 partnership activity in your calculation of taxable income for the relevant income year? | A1: No.

Relevant facts and circumstances: You were a partner in a partnership that commenced in 200X. The partnership passed the assessable income test in the X, Y and W income years. In all years your business traded at a loss. In the relevant income year you and your spouse both suffered illness. No medical certificates have been issued for the illness. You tried to operate your business remotely however travel time and sickness combined to deny you achieving your projected assessable income. In late 20YY you went to another state to live and your ex-spouse also re-located. Your ex-spouse tried to keep the business going but found they could not make it profitable having to travel to continue the business. Realising it was not viable to keep the partnership going it ceased as at the relevant year. You satisfy subsection 35-10(2E) of the ITAA 1997 as you did not earn more than $250,000 in the 20YY financial year.

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

Reasons for decision: Summary: For the YY and later income 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 year 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. In your circumstances you separated from your spouse. Although both you and your spouse suffered illness no medical certificates were issued that would indicated that your illness prevented you from carrying on your business. You both also re-located away from your area of business operation. Relocation was a personal choice and not one that was outside of your control. The Commissioner will not exercise the discretion as your choice to relocate is not considered a special circumstance for the purpose of Division 35 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.