Private ruling: Commissioner's discretion on non-commercial losses
Date of advice: 22 June 2020
Published: August 2020
Date scheme commenced: Year ended 30 June 20XX

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 yourbusiness activity in your calculation of taxable income for the 20XX-XX financial year? | A1: Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. It is also accepted that, but for the special circumstances, you would have made a tax profit, and you have met, or would have met one of the four tests. Consequently, the Commissioner will exercise his discretion for the 20XX-XX financial year. For more information on non-commercial losses, please visit www.ato.gov.au and search quick code QC 33774.

Relevant facts and circumstances: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a business as a sole trader which commenced in early to mid- 20XX. At around the same time you also commenced contracting your services with a local business (which is a similar activity to your sole trader business), under the same ABN you were using for your sole trader business, and you have grouped the two activities together for the purposes of the non-commercial loss provisions. You are the sole operator of the business. You submit that you were affected by special circumstances (personal injury and medical issues) in the 20XX-XX financial year, which limited your ability to operate your business in anything other than a low capacity. You have submitted the following evidence to substantiate your claim: · Written confirmation from your medical practitioner dated in late 20XX confirming that you were suffering multiple medical issues which were significantly limiting your ability to continue active work. This letter also confirms that your medical practitioner diagnosed you with physical incapacity to carry on your required duties. · Further written confirmation from another medical practitioner dated in early 20XX confirming that you were no longer able to perform the duties in your business as a result of the multiple medical issues that you were suffering from. · You submit that the special circumstances impacted on the profitability of your business in the following ways: · After commencing your business in early to mid-20XX you were working very long hours in both the business and with your contracting services, mainly to try and keep your finances in order. · You started to notice some wear and tear on your body as a result, and by mid- 20XX you were forced to reduce your contracting services hours, and you were also starting to postpone some work for your sole trader business at that point. · In late 20XX you could only manage a couple of days a week in the sole trader business during peak periods if the work was physical. You could manage a certain amount of slightly less physical tasks, such as those required of you for your contracting services, but whenever more physical work was required you struggled to manage. · Shortly after this you were going through a particularly bad period with the wear and tear on your body and you therefore approached your regular General Practitioner who advised that you could not continue working in this manner and perform the duties required. · As at the start of 20XX you had suffered personal injuries which limited your ability to work in the sole trader business other than at a very low capacity. · This prevented you from being able to generate enough business income to make a profit by 30 June 20XX, as you were only able to devote a very small amount of time to the business, which was still in existence (as you had a large job in progress that needed eventual completion plus a small number of regular clients who you looked after) but at a much reduced capacity. You intend to return to profit in the 20XX-XX financial year.

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)