Private ruling: Non commercial business losses
Published: May 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to include any loss from the activity in the calculation of your taxable income for the 2010-11 financial year? | A1: Yes

Relevant facts and circumstances: On 1 July 2007, you commenced a business activity. After 1 July 2010, due to personal circumstances, you ceased operation of the business. Assessable income from the activity up until after 1 July 2010, totalled $X. The business activity suffered a loss in the 2010-11 financial year. Your income for non-commercial business loss purposes in the 2010-11 financial year is less than $250,000. You have met the assessable income test in all prior financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Paragraph 35-30(b) | Income Tax Assessment Act 1997 Paragraph 35-55(1)(a)

Reasons for decision: Detailed Reasoning - Detailed reasoning: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 (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. Where a business activity is not in operation for the whole of an income year, paragraph 35-30(b) of the ITAA 1997 applies, so that the assessable income test is then based on a reasonable estimate of what the assessable income from the business activity would have been if the activity was carried on for the whole of that year. The requirement in paragraph 35-30(b) is that a reasonable estimate be made of what the assessable income would have been had the business been carried on for a full year. Paragraph 62 of Taxation Ruling TR 2001/14 discusses how a reasonable estimate may be made. In your case, your business activity produced income of $X for the 5 month period from July 2010 A reasonable estimate of the assessable income you would have received over the full year, based on these figures, is over the $20,000 threshold for the assessable income test. Therefore your business activity is considered to have passed the assessable income test in the 2010-11 financial year and you are entitled to include the loss from the activity in the calculation of your taxable income. As we consider you have passed the assessable income test for the financial year in question you are not required to defer your losses. Additionally, as you are considered to have passed a test, the Commissioner is not required to exercise the discretion for special circumstances under paragraph 35-55(1)(a) 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.