Private ruling: Non-commercial losses - Commissioner's Discretion
Published: February 2014
Ruling period: 2012-13 to 2024-25 financial years inclusive
Date scheme commenced: During the 1999-2000 financial year

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 2012-13 to 2024-25 financial years? | A1: Yes

Relevant facts and circumstances: Rulings were issued to you previously for the same business activity and in those rulings, the Commissioner exercised the discretion under paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include losses from your business activity for those years. You state that your business activity will not satisfy any of the tests set out in sections 35-30 (assessable income test), 35-35 (profits test), 35-40 (real property test) or 35-45 (other assets test) of the ITAA 1997 in the 2012-13 to 2024-25 financial years. You state that your activity is carried on as a business and you commenced the activity in the 1999-2000 financial year. You provided a business plan which outlines the suitability types, the preparation required, care and management of your business activity. The documents and information provided support the lead time for your business. This ruling is provided on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect.

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 35-55(1)(b). | Income Tax Assessment Act 1997 Subsection 35-10(2). | Income Tax Assessment Act 1997 Subsection 35-10(4).

Reasons for decision: Summary: As your activity has commenced and is carried on as a business, it is subject to the provisions in Division 35 of the ITAA 1997. Information you provided indicates that your business activity is not able to satisfy one of the tests or produce a taxation profit, and is unlikely to do so in the 2012-13 to 2024-25 financial years. Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997, will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(b) of the ITAA 1997 that it would be unreasonable to defer the loss. The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where: (i) the business activity has started to be carried on; and for those income years (ii) because of its nature it has not satisfied one of the tests set out in section 35-30, 35-35, 35-40 or 35-45, and (iii) there is an objective that the business activity will either meet one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned. It is accepted that it is in the nature of your business activity that there will be a lead time before a profit can be expected or one of the tests met, and that it is because of the nature of your activity, that it will not be able to satisfy one of the tests in the 2012-13 to 2024-25 financial years. The information and the independent evidence you have provided demonstrates that there is an objective expectation that your business activity will produce a profit by the 2024-25 financial year, your twenty fifth year of operation. The Commissioners discretion under paragraph 35-55(1)(b) of the ITAA 1997 has been exercised for the 2012-13 to 2024-25 financial years in the basis that the arrangement will continue to be carried out as described in the ruling.