Private ruling: Non-commercial losses - Assessable income test
Published: January 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Has your retail business activity passed the assessable income test in the 2010-11 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Division 35 | Income Tax Assessment Act 1997 - section 35-10 | Income Tax Assessment Act 1997 - section 35-30

Reasons for decision: Summary: Where a business activity is not in operation for the whole of an income year, paragraph 35-30(b) of the Income Tax Assessment Act 1997 (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 is made. | Detailed Reasoning - Making a 'reasonable estimate' of assessable income for the purposes of the Assessable income test: 62. To make a 'reasonable estimate' under paragraph 35-30(b) of assessable income that would have been derived from the business activity if it had been carried on throughout the income year in question (i.e., an estimate of a notional annual amount) an individual can consider all relevant factors, including, but not limited to: (a) the cyclical nature of the particular business activity which may result in variations in the pattern of receipts; (b) any orders received and/or forward contracts entered into; (c) the amount that could have been derived for a full income year based on a pro rata calculation of the assessable income already derived for the part of the year. The amount derived for the part of the year must be typical of the income derived in a full year; (d) the type of business activity undertaken, considering the nature and type of income receipts of similar activities typical of the industry; and (e) current size and investment in the activity. In your case, your business activity produced income of approximately $3,500 in July and August of 2010. Based on this income, a reasonable estimate of the assessable income you would have received had your business activity been able to continue for the full year is over $20,000. Therefore, your retail business is considered to have passed the assessable income test in the 2010-11 financial year.

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. | Relevant facts: You rented an empty shop in 2010 and spent some time fitting it out. | You commenced your retail business activity on 1 June 2010 and recorded sales of approximately $1,500 for the month of June of the 2009-10 financial year. | In July and August of 2010, your sales totalled approximately $3,500. | During August 2010, your landlord took possession of the shop and your business ceased at that point. | Your business activity produced losses of approximately $X in the 2009-10 financial year (which were deferred) and $X in the 2010-11 financial year. | Your income for non-commercial loss purposes was less than $250,000 in the 2010-11 financial year.