Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 17 November 2017
Published: April 2018
Ruling period: ● year ended 30 September 2016 | ● year ended 30 September 2017
Date scheme commenced: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the ITAA 1997 to allow you to include a losses from your business activity in your calculation of taxable income for the 2015-16 and 2016-17 financial years? | A1: Yes Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise the discretion in the 2015-16 and 2016-17 financial years. For more information on non-commercial losses, please visit our website at www.ato.gov.au and enter quick code ‘ QC 33774 ’ at the search area.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a business primary concerned with manufacture of a product. You commenced business operations on in the 2015-16 financial year, when you successfully developed a recipe. You were unable to distribute any products due to the absence of licencing approval. The nature of the licencing approval process requires the product and production process to be established and operating for inspection by the local council and licencing authorities before the licence is granted. Licencing approval is required before any products can be sold or distributed. The product will be sold wholesale to independent retailers and through direct sale channels to the public once licensing is in place. Establishment costs, direct materials and operating overheads are borne prior to and during the inspection process. You have also successfully applied for trademarks, staving off legal challenges in the process, sought distribution channels and established business relationships with suppliers. You intend to make at least $20,000 in assessable income in the 2017-18 financial year. Further, you expect to make a profit in the same 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)(b) .