Private ruling: Non-commercial losses - Commissioner's discretion
Published: August 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are the losses you incurred in relation to your now ceased retail business subject to the non-commercial loss provisions in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) in the 2010-11 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Division 35. | Income Tax Assessment Act 1997 - Paragraph 8-1(1)(b)

Reasons for decision: Summary: Under Division 35 of the ITAA 1997, a loss made by an individual from a business activity will not be deductible in the income year in which it arises unless certain conditions are met. If an individual is not considered to be carrying on a business in the income year, Division 35 will not apply (Taxation Ruling TR 2001/14, paragraph 10) Paragraph 58 of TR 2001/14 states that: Division 35 will only apply to otherwise allowable deductions that are attributable for a particular year to the carrying on of a business activity in that year (see subsections 35-5(2) and 35-10(1)). This means that typically they will be outgoings incurred in a particular year in the course of carrying on that business activity in that year. There may be amounts however, for example, those deductible under paragraph 8-1(1)(b), that are deductible even though they are incurred after the business activity has ceased being carried on. These otherwise allowable deductions are not subject to Division 35. In your case, you have stated that your business ceased in the 2009-10 financial year. Therefore, you are not subject to the non-commercial loss provisions in Division 35 of the ITAA 1997 in the 2010-11 financial year in relation to the losses you incurred.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You commenced your retail business in the 2008-09 financial year. | In the 2009-10 financial year the business was closed due to a lack of trade and the inability to make a profit. | Some, but not all, of the trading stock was able to be sold in the 2009-10 financial year. | The remaining trading stock was sold in the 2010-11 financial year for less than the stock on hand value at 31 June 2010 creating an overall loss.