Private ruling: Non-commercial losses - income requirement
Date of advice: 8 April 2019
Published: May 2019
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2018

Ruling: Q1: Did you satisfy the income requirement under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for non-commercial loss purposes in the 2017-18 financial year? | A1: Yes. Any assessable income attributed to a business activity incurring a loss is not included in the adjusted taxable income calculation. This is because it forms part of the business losses, which are disregarded (the business losses are calculated by deducting the expenses attributed to the business activity from the assessable income ‘from’ that business activity. It is accepted that purchasing shares in the co-operative is a direct consequence of carrying on the farming business, and it follows that any capital gain made on the disposal of the shares, along with any assessable income from any dividends received, is also a direct consequence of carrying on the farming business. As such, and having considered your circumstances and the relevant factors, your income for non-commercial loss purposes is less than $250,000, satisfying the income requirement under subsection 35-10(2E) of the ITAA 1997. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

Relevant facts and circumstances: You have been carrying on a farming business in a partnership. In early 20XX, one of the original partners in the partnership passed away. Following this, the deceased partner’s interest in the partnership was inherited in equal shares by two out of the three remaining partners in the partnership. In the past you were required to hold shares in an industry co-operative and to acquire additional shares based on the quantity of produce supplied. During the 2017-18 financial year, the partnership incurred a net loss, with two of the partners having a X% share of the loss, and the other partner having a Y% share of the loss. The shares were held by the partnership and each partner only had an interest in the partnership and did not hold the shares individually. After the listing of shares on the Australian stock exchange (ASX) in mid 20XX, you were no longer required to hold the shares in order to supply your produce. During the 2017-18 financial year you sold some of the shareholding to pay out the other beneficiaries of the estate of partner in the partnership who passed away in early 20XX. Those other beneficiaries have no interest in the farming business. The total capital gain and dividends was in excess of $250,000 for each remaining partner. Had it not been for the assessable capital gains resulting from the disposal of the shares, and the dividends received from those shares, each remaining partner all would have satisfied the NCL income requirement. All shares held are shares that the partnership was required to acquire as a supplier to the industry Co-operative.

Relevant legislative provisions: Income Tax Assessment Act 1997 – Subsection 35-10(2E)