Private ruling: Commissioner's discretion - Special circumstances
Date of advice: 7 January 2026
Published: 2 March 2026
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Will the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include losses from your business activity in calculating your taxable income for the 2023-24 income year? | A1: No. The Commissioner will not exercise his discretion to allow you to include losses from your business activity in calculating your taxable income for the 2023-24 income year.

Relevant facts and circumstances: You satisfy the income requirement of less than $250,000 in the 2023-24 income year for the purposes of subsection 35-10(2E) of the ITAA 1997. You commenced operating a business activity under your own name in the 2018-19 income year. In the 2019-20 income year, the COVID-19 pandemic severely impacted your ability to continue in-person services, which were the core of your revenue model. The following year was marked with repeated restrictions and lockdowns in your city. During that time, you shifted from in-person to online sessions on a very limited basis. From late 2021 (calendar year), you contracted COVID-19 several times. Due to the infections, you experienced persistent health issues that continued through late 2024. As a result, you reduced operating hours to near zero. Rather than cancelling appointments, you stopped taking new bookings as your health made reliable work unsustainable. Throughout this period, you consulted multiple health professionals. A doctor has assessed that you have presented with the medical condition for many years, for which no cause has been found. You were advised to rest and reduce your workload. During the 2023-24 income year, you did not conduct any private sessions or group work, instead you worked as a contractor at a clinic on a casual basis, providing services of the same nature as your business. Although your medical condition worsened following the COVID infections, gradual recovery began in late 2024. You reported a profit in the 2022-23 income year, however a significant portion of the income was unrelated to your business activity. Your income during the recovery year (2024-25) was lower compared to the previous year. The main expenses you have incurred were for subscriptions. Your annual income from your activity has never exceeded $20,000, and profitability has not been achieved in any income year accordingly.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(1) | Income Tax Assessment Act 1997 paragraph 35-10(1)(a) | Income Tax Assessment Act 1997 subsection 35-10(2) | Income Tax Assessment Act 1997 subsection 35-10(2E) | Income Tax Assessment Act 1997 subsection 35-10(4) | Income Tax Assessment Act 1997 section 35-30 | Income Tax Assessment Act 1997 section 35-35 | Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

Reasons for decision: Summary: Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer (alone or in partnership) from being offset against other assessable income in the year in which the loss is incurred, unless: • the individual meets the income requirement (less than $250,000), and the business activity satisfies one of the four tests (paragraph 35-10(1)(a)); • an exception in subsection 35-10(4) applies; or • the Commissioner exercises discretion under section 35-55 for the business activity for one or more income years. You incurred a business loss during the 2023-24 income year. Although you satisfied the income requirement set out in subsection 35-10(2E), you did not meet any of the four tests, specifically: • Assessable income test: earning at least $20,000 (section 35-30) from your business activity. • Profits test: generating profits from your activity in at least 3 out of the past 5 income years (section 35-35). As you also did not fall under any of the exceptions, your business loss was therefore subject to the deferral rule unless the Commissioner exercises discretion. | Detailed Reasoning - Special circumstances: You have requested the Commissioner to exercise discretion under paragraph 35-55(1)(a) of the ITAA 1997 for the 2023-24 income year on the basis of special circumstances. Taxation Ruling TR 2007/6 Income Tax: non-commercial losses: Commissioner's discretion (TR 2007/6) explains the meaning of "special circumstances" and provides guidelines for exercising this discretion. Paragraph 13 of TR 2007/6 states that special circumstances are those sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity. Paragraphs 43 to 54 further provide that: • Events such as drought, flood, bushfire or some other natural disaster are taken to be special circumstances outside the control of the operators of the business activity, as referred to in paragraph 35-55(1)(a). • In a broader context, circumstances such as oil spills, chemical spray drifts, explosions, disturbances to energy supplies, government restrictions, and illnesses affecting key personnel might, depending on the facts, constitute special circumstances. • The law does not provide an exhaustive definition of "special circumstances." The term has been subject to judicial interpretation in other legislative contexts. • In Community Services Health, Minister for v. Chee Keong Thoo (1988) 78 ALR 307; (1988) 8 AAR 245, Burchett J observed: "... the core of the idea of 'special circumstances' is that there is something unusual or different to take the matter out of the ordinary course ." • Similarly, in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3, the AAT stated: "... the qualifying adjective ('special') looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend upon the context in which they occur... This is not to say that the circumstances must be unique, but they must have a particular quality of unusualness that permits them to be described as special ." When the income requirement is satisfied, the business operator either as an individual or in a partnership must demonstrate that: • The special circumstances were outside their control, meaning something that could not reasonably be prevented or mitigated; and • The business activity would have satisfied one of the four tests but for those special circumstances (as noted in paragraph 35-55(1)(a)). Paragraph 15 of TR 2007/6 specifically states that there may be situations where special circumstances, due to their continued existence, become the ordinary or usual situation. Once this occurs, it would not be appropriate to exercise the discretion. | Detailed Reasoning - Application to your circumstances: The COVID-19 pandemic significantly impacted your activity during the 2019-20 income year. To mitigate the impact, you shifted from in-person services to online delivery in the following years. However, the ongoing health issues following several COVID infections have restricted your ability to perform work. As a sole operator, your activity relied entirely on your capacity to carry out the work. According to TR 2007/6, an illness affecting key personnel may constitute special circumstances, depending on the facts. Between the prolonged COVID infections and subsequent recovery, you reduced operating hours to near zero, stopped taking new bookings, and had a significant gap in your online presence. You operated only as a contractor at a clinic during the 2023-24 income year. While no income-producing activity was conducted under your practice, you chose to maintain some business subscriptions. In a general context, your medical condition is considered a special circumstance when it is temporary and outside your control. However, its impact on your business activity appears intermittent since commencement, as your doctor confirmed you have experienced the medical condition for many years. Although you experienced ongoing effects of several COVID infections, which may have reduced your engagement in the activity during the 2022-23 and 2023-24 income years, you have not demonstrated that business performance improved during the recovery period in the 2024-25 income year. In fact, your income declined in the 2024-25 income year compared to the previous year. This indicates that your medical condition, due to its continued existence, has become an ordinary or usual situation rather than an unusual one. Furthermore, the Commissioner notes that since you commenced your activity, you have not met the assessable income test or profits test in any income year despite operating for 7 years. This suggests the activity would not have satisfied any of the four tests even without the claimed special circumstances. Hence, your activity would not have made a profit and is unlikely to pass any of the four tests under Division 35 of the ITAA 1997. | Detailed Reasoning - Conclusion: After considering all relevant facts and circumstances, it is acknowledged that your medical condition is outside your control. However, its impact on the business activity does not exhibit the particular quality of unusualness required to be regarded as a special circumstance under paragraph 35-55(1)(a) of the ITAA 1997. You have not made a profit since commencement of your activity and is unlikely to pass any of the tests under Division 35. Accordingly, the Commissioner will not exercise discretion under paragraph 35-55(1)(a) for the 2023-24 income year. The business loss must therefore be deferred. Any business losses incurred in previous years are also subject to the deferral rule, and you cannot apply these losses when calculating your taxable income for the 2023-24 income year.