Private ruling: Non-commercial losses
Published: September 2014
Ruling period: Year ended 30 June 2014.
Date scheme commenced: 1 July 2013.

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in the calculation of your taxable income for the 2013-14 income year? | A1: Yes

Relevant facts and circumstances: You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a business in partnership which made a loss in the 2013-14 income year. Assessable income from the business for the 2008-09 to 2012-13 income years has always been more than $20,000. However, in the 2013-14 income year, the business produced assessable income of less than $20,000. Your business was affected by weather conditions. These conditions affected your ability to meet the assessable income test. You anticipate that the business activity will satisfy the assessable income test in the 2014-15 income 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)(a)

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • you satisfy the income requirement and you pass one of the four tests, • the exceptions apply, or • the Commissioner exercises the discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. Consequently the Commissioner will exercise the discretion in the 2013-14 income year.