Private ruling: Non-commercial losses - lead time
Date of advice: 20 February 2023
Published: 11 April 2023
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your financial services business in your calculation of taxable income for the 20YY-YY financial year? | A1: Yes Having considered your circumstances and the relevant factors the Commissioner will exercise his discretion to allow you to include any losses from your business activity in the calculation of your taxable income for the year ended 30 June 20YY. It is accepted that there is a 'lead time' in the nature of your activity and it will make a tax profit within the commercially viable period for the industry concerned. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au.

Relevant facts and circumstances: You operate as a sole trader providing services as a finance broker. You engaged an aggregator commencing MM 20YY. You paid a franchise fee to the aggregator to distribute services under their business system. You paid for several one-off fees and recurring costs to the aggregator which cover marketing, mentoring, etc. You completed training and completed a diploma in Mortgage and Finance as part of your conditions to operate as a franchisee. You were appointed by the aggregator as a credit representative on DD MM 20YY. You were able to engage with clients and offer products from X lenders in MM 20YY. You engaged with clients in MM 20YY as a financial broker, these clients wanted products from their preferred lenders. You needed to get lender accredited by these lenders before moving forward with the clients, this can take up to X months. You achieved accreditation for three lenders in MM 20YY. When accredited it takes an average of X weeks for approval on a loan, average of X days for settlement and then up to X days before payment is received. Due to waiting for accreditation you were not able to settle your first X clients and received commission for X months You provided details of your expenses for the period DD MM 20YY to DD MM 20YY. You provided details of your income for the period DD MM 20YY to DD MM 20YY. You provided a letter from an independent party stating you are taking significant steps to be profitable within a commercially viable period You satisfied the less than $250,000 income requirement as set out in subsection 35-10(2E) of the ITAA 1997. You have provided the forecast of revenue and expenses for the year ended 30 June 20YY to the year ending 30 June 20YY. You anticipate that the business will produce a profit in the year ending 30 June 20YY.

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)