Private ruling: Non-commercial losses
Published: January 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you offset the deferred non-commercial tax losses otherwise incurred in respect to a primary production project (Project) against the taxable capital gain arising on disposal of the interest in the Project? | A1: Yes

Relevant facts and circumstances: In the 2000-01 financial year you became a grower in the Project. In the 2011-12 financial year you incurred losses which under Division 35 of the Income Tax Assessment Act 1997 were required to be deferred. In the 2012-13 financial year you had a Project contractual obligation to sell back your interest thereby deriving assessable income in the form of a capital gain. In the 2012-13 financial year Project expenses were incurred. Your income for non-commercial loss purposes is less than $250,000.

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 section 102-5 Detailed reasoning | Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states assessable income includes net capital gains. In the 2012-13 financial year you made a capital gain as a result of the compulsory sale of your interest in the Project. | Subsection 35-10(1) of the ITAA 1997 states that subsection (2) applies in an income year to each business activity unless under Division 35 you satisfy the income requirement and one of the four tests or the exception or the Commissioner exercises the discretion. | Subsection 35-10(2) states: | If the amounts attributable to the *business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess: (a) were not incurred in that income year; and | (b) were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on. | In your case you do not meet the requirements of subsection 35-10(1) of the ITAA 1997 and subsection 35-10(2) applies. The capital gain is assessable income against which expenses are applied leaving an amount that can be applied to the deferred losses from previous years.