Private ruling: Commissioner's discretion
Published: October 2011
Ruling period: Year ended 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 July 2010

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 asset hire business in your calculation of taxable income for the 2010-11 and 2011-12 financial years? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes is above $250,000 in the 2010-11 financial year and you expect this will be the case in the 2011-12 financial year as well. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. In your case, you have not provided any independent evidence as to the commercially viable period for this type of business. You do expect to produce a tax profit in relation to your asset hire business activities in the 2012-13 financial year but you have not shown that the reason your business activity will not produce a profit until the 2012-13 financial year is inherent to the nature of the business and not just peculiar to your situation. Based on the general evidence available, the Commissioner is not satisfied that there is an objective expectation that the activity will produce assessable income greater than the expenses attributed to it within a period that is commercially viable for the industry. Therefore, the Commissioner is unable to exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your asset hire enterprise for the 2010-11 and 2011-12 financial years. As your figures show that your activities should produce a profit in the 2012-13 financial year, the Commissioner cannot exercise the discretion for this year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You purchased an asset in the 2010-11 financial year for the purposes of offering it for hire as a business activity. | The purchase was funded, in part, by you with the balance funded by a chattel mortgage. The term of the mortgage is five years with monthly payments and a balloon payment in the fifth year or refinanced for another two years. | Your projected income and expenses statements show you expect to produce a profit in the 2012-13 financial year. | Your income for non-commercial loss purposes in the 2010-11 financial year was above $250,000 and you expect this will be the case for the 2011-12 financial year as well.