Private ruling: Non-commercial business losses and the Commissioner's discretion
Date of advice: 8 May 2019
Published: June 2019
Ruling period: · Year ended 30 June 20XX | · Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is income received from the sale of shares relating to your retail business excluded from the $250,000 income requirement calculation under section 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The income received is considered assessable income "from" the business activity when applying the loss deferral rule in Division 35 of the ITAA 1997, and is therefore excluded from the income requirement calculation. | Q2: Did you satisfy the income requirement for non-commercial loss purposes under subsection 35-10(2E) of the ITAA 1997 in the 20XX-XX and 20XX-XX financial years? | A2: Yes. For more information on the non-commercial loss income requirement, please visit our website at ato.gov.au and search for quick code QC 55240

Relevant facts and circumstances: You have been carrying on a retail business (the activity) at markets for more than 30 years. The markets were originally owned by a Government which leased the stalls to you and the various other stall operators. The Government decided to sell that parcel of land along with its rentals on the open market. You and the fellow stall operators were concerned about future business operations should the markets be acquired by a commercial land owner. In order to protect the business operations and ensure their overall commerciality, it was agreed that they would make a direct offer to the Government to acquire the land. For that reason the stall operators established and acquired shares in a company, of which you were appointed a director. The Company made an off-market offer to acquire the land, however the Government was obliged to list the property as an open tender, which the Company won. Since incorporation and acquisition of the markets, the Company's income was predominately derived from rent charged to the stall operators. Throughout the years the company paid franked dividends to its shareholders. During the 20XX-XX financial year the company shareholders voted that the company dispose of its interest in the markets leasehold property, and the resulting net proceeds were subsequently distributed to its shareholders as dividends in the 20XX-XX and 20XX-XX financial years. The dividends and franking credits received by you in the 20XX-XX and 20XX-XX financial years were abnormally large in comparison to prior years. The sum of your taxable income (less dividends and franking credits relating to the Company), reportable fringe benefits, reportable superannuation contributions and total net investment losses for the year were less than $250,000. The activity earned more than $XXX in both the 20XX-XX and 20XX-XX financial years. The activity incurred losses in both the 20XX-XX and 20XX-XX financial years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Subsection 35-10(2E)