Private ruling: Commissioner's discretion for non-commercial business losses
Date of advice: 29 March 2022
Published: June 2022
Ruling period: year ended 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Will the Commissioner exercise his discretion in subsection 35-55(1) 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 financial year ended 30 June 20XX? | A1: Yes 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 from making a tax profit. Consequently, the Commissioner will exercise his discretion in the 20XX-XX financial year.

Relevant facts and circumstances: You do not satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 . You own and operate a business. Your business relies upon customers having access to the business location and the surrounding areas. After purchasing the business you undertook significant capital works. During the 20XX-XX financial year the business was impacted by significant storm events, which continued to affect the business in the 20XX-XX financial year: Water access to your business was cut off. Closure of access and arterial roads within the area subsequently had an effect on your business revenue. The storm events caused significant damage to the buildings and infrastructure at your business which required extensive repairs. The extenuating circumstances continued to impact the business in the following financial year with the income received from bookings falling. For the five years previous the gross revenue was very steady. As a result of the reduction in income and additional costs incurred to repair the damage caused by the storm events, the business sustained a net loss in the 20XX-XX financial year and in the 20XX-XX financial year. In the 20XX/XX year business was improving, however, the impact of Covid-19, the lockdowns halted the return to the profitability of earlier years. The 20XX/XX year has seen a turnaround in the business conditions and the gross income is expected to be nearly three times that experienced in the previous year and an inevitable return to profitability. You submit that had the business not been affected by the storm events and Covid lockdowns the business would have produced a profit, as it has done in prior years. The Commissioner has previously exercised his discretion in relation to the 20XX/XX and 20XX/XX years.

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)