Private ruling: non-commercial losses
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 February 2010

Ruling: Q1: Is your business considered to have passed the assessable income test in the 2010-11 financial year? | A1: 

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. On 1 February 2010 you commenced a business. There is a six to eight month delay between when the initial expenses are incurred and when income is received. The financial records for the business for the 2011-12 financial years show that the business has made over $20,000 from July 2011 to February 2012.

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))

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 will apply to defer a non-commercial loss from a business activity unless: § you satisfy the income requirement and you pass one of the four tests § the exceptions apply, or § the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. However, where a business activity is not in operation for the whole of an financial year, paragraph 35-30(b) of the ITAA 1997 applies, so that the assessable income test is then based on a reasonable estimate of what the assessable income from the business activity would have been if the activity was carried on for the whole of that year. Taxation Ruling TR 2001/14 discusses instances of how a reasonable estimate may be made and includes where the amount that could have been derived for a full income year based on a pro rata calculation of the assessable income already derived for the part of the year. In your case, it is accepted your business would have made over $20,000 in assessable income had you been operating for a full financial year. Therefore your business activity is considered to have passed the assessable income test in the 2010-11 financial year.

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