Private ruling: Non-commercial losses
Published: December 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the Commissioner exercise his discretion to allow you to include any losses from your activity in calculating your taxable income for the year ended 30 June 2013? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You started a business in partnership. The partnership purchased the necessary equipment and licences. The partnership did not pass a commercial loss test in the 20XX-YY financial year and you therefore deferred the loss. During the 20YY-ZZ financial year you had to repair the equipment. You were unable to use the equipment for several months coming into a season which was unusually slow. You had further problems with the equipment over summer during the 20ZZ-AA financial year. The business passed the assessable income test during the 20YY-ZZ financial year. You decided to cease the business in June 20AA. No income had been earned during the 20ZZ-AA financial year.

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).

Reasons for decision: Detailed Reasoning - Detailed reasoning: 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. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion. The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests. 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 meeting one of the four tests. Consequently the Commissioner will exercise his discretion in the 20ZZ-AA year of income.