Private ruling: Commissioner's discretion for non-commercial loss
Published: October 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 01 July 2011

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in your calculation of taxable income for the 2011-12 financial year? | A1: No

Relevant facts and circumstances: You do not satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You carry on a consulting business and you commenced in 2012. Due to factor unique to your situation you did not make an income in the 2011-12 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)(b)

Reasons for decision: Summary: For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: · the exceptions apply · you satisfy the income requirement and you pass one of the four tests · 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: · it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests · there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry. Having regard to your full circumstances, it is not accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. Consequently the Commissioner will not exercise his discretion for the year requested.

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