Private ruling: Non-commercial losses - Commissioner's discretion - special circumstances
Published: June 2015
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) 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 2013-14 and 2014-15 financial years? | A1: Yes.


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: 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: • you satisfy the income requirement and you pass one of the four tests, • the exceptions apply, or • the Commissioner exercises the discretion. In your situation, you do not satisfy the income requirement and you do not come under any of the exceptions. 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 do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income year in question where, but for the special circumstances: • your business activity would have made a tax profit • the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control. Further, it is accepted that: • but for the special circumstances, you would have made a tax profit • you have met one of the four tests or would have but for special circumstances. Consequently the Commissioner will exercise the discretion in the 2013-14 and 2014-15 income years.

Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | • The application for private ruling. | You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997 for the 2012-14 financial year. | You have carried on a business for many years. | You were diagnosed with an illness and underwent surgery and did not return to work until nine months later. Due to the effects of the illness you have not been able to bring your business back to its usual level of profitability. You have now ceased to operate the business. | In all prior years you passed a test or made tax profits.