Private ruling: Non-commercial loss income requirement
Date of advice: 25 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did you satisfy the income requirement under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for non-commercial loss purposes in the 2016-2017 financial year? | A1: Yes It is accepted that purchasing shares in company X was a direct consequence of carrying on your business, and it follows that any capital gain made on the disposal of the shares is also a direct consequence of carrying on the business. Therefore, for the purposes of calculating the $250,000 income requirement, the net capital gain from the disposal of the shares will be first offset against any excess deductions from your business. As a result, your income for non-commercial loss purposes in the 2016-17 financial year is less than $250,000, satisfying the income requirement under subsection 35-10(2E) of the ITAA 1997.

Relevant facts and circumstances: You previously carried on a dairy farming business in a partnership for a number of years. As a supplier to company X the partnership was required to hold shares in the company, and to acquire additional shares based on the quantity of milk supplied. The partnership dissolved in 200X and you became a sole trader. You acquired your portion of the partnership shares when the partnership dissolved in 200X. You continued to supply milk to company X when you became a sole trader. Company X became company X Limited, an unlisted public company, in 200X and you were no longer required to purchase shares. Company X Limited became a listed public company in 201X, and you were no longer required to hold shares in the company. You sold your Company X shares in the 20XX financial year due to financial pressures on the business, and as a result you made a gain of $X. You also received dividends from the ownership of company X Limited shares in the same year. Your business incurred a primary production loss during the 20XX financial year. Your non-business related income for the 20XX-XX financial year totalled $X,000. You do not have reportable fringe benefits, reportable superannuation contributions or net investment losses for the 20XX-XX financial year. Your sales for the 20XX to 20XX financial years were greater than $20,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 Subsection 35-10(2E)