Private ruling: non-commercial losses - Commissioner's discretion
Published: September 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2008

Ruling: A1: Yes.

Relevant facts and circumstances: You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was more than $250,000 in the 2009-10 financial year. You conduct your business in partnership. The business operations are conducted at two separate locations approximately 1X0km apart. You have provided financial statements that provide separate profit and loss statements for the two businesses. Business A has produced a loss in the 2009-10 financial year that you will quarantine to offset future profits. Your financial statements project a profit to be made from the business B activity in the 2011-12 financial year. A report from an independent source states that the commercially viable period for business B activity is X years.

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 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: You have not satisfied the income requirement as your relevant income has exceeded $250,000. Therefore the loss from your activity will not be taken into account in the financial year ended 30 June 2010 unless the Commissioner will exercise his discretion in section 35-55 of the ITAA 1997. Under paragraph 35-55(1)(c) of the ITAA 1997, the Commissioner's discretion can be exercised where the business activity satisfies these requirements. for an applicant who carries on the business activity who does not satisfy subsection 35-10(2E) (income requirement) for the most recent income year ending before the application is made - the business activity has started to be carried on and, for the excluded years: (i) because of its nature, it has not produced, or will not produce, assessable income greater than the deductions attributable to it; and (ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsections 35-10(2) and (2C). You have provided objective evidence from an independent source that the commercially viable period for business B is three years. Your financial records show that business B is expected to show a profit in the fourth year of commencing which coincides with the independent source's report of commercial viability. Therefore, the Commissioner's discretion has been granted for the 2009-10 and 2010-11 financial years for business B. This means that any loss for business B activity can be taken into account in calculating your taxable income for those years, provided that the arrangement carried out does not materially differ from that described in this ruling.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: non-commercial losses - Commissioner's discretion: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from business B activity in your calculation of taxable income for the 2009-10 to 2010-11 financial years?