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

Ruling: Q1: 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 your business activity in your calculation of taxable income for the 2013-14 to 2014-15 financial years? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 35-1. | Income Tax Assessment Act 1997 - Subsection 35-10(2E). | Income Tax Assessment Act 1997 - Subsection 35-55(1) | Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Reasons for decision: Detailed Reasoning - Non-commercial losses: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. A person will satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000. In your case, you do not satisfy the income requirement as your income for non-commercial loss purposes was above $250,000 in the 2013-14 financial year. In order to exercise the discretion, the Commissioner must be satisfied there is an objective expectation, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. In your case, it is accepted you commenced your business activity in the 2013-14 financial year and your income and expenditure projections show that you expect your activities will produce a tax profit in the 2015-16 financial year, or three years after you commenced. Based on the general evidence available, there is an objective expectation that within a period that is commercially viable for the industry, the activity will produce assessable income greater than the expenses attributed to it. Therefore, the Commissioner will exercise the discretion available in accordance with subsection 35-55(1) and paragraph 35-55(1)(c) of the ITAA 1997 in relation to your business activity for the 2013-14 and 2014-15 financial years.

Relevant facts: You purchased a property and are currently conducting a business. | You have carried out improvements to the property to increase productivity. | You will introduce new activities to increase profitability and give diversification. | There have been no sales in the first financial year as produce takes a period of time to be ready for sale. | You have provided projected figures that show you can make a tax profit in the 2015-16 financial year. | You will also pass the assessable income test and property test in that year. | Your other income for NCL purposes exceeds $250,000 in the 2013-14 financial year.