Private ruling: Non-commercial losses and the Commissioner’s discretion
Published: August 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

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 in your calculation of taxable income? | A1: Yes Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control, and that this has prevented you meeting one of the four tests. It is also accepted that, but for the special circumstances, you would have met one of the four tests. Consequently the Commissioner will exercise his discretion to extend the lead time to 30 June 20XX.

Relevant facts and circumstances: You satisfy the less than $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You are carrying on a business activity, which commenced late in 20XX. In 20XX the Commissioner exercised discretion to allow one of the partners in the business to include any losses from the business activity in the calculation of their taxable income for the 20XX-XX financial year. In that application it was stated that the business intended to pass the assessable income test in the 20XX-XX financial year. Late in 20XX one of the partners of the business was affected by special circumstances, which has severely impacted on their ability to perform their business duties. The partner that was affected by the special circumstances is a full partner in the business, and shares 50% of the overall business duties and responsibilities. As such they are an essential part of the day to day running of the business, and the business cannot operate without their involvement. When the partner was affected by the special circumstances, the business could not afford to employ someone else to fill their role and still be able to make a profit. The partner that was affected by the special circumstances will never regain their capacity to work in the business. As a result of the illness, and the impact this has had on partners ability to perform their business duties, this has led to your business not meeting one of the four tests, in particular the $20,000 assessable income test. As a result of the special circumstances, and the impact this has had on the partners ability to perform their business duties, this has led to your business not meeting one of the four tests, in particular the $20,000 assessable income test. You have provided figures that indicate that the business will be profitable in the 20XX-XX financial year. You have obtained funds to enable you to employ someone to fill the partner’s role in the business, to enable a profit to be made in the 20XX-XX financial year. The business will be profitable in future 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 subsection 35-10(2E) | Income Tax Assessment Act 1997 paragraph 35-55(1)(a)