Private ruling: Non-commercial losses - Assessable income test
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is your retail business activity considered to have passed the assessable income test in the 2010-11 financial year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Division 35 | Income Tax Assessment Act 1997 - section 35-10 | Income Tax Assessment Act 1997 - section 35-30

Reasons for decision: Summary: Where a business activity is not in operation for the whole of an income year, paragraph 35-30(b) of the Income Tax Assessment Act 1997 (ITAA 1997) applies, so that the assessable income test is then based on a reasonable estimate of what the assessable income from the business activity would have been if the activity was carried on for the whole of that year. The requirement in paragraph 35-30(b) is that a reasonable estimate be made of what the assessable income would have been had the business been carried on for a full year. Paragraph 62 of Taxation Ruling TR 2001/14 discusses how a reasonable estimate is made. Making a 'reasonable estimate' of assessable income for the purposes of the Assessable income test 62. To make a 'reasonable estimate' under paragraph 35-30(b) of assessable income that would have been derived from the business activity if it had been carried on throughout the income year in question (i.e., an estimate of a notional annual amount) an individual can consider all relevant factors, including, but not limited to: (a) the cyclical nature of the particular business activity which may result in variations in the pattern of receipts; (b) any orders received and/or forward contracts entered into; (c) the amount that could have been derived for a full income year based on a pro rata calculation of the assessable income already derived for the part of the year. The amount derived for the part of the year must be typical of the income derived in a full year; (d) the type of business activity undertaken, considering the nature and type of income receipts of similar activities typical of the industry; and (e) current size and investment in the activity. In your case, your business only traded for one month in the 2010-11 financial year. Your business activity produced assessable income well in excess of $20,000 in the previous four years, therefore, a reasonable estimate of the assessable income you would have received had you continued trading, based on these figures, is over $20,000. Therefore, your business activity is considered to have passed the assessable income test in the 2010-11 financial year.

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. | Relevant facts: You conducted a retail business for several years. | The assessable income produced by the activity in the previous four years was well in excess of $20,000 | You began to wind down the business in the 2009-10 financial year and finally ceased trading in July 2010. | The business activity did not meet any of the non-commercial tests in the 2010-11 financial year and producing an overall loss. | Your income for non-commercial loss purposes in the 2010-11 financial year was less than $250,000.