Private ruling: Non-Commercial losses-Commissioner's discretion
Published: May 2013
Date scheme commenced: 1 July 2012

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 activity in your calculation of taxable income for the 2012-13 and the 2013-14 financial years? Answer Yes. This ruling applies for the following period Year ending 30 June 2013 Year ending 30 June 2014

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 is more than $250,000 in the 20XX-YY and future financial years. You commenced your business in 20ZZ You have not produced an independent source to document what is the commercially viable period for this industry. However you have produced documents that show that you will produce a profit in two years.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-55(1)(c)

Reasons for decision: Summary: 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. The income requirement is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. In order to exercise the discretion, the Commissioner must be satisfied, 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). In your case, you do not meet the income requirement as your income for non commercial loss purposes is above $250,000. You have not produced an independent source showing what the commercially viable period for this industry is however you have provided evidence from an independent source that you will produce a tax profit within two years. This fulfils the requirements of subsection 35-55(1) of the ITAA 1997 as described in paragraphs 1 and 2 of Taxation Ruling TR 2007/6. Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income.