Private ruling: Non-commercial losses.
Published: December 2011
Ruling period: Year ended 30 June 2009 | Year ended 30 June 2008
Date scheme commenced: 1 July 2007

Ruling: Question and Answer | Are you entitled to offset your losses from non-commercial business activities against other assessable income? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are starting a business. You are a sole trader. You have developed and patented your product in Australia. Your business venture is a resident Australian business undertaking. You were an Australian resident for taxation purposes. You have incurred expenses against your Australian business interest. Financial year ended 30 June 2008 Patent expenses $100000 -Translate patent $ -Translate patent $ -Translate patent $ Internet Telephone & Postage $ Foreign exchange expenses $ Rental expenses $ Motor vehicle expenses $ Financial year ended 30 June 2009 Patent expenses $ Internet Telephone & Postage $ Foreign exchange expenses $ Rental expenses $ Motor vehicle expenses $ Currently, a patent has been granted in a foreign country (divisional patent submitted). You are currently in an overseas location for business development purposes. Your business will eventually take place in the overseas location. To fund the development of your business you sold a residential property in the 2007-08 financial year. You were assessed for CGT on the sale of the residential property. Your business interest does not have real property valued $500,000 or more. Your business has not reported any income in Australia to date. Using a cost-approach valuation of the patent held by your business; the patent is valued over $100,000. This forms part of your business assets used on a continuing basis. Income will begin to accrue in the financial year ended 30 June 2012 as operations being in the overseas location and licensing fees are paid by the foreign business interest to your Australian business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-10(2E) | Section 35-30 | Section 35-40 | Section 35-45

Reasons for decision: Summary: The rules in relation to non-commercial losses apply to individuals either as sole traders or as partners in a partnership. In order for you to be able to defer your losses from non-commercial business activities, you must be carrying on a business. You can offset a loss from your business against your other income if your business passes one of these tests: · It produces assessable income of at least $20,000. (Assessable income test) · It has produced a profit in three of the past five years, including the current year. (Profits test) · It uses real property or an interest in real property worth at least $500,000 on a continuing basis. (Real property test) · It uses other assets worth at least $100,000 on a continuing basis. (Other assets test) As you did not report any business income in the financial years ended 30 June 2008 and 30 June 2009, you do not meet the assessable income test. You have indicated that you have not reported a profit since the business was established. You do not meet the profits test. You have indicated that your business interest does not have real property valued at $500,000 or more. You do not meet the real property test. You have indicated that the value of your patent using a cost-approach valuation of the patent held by your business is valued over $100,000. You meet the other assets test on the fourth limb. | Detailed Reasoning - Income requirement test: This test only applies to the 2009-2010 income year and later income years. | Detailed Reasoning - Conclusion: Your business activities use assets worth over $100,000 on a continuing basis, therefore you meet one of the business tests, being the assets test. You are entitled to offset losses from non-commercial business activities against other income.

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.