Private ruling: Non-commercial losses and the Commissioner's discretion
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 May 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 2012-13 financial year? | A1: 


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: 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. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. You 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 2012-13 financial year The Commissioner's discretion in paragraph 35-55(1)(c) of the ITAA 1997 may be exercised for the financial year where he is 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. 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, you commenced your business in May 2013. The nature of your business means your business activity only produced a small amount of income in the two months. However, 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 in the 2013-14 financial year. 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 2012-13 financial year.

Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | o your application for private ruling with an attachment of an income and expenditure forecast for the 2013-14 financial year. | You commenced your business activity in May 2013. | Your business produced an overall loss in the 2012-13 financial year. | Your business activity will produce a profit in the 2013-14 financial year. | Prior to commencing your business, you were an employee and received a redundancy payment in the 2012-13 financial year which, combined with your other income meant that your adjusted taxable income was over $250,000.