Private ruling: Non-commercial losses
Published: November 2014
Ruling period: Year ended 30 June 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 business activity in the calculation of your taxable income for the 2012-13 financial year? | A1: Yes.

Relevant facts and circumstances: Following a partnership breakup the assets were sold generating income for you in excess of $250,000. In early 20XX you completed the purchase of a property and shortly thereafter recommenced livestock breeding activities. Due to the short period of time between the finalisation of the property purchase and the end of the financial year you incurred a loss from the newly commenced enterprise. It is your intention that your current property is to provide your primary source of income however, due to the short period of time between the settlement of the property in early 20XX and the year end in June the property did not earn any income but did incur a loss. You expect this enterprise to become a profit making venture in the relevant financial years. Without the income requirement of Division 35 of the ITAA 1997 you would have passed two of the non-commercial loss tests, the real property and other assets test.

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)(c)

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • you meet the income requirement and you pass one of the four tests • the exceptions apply • the Commissioner exercises the discretion. In your situation, you do not satisfy the income requirement and do not come under any of the exceptions. The relevant discretion may be exercised for the income year in question where: • it is in the nature of your business activity that there will be a period before a tax profit can be produced • there is an objective expectation your business activity will produce a tax profit within the commercially viable period (CVP) for your industry. In your circumstances you commenced your business in the relevant financial year and will produce a tax profit within the CVP for your industry. Consequently the Commissioner will exercise the discretion in the relevant financial year.