Private ruling: Non-commercial business losses
Date of advice: 5 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Does your business activity satisfy the assessable income test in section 35-30 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 2014-15 financial year, based on a reasonable estimate of your business income if you had carried on the activity for the full year? | A1: Yes. | Q2: Can you offset any losses from your business activity against your other income in your calculation of your taxable income for the 2014-15 financial year? | A2: Yes.

Relevant facts and circumstances: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced carrying on a business activity near the end of the 2014-15 financial year. You have made an estimate that the amount of assessable income your business would have generated had it been carried on for a full year would be more than $20,000. This estimate was made based of the business's performance since it opened, and a conservative estimate of the future trading.

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)(b)

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 satisfy the income requirement and you pass one of the four tests • the exceptions apply • the Commissioner exercises his discretion. One of the four tests is the assessable Income test in section 35-30 of the ITAA 1997, which provides that the loss deferral rule in section 35-10 of the ITAA 1997 will not apply for an income year where: • the amount of assessable income from the business activity for the year is at least $20,000 (paragraph 35-30(a)); or • during a particular year you either commenced or stopped carrying on the business activity, and a reasonable estimate of what would have been the amount of that assessable income if you had carried on that activity throughout the year is at least $20,000 (paragraph 35-30(b)) Therefore, where a business activity is not in operation for the whole of an income year, paragraph 35-30(b) of the ITAA 1997 may apply so that the assessable income test is met. The requirement in paragraph 35-30(b) of the ITAA 1997 is that a reasonable estimate be made to ascertain what the assessable income would have been had the business activity been carried on for the full year (paragraph 62 of Taxation Ruling TR 2001/14). Where the estimated amount of assessable income is considered to be at least $20,000 the loss deferral rule will not apply. You have made an estimate that the amount of assessable income your business would have generated had it been carried on for a full year would be more than $20,000. This estimate was made based on the business's performance since it opened, and a conservative estimate of the future trading. The Commissioner accepts that your estimate is reasonable, and therefore you have satisfied the assessable income test in section 35-30 of the ITAA 1997 for the 2014-15 financial year. As such the non-commercial loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply and any loss from your business activity can be included in calculating your taxable income for the 2014-15 financial year.