Private ruling: Non-commercial losses - short term accommodation
Date of advice: 19 December 2024
Published: 28 January 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 30 November 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your cabin rental facility in your calculation of taxable income for the 20XX financial year? | A1: Yes. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you from making a tax profit. Consequently, the Commissioner will exercise his discretion in the 20XX financial year.

Relevant facts and circumstances: You are a sole trader, previous owner of a rental facility providing short term accommodation. Initial purchase of property In the month of November 20XX you and your spouse purchased a short term accommodation business as a going concern for $XXX dollars which consisted of land and buildings valued at $XXX and goodwill of $XXX. The purchase was funded with a bank loan, this loan required you to be a joint owner. You had minimal participation in the business and all profits were allocated to your spouse. The business was a rental facility consisting of X number of X providing basic accommodation. It was purchased with the intent to have your spouse operating it as you had a full-time job while they were unemployed having previously had difficulty finding work. Management under partnership After the partnership acquired the property, the majority of the activities were done by your spouse. Your spouse went about doing maintenance and repairs on the property to bring it up to standard. They attended the site 6-7 business days a week, coming home 1 day a week depending on bookings. You provided a detailed list of the activities your spouse undertook which included: • The steps taken to establish the business • Improvement undertaken on the property • The marketing that was undertaken • The day to day work undertaken on the property You remained in your full-time employment while helping your spouse manage the social media platforms, the business website and implement the communications strategy. Covid effected the business with numerous lockdowns and restrictions, bookings suffered dramatically during these difficult times. You provided a list of the dates your rental facility was affected by lockdown and restrictions. The closures meant that your rental facility could not operate during these lockdowns and any bookings were thus cancelled. Furthermore, bookings were regularly made and then cancelled. Unfortunately, just before Covid was over your spouse was diagnosis with an illness and passed away shortly after resulting in you becoming the sole owner of the property. Management under sole trader Following the death of your spouse you experienced a very difficult period of your life. You decided to put the business up for sale in XX 20XX, in the meantime with the help of your adult child you managed to keep the business activity going. You provided a detail list of the activities you undertook to maintain the business while you waited for a buyer. In XX 20XX you sold the business for $XXX which made up of $XXX for the property and $XXX for chattels and goodwill. Additional information In addition to providing short-term accommodation, you provided additional services for your guests and items for purchase. You provided financial statements for the business for the 20XX through to the 20XX financial year, when it was operated by the partnership or by yourself as a sole trader after your spouse's passing, which shows you suffered a loss in the 20XX financial year of $XXX. You did not satisfy the less than $XX income requirement as set out in subsection 35-10(2E) of the ITAA 1997 in the 20XX financial year.

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)(a)