Private ruling: Commissioner's discretion - non-commercial losses
Date of advice: 17 April 2024
Published: 27 May 2024
Ruling period: Year ended 30 June 2023
Date scheme commenced: 10 January 2023

Ruling: Q1: Will the Commissioner exercise his discretion in paragraph 35-55(1)(b) 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 2022-23 financial year? | A1: Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will pass a test or make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au.

Relevant facts and circumstances: You are a sole trader. You satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. You commenced your online retail business that specialises in selling electronic devices and accessories. The target customers are primarily based in another country, with products being shipped directly from an international supplier. You started your business in during the relevant year and spent until six months undertaking: • market research, • product testing, • website design, • developing advertisements and copywriting • purchasing stock for your international warehouse. These preliminary undertakings limited your ability to observe sales in this time. You made your first sales in April 20XX. You observed a loss in 20XX-XX and are also projected to observe a net loss in 20XX-XX. You will meet the assessable income test in 20XX-XX as your assessable income will exceed $XX. You project to observe a tax profit by the end of the 20XX-XX financial year. You have partnered with an international marketing agency to assist with advertising. To support your application, you have provided the following: • a business plan, • profit and loss projections • independent data on e-commerce business viability that verifies the lead time sought.

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)