Private ruling: Non-commercial losses - Commissioner's discretion
Published: March 2015
Ruling period: Year ending 30 June 2014
Date scheme commenced: 31 January 200X

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 2013-14 financial year? | A1: Yes.


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 his discretion. In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion. 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 for your industry. You estimated in your successful previous applications for discretion that you will make a tax profit within 'the next two to four years' and the year ended 30 June 20XX is still within that time. Having regard to your full circumstances, it is accepted that it is in the nature of the business activity that has prevented you making a tax profit. It is also accepted that you will make a tax profit within the commercially viable period for your industry. Consequently the Commissioner will exercise his discretion in the 2013-14 financial year.

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: | • The application for private ruling. | • Information provided in the previous private ruling applications and all attached documentation. | You do not satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997. | Some years ago you entered into a partnership to purchase and develop a piece of land. | Since the purchase of the development site, the intention was to develop the property. Your original proposal was denied and you provided evidence of the decision. | You applied for and received two previous private rulings where the Commissioner's discretion was exercised under paragraph 35-55(1)(c) of the ITAA 1997 for the relevant financial years. | The previous discretions were based on the fact that you encountered protracted delays from the council and state authorities in obtaining building permits and planning approvals. | You estimated in your previous ruling application that you will make a tax profit within 'the next two to four years'. | Since these discretions were exercised you have resubmitted plans for permits and encountered further delays from the council in obtaining building permits and planning approvals. | You have been continuously making an effort to get the permits and approval over the line, by way of talking to the related authorities and enquiring about the progress of the application. | As a result, further expenditure has been incurred on building design costs, interest on debt, bank fees, project management fees, insurance, accounting fees, legal fees, water rates, council rates and land tax.