Private ruling: Commissioners Discretion
Date of advice: 13 October 2016
Published: November 2016
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20WW

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the relevant financial years? | A1: Yes

Relevant facts and circumstances: You are carrying on a business which commenced in the 20WW-XX financial year. Your income for non-commercial loss purposes for the relevant income year was more than $250,000. Your business activity will become commercially viable in x years. The independent evidence you provided suggests that the commercially viable period for your industry is x years.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 35-1 | Income Tax Assessment Act 1997 subsection 35-55(1) | Income Tax Assessment Act 1997 paragraph 35-55(1)(c) | Income Tax Assessment Act 1997 subsection 35-10(2E)

Reasons for decision: Summary: Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. The income requirement is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses. In order to exercise the discretion, the Commissioner must be satisfied, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997). In your case, you do not meet the income requirement as your income for non-commercial loss purposes is above $250,000. However, you have supplied evidence from an independent source which has established that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry. Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income.