Private ruling: Non-commercial loss and Commissioner's discretion
Published: August 2012
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion under section 35-55 of the Income Tax Assessment Act 1997 in respect of any losses derived from your business activities? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 35-55. | Income Tax Assessment Act 1997 Subsection 35-10(2). | Income Tax Assessment Act 1997 Subsection 35-55(2E).

Reasons for decision: Detailed Reasoning - Deferral of deduction: A deduction is deferred under subsection 35-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) if amounts attributable to your business activity that are deductible exceed your assessable income from that business activity for that year so that then it applies that the excess · was not incurred in that income year; and · was an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on. When a deferral of deduction does not apply Subsection 35-10(2) of the ITAA 1997 does not apply if: if you satisfy subsection 35-10(2E) of the ITAA 1997 for that year and one of the tests set out below is satisfied for the business activity for that year: · assessable income test; · profits test; · real property test; · other assets test (paragraph 35-10(1)(a) of the ITAA 1997); or · the Commissioner exercises his discretion set out in section 35-55 of the ITAA 1997 for that business activity and year (paragraph 35-10(1)(b) of the ITAA 1997). Subsection 35-10(2E) of the ITAA 1997 is satisfied if the sum of the following is less than $250,000: · your taxable income for that year; · your reportable fringe benefits for that year; · your reportable superannuation contributions for that year; and · your total investment losses for that year. Paragraph 35-55(1)(a) of the ITAA 1997 states that the Commissioner may, on application, decide that the rule about the deferral of deductions in subsection 35-10(2) of the ITAA 1997 does not apply because the business activity may be affected by special circumstances outside the control of the operators such as drought, flood or other natural disaster. | Detailed Reasoning - Your circumstances: In your case, you have requested that the Commissioner exercise his discretion not to defer deductions from a non-commercial business activity. Although the sum of your income as set down in subsection 35-10(2E) of the ITAA 1997 does not exceed $250,000, you have stated that you will not satisfy the assessable income test, the profits test, the real property test or the other assets test. Accordingly, paragraph 35-10(1)(a) of the ITAA 1997 does not apply in your case. You have advised that due to the damage from a natural disaster damage has occurred to your business activity and as a result, your business has been affected and that extra time is required to produce a taxation profit. Therefore, as you have been affected by a natural disaster, the Commissioner will apply his discretion as outlined in paragraph 35-55(1)(a) of the ITAA 1997 not to defer deductions from your non-commercial business activity for the years that are the subject of the ruling in accordance with paragraph 35-10(1)(b) of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You are carrying on an activity as a business and it commenced in a previous financial year. | The initial profit projections showed you expected to pass the assessable income test and produce a taxation profit in a future year after the activity began. | The evidence of the consultant and the independent expert which you provided suggested that the commercially viable period for the activity would be x years. | Your income from all sources is expected to be under $250,000 in each income year. | Due to natural disaster damage you will not satisfy the income test, profits test, real property test or other assets test until a later financial year than previously expected.