Private ruling: Non-commercial losses
Published: May 2013
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Will the Commissioner exercise the discretion in subsection 35-55(1) 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 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)(a) | 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; or · 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 financial 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; and · there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry. The relevant discretion may also be exercised for the financial year in question where your business activity is affected by special circumstances outside your control. 'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster. 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 the period of time prior to your business making a tax profit was may have been extended by the effects of special circumstances. Consequently the Commissioner will exercise his discretion in the relevant financial years.

Relevant facts: You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997 for the relevant financial year. | You carry on a business which has a period of time before a profit can be made. Your business was also affected by special circumstances