Private ruling: Non-commercial losses
Date of advice: 28 September 2015
Published: September 2015
Ruling period: Year ended 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) 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 20ZZ 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)

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 satisfy the income requirement and you pass one of the four tests • the exceptions apply, or • the Commissioner exercises his discretion. In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your 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 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. For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the income year(s) in question where, but for the special circumstances the activity would have passed at least one of the tests. Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests. You met the $20,000 assessable income test and made a profit from your business in its first full year of operation in 20YY and if your accident had not occurred, there is no indication that you would not have met the assessable income test and made a profit again in the 20ZZ year. Consequently the Commissioner will exercise his discretion in the 20ZZ financial year.

Relevant facts: You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997. | You commenced business operations in the 20XX financial year. | You were involved in an accident during the 20YY financial year. | Due to the accident you substantially reduced your business activities for a period before you recovered. | You made a profit and earned gross income of more than $20,000 from your business activities in the 20YY financial year. | You intend to meet the $20,000 assessable income test and make a profit from your business activities in the 2016 financial year.