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Edited version of private ruling
Authorisation Number: 1011502493308
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Ruling
Subject: Non-Commercial Losses: Commissioner's discretion
Question
Will the Commissioner exercise his discretion under section 35-55 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 2010 income year?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts and circumstances
The following description of the scheme is based on information provided by you.
The following documents form part of the scheme under consideration:
· Your Private Ruling application.
· Independent evidence on the commercially viable period for the industry.
· Your business plan.
· Income and expenditure projections for your business activity.
· You are carrying on a business.
· The independent evidence you provided suggests that the commercially viable period for your industry is over 3 years.
· According to the summary of the information provided you have produced assessable income of at least $20,000 for the income years
· You have not provided information that states whether you will or will not meet the income requirement under subsection 35-10(2E) of the ITAA 1997 for the income year ended 30 June 2010.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 35-10
Income Tax Assessment Act 1997 subsection 35-10(2)
Income Tax Assessment Act 1997 subsection 35-10(2C)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Income Tax Assessment Act 1997 subsection 35-10(4)
Income Tax Assessment Act 1997 section 35-30
Income Tax Assessment Act 1997 section 35-35
Income Tax Assessment Act 1997 section 35-40
Income Tax Assessment Act 1997 section 35-45
Income Tax Assessment Act 1997 section 35-55
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Income Tax Assessment Act 1997 subparagraph 35-55(1)(b)(i)
Income Tax Assessment Act 1997 subparagraph 35-55(1)(b)(ii)
Income Tax Assessment Act 1997 paragraph 35-55(1)(c)
Income Tax Assessment Act 1997 subparagraph 35-55(1)(c)(i)
Income Tax Assessment Act 1997 subparagraph 35-55(1)(c)(ii)
Reasons for decision
Losses from activities that do not meet the income requirement and any of the four tests under Division 35 of the ITAA 1997, or the exceptions in subsection 35-10(4) of the ITAA 1997, will be subject to the loss deferral rules in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under section 35-55 of the ITAA 1997.
The discretion in paragraph 35-55(1)(b) of the ITAA 1997 may be exercised where:
· the business activity has started to be carried on and for that or those income years;
· because of its nature it has not satisfied, or will not satisfy, one of the tests set out in Division 35 of the ITAA 1997; and
· there is an expectation that the business activity of an individual taxpayer will either pass one of the tests or produce a taxation profit within a period that is commercially viable for the industry concerned.
The note to this paragraph states that this paragraph is intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income.
The example given in the note is an activity involving the planting of hardwood trees for harvest, where many years would pass before the activity could reasonably be expected to produce income.
For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is producing a loss is inherent to the nature of the business and is not peculiar to your situation. For example, the discretion will not be available where the failure to make a profit is for reasons other than the nature of the business such as, a consequence of starting out on a small scale, the hours worked or the need to build a client base.
You have not provided information that states whether you will or will not meet the income requirement under subsection 35-10(2E) of the ITAA 1997 for the income year ended 30 June 2010, however according to the summary of the information provided you have produced assessable income of at least $20,000 for the income years hence the lead time for your business activity had already expired.
Therefore the Commissioner will not exercise the discretion available relating to the lead time in accordance with section 35-55 of the ITAA 1997.
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