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Edited version of private ruling

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Ruling

Subject: Non-commercial losses - Commissioner's discretion - special circumstances

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 non-primary production activity in your calculation of taxable income for the year ended 30 June 2010?

No.

Relevant facts

You have obtained necessary qualifications and signed a subcontractor agreement with an entity to work and obtained assets required. While you were waiting to commence work, the entity decided not to go ahead with the task. You did not earn any income.

This ruling applies for the following period

30 June 2010

Reasons for decision

Division 35 of the ITAA 1997 applies to losses from certain business activities for the 2000-01 income year and subsequent years. Under the rule in subsection 35-10(2) of the ITAA 1997, a 'loss' made by an individual (including an individual in a general law partnership) from a business activity will not be taken into account in an income year unless:

Generally, a 'loss' in this context is, for the income year in question, the excess of a taxpayer's allowable deductions attributable to the business activity over that taxpayer's assessable income from the business activity.

The exception in subsection 35-10(4) of the ITAA 1997, has no relevance for the purpose of this ruling.

You have satisfied the income requirement in subsection 35-10(2E) of the ITAA 1997 as your relevant income is less than $250,000.

According to subsection 35-5(2) of the ITAA 1997, Division 35 of the ITAA 1997 which deals with deferral of losses from non-commercial business activities, is not intended to apply to activities that do not constitute carrying on a business.

Paragraph 35 of the Taxation Ruling TR 2001/14 explains that carrying on a business activity requires that a business be carried on, as that term is ordinarily understood. Paragraph 98 of the ruling sates, for a business activity to have commenced a person must have:

As explained above, in order to exercise the discretion, the Commissioner should be satisfied that the activity has actually commenced operating.

The information provided by you shows that you have made the decision to commence the business activity and have acquired assets to carry on that activity. However, you could not actually commence the business operation due to a decision by the entity not to go ahead with the task.

As previously discussed, the non-commercial loss provisions in Division 35 of the ITAA 1997 do not apply to activities that do not constitute carrying on a business. Accordingly, the Commissioner will not apply the discretion to allow you to include the losses in the calculation of the taxable income for the year ended 30 June 2010.

Summary of reasons for decision

The Commissioner will not exercise the discretion under paragraph 35-55(1)(a) of the ITAA 1997 in relation to your non-primary production activity for the year ending 30 June 2010 as you have not carried on the business activity in that year.

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