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Edited version of private ruling
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Ruling
Subject: Non-Commercial Losses
Are you required to defer losses incurred in 2009-10 income year because of subsection 35-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
No.
This ruling applies for the following period
Year ended 30 June 2010
Relevant facts
A partnership, of which you were a partner, commenced a business in 2009-10.
The business made a loss in 2009-10.
The business claimed a deduction under Division 41 of the ITAA 1997 in 2009-10 which put the partnership in a loss situation.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2)
Reasons for decision
Deferral of deductions from non-commercial business activities
Subsection 35-10(2) of the ITAA 1997 in part states if the amounts attributable to the business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess:
· were not incurred in that income year, and
· were 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.
Note 2 attached to subsection 35-10(2) states this rule does not apply if your excess is solely due to deductions under Division 41 of the ITAA 1997.
In application to your case, the partnership claimed a deduction under Division 41 of the ITAA 1997. As a result of that deduction the partnership made a loss for 2009-10 income year. Had that deduction not been claimed the partnership would not have made a loss; therefore the rule under subsection 35-10(2) of the ITAA 1997 does not apply.
You are not required to defer the partnership loss in 2009-10.
As the rule in subsection 35-10(2) of the ITAA 1997 does not apply to your situation for 2009-10, that is, you are not required to defer your loss under that subsection, it is not necessary to consider the discretion under section 35-55 of the ITAA 1997.
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