| Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011580673533
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: non-commercial losses - Commissioner's discretion - special circumstances
Question
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 2009-10 income year?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 June 2010
Relevant facts
You acquired a retail business in June 2010.
Turnover for the month was approximately $50,000.
You consider the business activity to be commercial.
Your taxable income was over $250,000 in the 2009-10 income year due to a redundancy package given to you by your employer, prior to you purchasing the business. The event is preventing you from claiming your business losses in the 2010 income year. You consider this is a unique situation happening only because of the redundancy payment. Your income in all previous years never exceeded $250,000.
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 paragraph 35-55(1)(a)
Income Tax Assessment Act 1997 subsection 35-10(2E)
Income Tax (Transitional Provisions) Act 1997 section 35-10
Reasons for decision
Summary
The Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 (special circumstances) to allow you to include any losses from your business activity in your calculation of taxable income for the 2009-10 income year. There are no special circumstances that have affected your business activity.
You have not been able to pass the income requirement test (under $250,000) because of the redundancy payment. There is nothing in the legislation that allows an exemption from this test because of a one-off payment.
Detailed reasoning
For the 2009-10 income year there have been changes to the non-commercial losses legislation to limit the circumstances where business losses can be offset against other income.
The introduction of the income requirement test means that individuals with a taxable income in excess of $250,000 for that year will not get access to the four tests. To be able to claim your losses in that year you have to be able to get the Commissioner's discretion under section 35-55 of the ITAA 1997 or meet one of the exclusions.
You have requested the Commissioner's discretion on the basis that your business was affected by special circumstances in the 2009-10 year.
The information that you have provided is about why you have not been able to meet the income requirement test (redundancy payment), not about special circumstances that affected your business. In the 2009-10 year you have received a redundancy payment which has increased your income above $250,000. Your annual taxable income does not normally exceed $250,000. There is nothing in the legislation that allows an exemption from this test because of a one-off payment.
In terms of paragraph 35-55(1)(a) of the ITAA 1997, there are no special circumstances outside of your control that have affected your business activity in the 2009-10 year. There is no scope to allow the Commissioner's discretion under the special circumstances limb in section 35-55 of the ITAA 1997.
Similarly there is no scope to apply the discretion under the lead time limb as there is nothing in the nature of the activity that stops it from producing assessable income for a period of time.
The rule to defer the losses does not apply if the excess (loss) is solely due to deductions under Division 41 of the ITAA 1997, 'Small business tax break'. This will not be applicable in your case as the depreciable assets have been purchased after the cut off date of 31 December 2009.
There are no other discretions, exemptions or exclusions that apply to your situation. The business losses for the 2010 year will have to be deferred to the next income year where they may be deductible.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
