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This edited version has been archived due to the length of time since original publication.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: 1011588260032

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 loss - Commissioner's discretion

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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 periods:

1 July 2009 to 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You incurred expenses in starting up your business activity during the 2009-10 income year

Your income for non commercial loss purposes for the income year(s) was below $250,000.

During the telephone conversation with you, you advised the following facts:

Your business activity will become commercially viable in the 2010-11 income year.

You did not carry out any business activity during the year ended 30 June 2010 and therefore your business activity did not generate any income during the relevant income year.

You incurred expenses in relation to your commencement of your business activity.

Your income for non commercial loss purposes for the income year(s) was below $250,000

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 35-1.

Income Tax Assessment Act 1997 - Subsection 35-55(1)

Income Tax Assessment Act 1997 - Paragraph 35-55(1)(b).

Income Tax Assessment Act 1997 - Paragraph 35-55(1)(c).

Income Tax Assessment Act 1997 - Subsection 35-10(2E).

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons For Decision

Division 35 of the ITAA 1997 is an integrity measure to prevent losses from non-commercial activities that are carried on as businesses by individuals being offset against other assessable income in the income year the loss is incurred.

Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests) in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000.

For the Commissioner to exercise the discretion you must be able to show that the reason your business activity is not making a profit is inherent to the nature of the business and is not peculiar to your situation.

The activities you engaged in until 30 June 2010 are considered to be preparatory activities, being those to do with preparing the capital assets for the business operations.

Preparatory expenses are expenses which are incurred once a decision to commence a business has been made.

Based on the information provided, the expenses you incurred during the year ended 30 June 2010 are considered as preparatory expenses incurred to conduct your business activity. A deduction can therefore not be claimed and such expenses fall outside of the non-commercial losses regime.

As your activity has not commenced trading as a business until the year ended 30 June 2011, the Commissioner is unable to exercise the discretion under paragraph 35-55(1)(b) of the ITAA 1997 for the year ended 30 June 2010.


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).