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Edited version of private ruling

Authorisation Number: 1011816695090

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Ruling

Subject: non commercial losses

Question

Will the Commissioner exercise the discretion under paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include your share of losses from a business in the calculation of your taxable income for the 2009-10, 2010-11 and 2011-12 financial years?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Note:

The issue of this ruling of itself does not constitute a decision of the Commissioner under subsection 35-55(1) of the ITAA 1997 that the loss deferral rule in subsection 35-10(2) of the ITAA 1997 does not apply to you for the income year in question. That decision can only be made in issuing you your assessment, following lodgement of your income tax return for that income year. You can lodge that return on the basis that the Commissioner is bound to make this decision as set out in this ruling, where the facts set out in the ruling do not differ materially from the actual facts concerning your business activity.

The scheme commenced on

1 July 2009

Relevant facts

You are a partner in a partnership which operates a business.

The partnership has a long-term lease on a building where the business is conducted.

You are expecting to build up a vibrant and profitable business by the 2012-13 financial year.

The partnership would have made a taxable profit but for certain circumstances outside of your control.

You have a long successful history of being involved in this industry.

You failed the income requirement as outlined under subsection 35-10(2E) of the ITAA 1997 in the 2009-10 and 2010-11 financial years and predict that you will also fail it in the 2011-12 financial year.

Relevant legislative provisions

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

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

Reasons for decision

Special circumstances

For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and you do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.

The relevant discretion may be exercised for the income year in question where your business activity is affected by special circumstances outside your control.

'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster.

For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income years in question where, but for the special circumstances:

Having regard to your case, it is accepted that the circumstances that affected your business were special circumstances outside of your control. Further, it is accepted that:

Consequently the Commissioner will exercise his discretion for the 2009-10, 2010-11 and 2011-12 financial years.

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