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Edited version of private ruling
Authorisation Number: 1011824904593
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Ruling
Subject: Non-commercial losses and the 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 non-primary production business in the calculation of your taxable income for the 2009-10 financial year?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You commenced a non-primary production business in October 2009.
Your income from the activity for the 2009-10 financial year was approximately $3,000.
You project that income and expenses for the 2010-11 financial year will be approximately $9,000 and $11,000 respectively.
Your business includes you visiting your clients prior to the event and then performing on the day of the event.
Bookings are made up to one year in advance.
You state that the commercially viable period for your industry is one year.
You do not satisfy any of the four tests set out in sections 35-30, 35-35, 35-40 or 35-45 of the ITAA 1997.
You satisfy subsection 35-10(2E) of the ITAA 1997 as your adjusted taxable income was less than $250,000 in the 2009-10 financial year.
Your income from sources not related to the business was more than $40,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Reasons for decision
Division 35 of the ITAA 1997 will apply to defer a non-commercial business loss from a business activity unless:
· You satisfy the income requirement for the 2009-10 and later financial years (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and your business activity satisfies one of the four tests listed in section 35-10 of the ITAA 1997, or
· the Commissioner has exercised the relevant discretion in section 35-55 of the ITAA 1997 the activity, or
· You come within the exception to Division 35 which may apply to a primary production or professional arts business.
In your situation, you satisfy the income requirement for the 2009-10; you do not satisfy any of the four tests; and 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:
· it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests
· there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry.
You have stated that the commercially viable period for your industry is one year. You have also provided projections which show that your activity will not satisfy the assessable income test or make a tax profit in the 2010-11 financial year.
Consequently, as the business activity will not satisfy any of the four tests or make a tax profit within a commercially viable period, the Commissioner will not exercise his discretion in the 2009-10 financial year. Therefore, you must defer the loss. You may be able to offset the loss in a future year, either by passing one of the tests or making a tax profit from your business activity.
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