| Disclaimer This edited version has been archived due to the length of time since original publication.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 your private ruling
Authorisation Number: 1012220899345
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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Non-commercial loss and Commissioner's discretion
Question
Will the Commissioner exercise his discretion under section 35-55 of the Income Tax Assessment Act 1997 in respect of any losses derived from your business activities?
Answer:
Yes.
This ruling applies for the following periods
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
Year ended 30 June 2020
Year ended 30 June 2021
The scheme commenced on
1 July 2016
Relevant facts
You are carrying on an activity as a business and it commenced in a previous financial year.
The initial profit projections showed you expected to pass the assessable income test and produce a taxation profit in a future year after the activity began.
The evidence of the consultant and the independent expert which you provided suggested that the commercially viable period for the activity would be x years.
Your income from all sources is expected to be under $250,000 in each income year.
Due to natural disaster damage you will not satisfy the income test, profits test, real property test or other assets test until a later financial year than previously expected.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 35-55.
Income Tax Assessment Act 1997 Subsection 35-10(2).
Income Tax Assessment Act 1997 Subsection 35-55(2E).
Reasons for decision
Deferral of deduction
A deduction is deferred under subsection 35-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) if amounts attributable to your business activity that are deductible exceed your assessable income from that business activity for that year so that then it applies that the excess
· was not incurred in that income year; and
· was 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.
When a deferral of deduction does not apply
Subsection 35-10(2) of the ITAA 1997 does not apply if:
if you satisfy subsection 35-10(2E) of the ITAA 1997 for that year and one of the tests set out below is satisfied for the business activity for that year:
· assessable income test;
· profits test;
· real property test;
· other assets test (paragraph 35-10(1)(a) of the ITAA 1997); or
· the Commissioner exercises his discretion set out in section 35-55 of the ITAA 1997 for that business activity and year (paragraph 35-10(1)(b) of the ITAA 1997).
Subsection 35-10(2E) of the ITAA 1997 is satisfied if the sum of the following is less than $250,000:
· your taxable income for that year;
· your reportable fringe benefits for that year;
· your reportable superannuation contributions for that year; and
· your total investment losses for that year.
Paragraph 35-55(1)(a) of the ITAA 1997 states that the Commissioner may, on application, decide that the rule about the deferral of deductions in subsection 35-10(2) of the ITAA 1997 does not apply because the business activity may be affected by special circumstances outside the control of the operators such as drought, flood or other natural disaster.
Your circumstances
In your case, you have requested that the Commissioner exercise his discretion not to defer deductions from a non-commercial business activity. Although the sum of your income as set down in subsection 35-10(2E) of the ITAA 1997 does not exceed $250,000, you have stated that you will not satisfy the assessable income test, the profits test, the real property test or the other assets test. Accordingly, paragraph 35-10(1)(a) of the ITAA 1997 does not apply in your case.
You have advised that due to the damage from a natural disaster damage has occurred to your business activity and as a result, your business has been affected and that extra time is required to produce a taxation profit. Therefore, as you have been affected by a natural disaster, the Commissioner will apply his discretion as outlined in paragraph 35-55(1)(a) of the ITAA 1997 not to defer deductions from your non-commercial business activity for the years that are the subject of the ruling in accordance with paragraph 35-10(1)(b) of the ITAA 1997.
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).
