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Ruling
Subject: Non-commercial losses - Assessable income test
Question:
Did your business activity pass the assessable income test in the 2011-12 financial year?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You commenced your business activity in 2012. In the few months to 30 June 2012, your business activity produced assessable income.
Your business activity also incurred expenses and produced an overall loss in the 2011-12 financial year.
Your income for non-commercial loss purposes in the 2011-12 financial year was less than $250,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 35
Income Tax Assessment Act 1997 section 35-10
Income Tax Assessment Act 1997 section 35-30
Reasons for decision
Where a business activity is not in operation for the whole of an income year, paragraph 35-30(b) of the Income Tax Assessment Act 1997 (ITAA 1997) applies, so that the assessable income test is then based on a reasonable estimate of what the assessable income from the business activity would have been if the activity was carried on for the whole of that year.
The requirement in paragraph 35-30(b) is that a reasonable estimate be made of what the assessable income would have been had the business been carried on for a full year. Paragraph 62 of Taxation Ruling TR 2001/14 discusses how a reasonable estimate is made.
Making a 'reasonable estimate' of assessable income for the purposes of the Assessable income test
62. To make a 'reasonable estimate' under paragraph 35-30(b) of assessable income that would have been derived from the business activity if it had been carried on throughout the income year in question (i.e., an estimate of a notional annual amount) an individual can consider all relevant factors, including, but not limited to:
(a) the cyclical nature of the particular business activity which may result in variations in the pattern of receipts;
(b) any orders received and/or forward contracts entered into;
(c) the amount that could have been derived for a full income year based on a pro rata calculation of the assessable income already derived for the part of the year. The amount derived for the part of the year must be typical of the income derived in a full year;
(d) the type of business activity undertaken, considering the nature and type of income receipts of similar activities typical of the industry; and
(e) current size and investment in the activity.
In your case, your business activity produced income of a certain amount in a certain portion of the year. A reasonable estimate of the assessable income you would have received over the full year, based on these figures, is over the required $20,000.
Therefore, your business is considered to have passed the assessable income test in the 2011-12 financial year.
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