Edited version of your private ruling

Authorisation Number: 1012410403611

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Ruling

Subject: Non-commercial losses - Commissioner's discretion

Question 1

Were you carrying on a business during the 2008-09 financial year?

Answer

Yes.

Question 2

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 in your taxable income for the 2008-09 financial year?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You work in a professional occupation.

You were issued with a certificate that specified the start date of your compulsory professional indemnity insurance cover and the date the business commenced.

From early 2009 work in progress was accrued and fees were billed. During the 2009-10 income year your gross revenue from the occupation greatly exceeded the assessable income test amount.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 35-10
Income Tax Assessment Act 1997 section 35-30
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Business

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as including any profession, trade, employment, vocation or calling, but not an occupation as an employee.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts provided.

Taxation Ruling TR 97/11 provides the Commissioner's view on the factors used to determine if you are in business for tax purposes. These factors are:

· whether the activity has a significant commercial purpose or character

· whether the taxpayer has more than just an intention to engage in business

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

· whether there is regularity and repetition of the activity

· whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

· whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

· the size, scale and permanency of the activity, and

· whether the activity is better described as a hobby, a form of recreation, or sporting activity.

No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression.

In your case it is considered that you are carrying on a business as you have:

· obtained relevant formal qualifications

· leased premises

· commenced work in your business

When did your activity commence?

In determining when a business commences, there are three indicators which must be present before it can be said that a business has commenced. The indicators are:

· purpose, intention and decision

· acquisition of a business structure, and

· commencement of operations.

Based on the information provided, your business can be said to have commenced in early 2009 which is the day stated on your certificate from the approving State authority as your commencement date of business.

Commissioner's discretion

Division 35 of the ITAA 1997 will apply to defer non-commercial business losses from a business activity carried on by a taxpayer who is an individual, unless:

· their business activity satisfies one of the four tests listed in section 35-10 of the ITAA 1997

· the Commissioner has exercised the discretion in section 35-55 of the ITAA 1997 for the activity, or

· the individual comes within the exception contained in subsection 35-10(4) of the ITAA 1997 which may apply to a primary production or professional arts business.

Section 35-30 of the ITAA 1997 outlines the assessable income test. A business passes this test where it produces assessable income of at least $20,000 in the income year.

Paragraph 35-30(b) of the ITAA 1997 contemplates the assessable income test in situations where the activity is not carried on for the full year. In that situation a reasonable estimate of what the assessable income would have been if the activity had been carried on for the full year can be made. The estimated income needs to be at least $20,000 to pass the assessable income test.

2008-09 income year

In your case your business commenced in early 2009. You did not earn any assessable income from this activity in this income year however, you have earned in excess of the assessable income test amount in the following income year.

Based on the income for the 2009-10 income year the Commissioner is satisfied that had you operated the business for the full 2008-09 income year you would have passed the assessable income test.

Therefore, you are entitled to offset your business losses against your other income in the 2008-09 income year.

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