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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your private ruling

Authorisation Number: 1012541082597

Ruling

Subject: non-commercial losses

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in the calculation of your taxable income for the 2012-13 financial year?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on

1 June 2012

Relevant facts and circumstances

You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You commenced business more than 10 years ago.

In the 2011-12 financial year, you passed the assessable income test.

In the 2012-13 financial year, several events you had booked in cancelled.

It was not possible to replace the cancelled bookings.

The income lost due to the cancellations meant that your business activity was unable to generate $20,000 in assessable income.

Your business activity did not meet any of the four tests in the 2012-13 financial year.

You expect to pass the assessable income test in the 2013-14 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-10(1)

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

Income Tax Assessment Act 1997 subsection 35-10(2E)

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

Reasons for decision

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, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the year of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion.

The Commissioner's discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised for the financial year where the business activity is affected by special circumstances outside the control of the operators of the business activity.

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. For those individuals who do not satisfy the income requirement, special circumstances are those which have materially affected the business activity, causing it to make a loss.

Taxation Ruling TR 2007/6 sets out the Commissioner's interpretation of the exercise of the Commissioner's discretion under paragraph 35-55(1)(a) of the ITAA 1997. The following has been extracted from paragraphs 47 to 53 of this ruling:

In this case, you have been operating a business for more than 10 years. In the 2012-13 financial year several events that you had booked in cancelled. These cancellations meant your business activity was unable to pass the assessable income test. It is expected that cancellations would occur in the normal course of conducting a business. While we appreciate that the circumstances were outside of your control, we do not consider the cancellations to be special circumstances for the purposes of paragraph 35-55(1)(a) of the ITAA 1997.

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