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Edited version of private advice
Authorisation Number: 1012630158039
Ruling
Subject: Non-commercial losses
Question 1
Can losses incurred in the 2009-10 to 2012-13 financial years be offset against your other assessable income future years?
Answer
Yes.
Question 2
Can losses incurred in the 2013-14 financial year be offset against your other assessable income in future years if you do not carry on a similar type business?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You commenced business and income was regular and charged out as market rates however expenses exceeded income for most years. You had no other form of employment or income.
You met the income requirement in one year and passed the assessable income test of Division 35 of the ITAA 1997.
No loss was incurred in the 2012-13 financial year from this activity.
In early 2014 you ceased your business and have taken up full time employment.
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 Division 36
Reasons for decision
Paragraph 60 of Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses (TR 2001/14) states:
Where Division 35 does not apply and the excess deductions for the business activity for the income year (whether in combination with other deductions, or alone) are greater than the individual's other assessable income and any net exempt income, they will have a 'tax loss' under section 36-10. Deductibility of that tax loss in a later year will then be subject to Division 36 and not Division 35.
In your circumstances you met the income requirements and pass a test in Division 35 of the ITAA 1997 therefore the loss deferral requirements of Division 35 do not apply and your previously deferred losses can be offset against other income in future years as provided by Division 36.
When you cease to carry on a business activity paragraph 55 of TR 2001/14 provides that:
any amount deferred under subsection 35-10(2) of the ITAA 1997 will only be deductible in a subsequent year if the business activity that gave rise to this amount, or one 'of a similar kind', is carried on it that subsequent year. If the activity or one 'of a similar kind' is never carried on again, the entitlement to deduct the amount will be lost.
In your circumstances if you met the income requirements but do not pass a test in Division 35 of the ITAA 1997 any losses incurred in the 2013-14 financial year will be lost forever if you do not carry on a business of a similar kind in the future.
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