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Edited version of private advice
Authorisation Number: 1012630305601
Ruling
Subject: Non-commercial losses
Question
Can business losses you incurred in the 2012-13 financial year be offset against your other assessable income in future financial years?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You incurred business losses in the 2012-13 financial year.
You cannot use the losses in future business tax returns as you closed your business after the 2012-13 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)
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:
• you satisfy the income requirement and you pass one of the four tests
• the exceptions apply
• the Commissioner exercises the discretion.
In the 2012-13 financial year you met the income requirements but did not pass a test, the exceptions did not apply and the Commissioner did not exercise the discretion. Therefore under Division 35 the losses were deferred to be offset against future business profits or other income when one of the tests were passed or the Commissioner exercised the discretion.
Paragraph 55 of Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses (TR 2001/14) provides that when you cease to carry on a business activity:
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 you ceased your business activity and had deferred losses consequently unless you commence a business activity similar to the one you closed those losses will be lost.
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