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Edited version of your written advice

Authorisation Number: 1012788526905

Ruling

Subject: Non-commercial losses - Commissioner's discretion - special circumstances

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your partnership business activity in your calculation of taxable income for the 2013/14 financial year?

Answer

No

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2000

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following document. The document forms part of and is to be read with this description. The relevant document is:

You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You have carried on a business through a partnership for a number of years.

The partnership passes the assessable income test, real property test and other assets test in the 2013/14 financial year.

During the 2013/14 financial year you received a significant distribution of income. The distribution and the income earned on the monies received, has pushed your non-commercial loss income over the $250,000 income threshold and prevented you from claiming the partnership losses under the non-commercial loss provisions.

You usually receive distributions of income from several trusts each year and would normally be entitled to claim the losses from the partnership as the partnership satisfies the tests for non-commercial losses.

You have requested that the Commissioner allow the use of these losses in the current financial year rather than deferring the losses.

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 financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

Income requirement

In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and you do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.

There is no general discretion with regards to the income requirement, even in the situation where your other income is normally under the $250,000 and this year may be a one-off event in terms of this other income exceeding $250,000. You either meet this requirement or you don't. If you do not meet it, the losses are deferred.

The only discretions available are those in section 35-55 of the ITAA 1997. These discretions relate to the business activity in which the loss has been made. The circumstances where you may get a discretion are; where the loss in that year is due to special circumstances outside your control, or you are in the lead time period of a business where it is not able to produce any assessable income.

'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, including drought, flood, bushfire or some other natural disaster. You have not provided any evidence to support an argument that the partnership business activity did not make a profit in the 2013/14 financial year due to special circumstances (the partnership has only made a tax profit in one out of the last seventeen years).

The partnership business is not in the lead time period, as it commenced in the relevant financial year and has been producing assessable income for a number of years.

There are no discretions available for this partnership business activity in the 2013/14 financial year. Consequently the Commissioner cannot exercise his discretion in the 2013/14financial year. The losses are deferred and become a business deduction in the following year.

ATO view documents

Taxation Ruling TR 2001/14

Taxation Ruling TR 2007/6.

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