| Disclaimer This edited version has been archived due to the length of time since original publication.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. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051684390968
Date of advice: 21 May 2020
Ruling
Subject: Non-commercial losses - income requirement
Question
Will you satisfy the income requirement in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for non-commercial loss purposes?
Answer Yes.Any assessable income attributed to a business activity incurring a loss is not included in the adjusted taxable income calculation. This is because it forms part of the business losses, which are disregarded (the business losses are calculated by deducting the expenses attributed to the business activity from the assessable income 'from' that business activity).
It is accepted that purchasing shares in the co-operative is a direct consequence of carrying on the dairy farming business, and it follows that any capital gain made on the disposal of the shares, along with any assessable income from any dividends received, is also a direct consequence of carrying on the dairy farming business.
As such, and having considered your circumstances and the relevant factors, your income for non-commercial loss purposes is less than $250,000, satisfying the income requirement under subsection 35-10(2E) of the ITAA 1997.
Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au
This ruling applies for the following periods
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commences on
1 July 2018
Relevant facts and circumstances
You have been carrying on a dairy farming business in a partnership.
You or the partnership were required to hold shares in an industry co-operative and to acquire additional shares based on the quantity of produce supplied.
The shares were held by the partnership and each partner only had an interest in the partnership and did not hold the shares individually.
After the listing of shares on the Australian stock exchange (ASX) you were no longer required to hold the shares in order to supply your produce.
During the 20XX-XX financial year, the partnership sold shares to fund the business expenses and purchase business assets.
The assessable gains following the sale of the shares have given you a taxable income above $250,000.
The fully franked dividends distributed by the partnership have also contributed to you exceeding the income limit.
Had it not been for the assessable capital gains resulting from the disposal of the shares, and the dividends received from those shares you would have satisfied the income requirement.
All shares held are shares that the partnership was required to acquire as a supplier to the industry Co-operative.
During the 20XX-XX financial year the partnership has made a net loss, in part, due to an increase in expenditure associated with severe impacts from recent bushfires.
It is expected the business will again incur a loss in the 20XX-XX financial year. For the same reasons explained above for the 20XX-XX financial year, your taxable income in the 20XX-XX financial year will be more than $250,000.
Relevant legislative provision
Income Tax Assessment Act 1997 subsection 35-10(2E)
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
