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Edited version of private ruling
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Ruling
Subject: Non-Commercial Losses: Commissioner's discretion
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include any losses from your business activity in your calculation of taxable income for the relevant income years?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts and circumstances
The following description of the scheme is based on information provided by you.
The following documents form part of the scheme under consideration:
- Your private ruling application.
- Independent evidence providing the commercially viable period for the industry.
- Your business plan.
- Income and expenditure projections for your business.
You are carrying on a business.
Your income for non-commercial loss purposes for the relevant income year is more than $250,000.
You provide that your business activity will become commercially viable in X to Y years.
Your income and expenditure projections for your business provides that the business activity will produce assessable income greater than deductions in year nine.
The independent evidence you provided suggests that the commercially viable period for your industry is a number of years.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 35-1.
Income Tax Assessment Act 1997 Subsection 35-55(1).
Income Tax Assessment Act 1997 Paragraph 35-55(1)(c).
Income Tax Assessment Act 1997 Subsection 35-10(2E).
Reasons for decision
Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests), in order to include losses from a business activity in your taxable income calculation. The income requirement is set out in subsection 35-10(2E) of the ITAA 1997. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.
In order to exercise the discretion, the Commissioner must be satisfied, based on evidence from independent sources, that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a commercially viable period (paragraph 35-55(1)(c) of the ITAA 1997).
In your case, you do not meet the income requirement as your income for non-commercial loss purposes is above $250,000. However, you have supplied evidence from an independent source which has established that your business activity will produce assessable income greater than the deductions attributable to it for that year, within a period that is commercially viable for this industry.
Therefore, the Commissioner will exercise the discretion available under paragraph 35-55(1)(c) of the ITAA 1997 and allow the losses from your business activity to be included in the calculation of your taxable income for the relevant income years.