Edited version of private ruling

Authorisation Number: 1011605684705

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Ruling

Subject: Non commercial losses

Question 1

Are you entitled to claim the losses from your business against your other income in the relevant income year?

Answer

Yes.

This ruling applies for the following period

1 July 2008 to 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

During the relevant income year you decided to commence a business.

The business started in the latter part of the income year.

You incurred rent expenses and purchased machinery and equipment for use in the business.

You did not receive any income in the year from this activity.

In the particular income year you had earned assessable income in excess of $20,000.

This private ruling is given on the basis that the activity was operated as a business for tax purposes in the year concerned.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-10,

Income Tax Assessment Act 1997 Section 35-30 and

Income Tax Assessment Act 1997 Section 35-55.

Reasons for decision

Summary

You are entitled to claim the losses from your business against your other income in the 2008-09 income year as the Commissioner considers you have met the assessable income test.

Detailed reasoning

Division 35 of the ITAA 1997 will apply to defer a non-commercial business loss from a business activity carried on by a taxpayer who is an individual, unless:

· their business activity satisfies one of the four tests listed in section 35-10 of the ITAA 1997;

· the Commissioner has exercised the discretion in section 35-55 of the ITAA 1997 for the activity; or

· the individual comes within the exception to Division 35, contained in subsection 35-10(4) of the ITAA 1997 which may apply to a primary production or professional arts business.

Section 35-30 of the ITAA 1997 outlines the assessable income test. A business passes this test where it produces assessable income of at least $20,000 in the income year.

Paragraph 35-30(b) of the ITAA 1997 contemplates the assessable income test in situations where the activity is not carried on for the full year. In that situation a reasonable estimate of what the assessable income would have been if the activity had been carried on for the full year can be made. The estimated income needs to be at least $20,000 to pass the assessable income test.

In your case, you commenced a business activity. You did not earn any assessable income from the activity in this year. However, you have provided details of your sales for the particular income year which shows that the assessable income test was passed.

Based on the particular income year sales figures, the Commissioner is satisfied that had you operated the business for the full income year you would have passed the assessable income test.

Therefore, you are entitled to offset your business losses against your other income in the income year.