Edited version of private ruling

Authorisation Number: 1011613587508

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Ruling

Subject: Non commercial losses-Commissioner's discretion

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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 income year X?

Answer

Yes

This ruling applies for the following period

1 July 2009 to 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

Your business provides sector recruitment and migration services. It is member of several other recruitment agencies.

You specialise in the management of campaigns to recruit highly specialised and experienced senior staff. You employ staff with years of experience in their specialist markets, gained whilst working with Australasia's largest recruitment firms and employers. You target highly skilled, specialist candidates both locally and internationally to fill critical vacancies.

When vacancies are filled through your recruitment processes you are paid a placement fee after the candidate has commenced in their employment position. A lag time of several months exists between costs of recruitment and the receipt of placement fees.

Turnover for income year X was approximately amount Q and turnover for income year Y to date is approximately amount R.

Your income for non commercial loss purposes for income year X was less than $250,000.

Detailed reasoning

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. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.

You satisfy the income requirement under subsection 35-10(2E) of the ITAA 1997 if your income for non-commercial loss purposes is less than $250,000.

In your case, you do satisfy the income requirement as your income for non commercial loss purposes is below $250,000.

Losses from activities that do not meet any of the four tests under Division 35 of the ITAA 1997, or the exception in subsection 35-10(4) of the ITAA 1997 will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997, unless the Commissioner exercises a discretion under paragraph 35-55(1)(b) of the ITAA 1997 that it would be unreasonable to defer the loss.

It is accepted that it is in the nature of your activity that there will be a lead time before a profit can be expected or one of the tests passed. It is accepted that meeting a test within 7 months of commencing your recruitment business will be within a commercially viable period for your industry.

The information you have provided demonstrates that there is an objective expectation that your business activity will pass one of the tests (the assessable income test) or will produce a taxation profit by the 2010 -11 income year.

Therefore, the Commissioner's discretion under paragraph 35-55(1)(b) has been granted from income year X.