dited version of private ruling

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Ruling

Subject: non-commercial losses and the Commissioner's discretion

Will the Commissioner exercise his discretion to allow you to include any losses from your business activity in calculating your taxable income for the years ended 30 June 2010 and 30 June 2011?

Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You purchased a building which is being renovated to create residential apartments.

You are the project manager and you are involved on a daily basis supervising construction and planning the entire project.

You expect the renovations to be completed in during the 2011-12 income year.

Some of the apartments have been sold off the plan and you expect the remaining apartments to be sold soon after the renovations are completed.

You have never intended to retain or live in any of the apartments.

You do not expect to make a profit until the renovations are completed in the 2011-12 income year.

Your income for non-commercial loss purposes was more than $250,000 in the 2009-10 income year.

This ruling has been prepared on the basis that your property development activity is being carried on as a business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-10

Income Tax Assessment Act 1997 Subsection 35-10(2E)

Income Tax Assessment Act 1997 Section 35-55

Income Tax Assessment Act 1997 Paragraph 35-55(1)(c).

Reasons for decision

Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to losses from certain business activities for the year ended 30 June 2001 and subsequent years. The provisions only apply to individuals who conduct a business activity as either a sole trader or a partner in a partnership and made a loss from that business activity.

Section 35-10 of the ITAA 1997 was amended to include an income requirement that 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 applies in relation to the year ended 30 June 2010 and later years.

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

If the income requirement is not met, the Commissioner may exercise a discretion to allow the inclusion of losses if your business activity is of a type that requires a lead time before any assessable income is produced, for example, a forestry activity.

In order to exercise the discretion, the Commissioner must be satisfied that there is an objective expectation, 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.

You purchased a building and have commenced transforming it into residential apartments, all of which will be sold. You expect to complete the renovations in the 2011-12 income year.

The Commissioner accepts that your property development business activity will produce assessable income greater than the deductions attributable to it within a commercially viable period for the property development 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 2009-10 and 2010-11 income years.