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Authorisation Number: 1011670910689

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Ruling

Subject: Non-commercial losses - Commissioner's discretion - Special Circumstances

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) 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 2009-10 income year?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 1993

Relevant facts

You commenced a primary production business some years ago in partnership with your spouse.

You have claimed losses since commencement of the business.

In all years since the non-commercial loss rules commenced you have been meeting the assessable income test.

Your adjusted taxable income was over $250,000 in the 2009-10 income year due to lump sum payments paid to you by your employer, as a result of you ceasing employment. This event is preventing you from claiming your business losses in the 2010 income year.

You consider the fact that your income was increased to above $250,000 to be a special circumstance which happened only because of the lump sum payments. Your income in all previous years had never exceeded $250,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-10(1)

Income Tax Assessment Act 1997 subsection 35-10(2)

Income Tax Assessment Act 1997 paragraph 35-55(1)(a)

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

Income Tax (Transitional Provisions) Act 1997 section 35-10

Reasons for decision

For the 2009-10 income year there have been changes to the non-commercial losses legislation to limit the circumstances where business losses can be offset against other income.

The introduction of the income requirement test means that individuals with an adjusted taxable income in excess of $250,000 for that year will not get access to the four tests. To be able to claim your losses in that year you have to be able to get the Commissioner's discretion under section 35-55 of the ITAA 1997 or meet one of the exclusions.

You have not been able to pass the income requirement test (under $250,000) due to the receipt of lump sum payments for annual and long service leave.

You have requested the Commissioner's discretion on the basis that your business was affected by special circumstances in the 2009-10 year.

The information that you have provided is about why you have not been able to meet the income requirement test, not about special circumstances that affected your business. You state that your annual taxable income does not normally exceed $250,000.

There is nothing in the legislation that allows an exemption from this test because of one-off payments.

In terms of paragraph 35-55(1)(a) of the ITAA 1997, there are no special circumstances outside of your control that have affected your business activity in the 2009-10 year. There is no scope to allow the Commissioner's discretion under the special circumstances limb in section 35-55 of the ITAA 1997.

The rule to defer the losses does not apply if the loss is solely due to 'Small business tax break' deductions allowable under Division 41 of the ITAA 1997. It is evident that this exclusion will not apply in your case as your loss significantly exceeds your depreciation expenses.

There are no other discretions, exemptions or exclusions that apply to your situation.

Therefore, as there are no special circumstances that have affected your business activity in this year, the Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income for the 2009-10 income year.

You share of the business losses for the 2010 year will have to be deferred to the next income year where they may be deductible.