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Edited version of private ruling
Authorisation Number: 1011703884870
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Ruling
Subject: Non-commercial losses - Commissioner's discretion - income requirement
Question
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?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
During the year you received income from various sources including wages, interest, dividends, rent and share/future trading. You incurred a substantial loss from share/future trading due to economic climate and downturn. To fund this loss you were forced to sell a rental property from which you made a substantial assessable capital gain. Your turnover from the share/futures trading was in excess of $20,000.
Your other income for the purposes of the income requirement for non-commercial losses is in excess of $250,000.
Your income has previously not been in excess of $250,000. The excess is due to the capital gain on the sale of the property.
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
Summary
The Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 (special circumstances) to allow you to include any losses from your business activity of share/futures trading in your calculation of taxable income for the 2009-10 income year. There are no special circumstances that have affected your business activity.
You have not been able to pass the income requirement test (under $250,000) because of an assessable capital gain. There is nothing in the legislation that allows an exemption from this test because of a one off payment. The special circumstances discretion in the legislation relates to events that impact on the business. It cannot be extended to be applied to the income requirement test.
Detailed reasoning
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 a 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 requested the Commissioner's discretion on the basis that your income was only over $250,000 because of an assessable capital gain from the sale of a property 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 (capital gain), not about special circumstances that affected your business. In the 2009-10 year you have received a capital gain which has increased your income above $250,000. 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 a one off payment and the test has to be applied in each year, there is no looking back or looking forward provision.
In terms of paragraph 35-55(1)(a) of the ITAA, 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.
Similarly there is no scope to apply the discretion under the lead time limb as there is nothing in the nature of the activity that stops it from producing assessable income for a period of time.
Based on the information you have provided there are no other discretions, exemptions or exclusions that apply to your situation. The business losses for the 2010 year will have to be deferred to the next income year where they may be deductible.