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Edited version of private ruling
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Ruling
Subject: Non-commercial losses - Commissioner's discretion
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 financial year ended 30 June 2010?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2008
Relevant facts
You commenced operating a business.
Your intentions were to build up the business to make a profit. Your projected income was based on normal income for other businesses in the same trade. You expected to obtain a certain number of jobs per week at $XXX per job, giving you an annual income of approximately $28,000.
You did not purchase a client base but advertised and tried to build up a client base.
Due to health reasons you were unable to work full time and therefore develop the business. You still tried to continue the business in the recent year, but were unable to continue and are now on a disability pension.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2)
Income Tax Assessment Act 1997 Subsection 35-10(4)
Income Tax Assessment Act 1997 Paragraph 35-55(1)(a)
Reasons for decision
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) of the ITAA 1997 that it would be unreasonable to defer the loss.
Paragraph 35-55(1)(a) of the ITAA 1997 provides that the Commissioner can exercise the first arm of this discretion where certain special circumstances apply. Special circumstances in this context are those outside the control of the business operator, including those such as drought, flood, bushfire or some other disaster that have materially affected that activity. In Taxation Ruling TR 2007/6, the Commissioner expands on his view of what would constitute special circumstances in the context of paragraph 35-55(1)(a) of the ITAA 1997, to include among other things, the illness of the operator or employee(s) which have significantly affected the ability of the operator to carry on the business activity.
It is intended that the Commissioner only exercise this arm of the discretion if one of the tests would have been satisfied but for the special circumstances.
The Commissioner accepts that your business activity was affected by circumstances that were unusual and outside your control and that in the absence of those circumstances one of the four tests would have been passed, for the income year in question.
Therefore the Commissioner's discretion under paragraph 35-55(1)(a) has been granted for the 2009-10 income year.