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Ruling
Subject: Non- commercial losses and the professional arts exemption
Question:
Does the exception in subsection 35-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to allow you to include any losses from your sole trader business activity in your calculation of taxable income for the 2009-10 to 2013-14 financial years?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts
You are currently employed under a 12 month contract with a fixed remuneration package.
You are also engaged in sole trader activities providing similar services to clients.
Your income for non-commercial loss purposes in the 2009-10 financial year was more than $40,000 and less than $250,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 405
Income Tax Assessment Act 1997 - Subsection 35-10(4)
Income Tax Assessment Act 1997 - Section 995-1
Reasons for decision
Exemption - subsections 35-10(4) & (5) of the ITAA 1997
Taxation Ruling TR 2001/14 states (at paragraph 9) that where an individual has a loss from a professional arts business in a year of income, and in that year the total of their assessable income from sources unrelated to that business activity is less than $40,000, the loss deferral rules in subsections 35-10(2), (2A) or (2B) of the ITAA 1997, will not apply in relation to that business activity (subsection 35-10(4)).
The term 'Professional arts business' is given a wide meaning in subsection 35-10(5) through use of the same concepts as found in Division 405 of the ITAA 1997 in relation to the income averaging provisions. Your previous ruling has already determined that your sole trader activities are considered to be a professional arts activity for the purposes of Division 405 of the ITAA 1997. Therefore, it is accepted that your sole trader activities are professional arts business activities for the purposes of subsections 35-10(4) and (5) of the ITAA 1997.
The term 'business activity' is defined in section 995-1 of the ITAA 1997 as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.
Therefore, your occupation as an employee is not considered to be part of your business activity and any income you receive as an employee is considered to be from a source unrelated to your sole trader business activity.
As your income as an employee exceeds $40,000, the exception contained in subsection 35-10(4) of the ITAA 1997 does not apply.