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Ruling
Subject: Commissioner's discretion
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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?
Answer
No
Relevant facts
Your income for non-commercial losses purposes is less than $250,000.
You commenced business operations in the 2011-12 financial year. You have not yet progressed to the stage of taking your product to the market and you did not make any assessable income from the business in the 2011-12 financial year.
You have made the necessary business registrations, developed a website and prepared a draft business plan. You have also identified some advisors to help you develop the business and spent time developing networks for the business.
You intend to exceed $20,000 in assessable income in the 2012-13 financial year.
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 subsection 35-10(2E)
Income Tax Assessment Act 1997 paragraph 35-55(1)(b)
Reasons for decision
For the 2009-10 and later income years, Division 35 of the Income Tax Assessment Act 1997 will apply to defer a non-commercial loss from a business activity unless:
· you meet the income requirement and you pass one of the four tests:
· the exceptions apply; or
· the Commissioner exercises his discretion.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, you do not meet any of the four tests in the years of income under consideration. Your losses are therefore subject to the deferral rule, unless the Commissioner exercises his discretion.
The relevant discretion may be exercised for the income year in question where:
· it is in the nature of the business activity that there will be a period of time before it can be expected to pass one of the four tests
· there is an objective expectation your business activity will produce a tax profit or meet one of the four tests within a commercially viable period for your industry.
Having regard to your full circumstances, it is not accepted that it is in the nature of the business activity that has prevented one of the four tests being passed. Consequently the Commissioner will not exercise his discretion for the year requested.