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Edited version of your 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 in your calculation of taxable income for the relevant financial year?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
01 July 2011
Relevant facts
You are a partner in an arts business.
The partnership business made a loss in the relevant financial year.
You do not pass any of the four business activity tests in the relevant financial year.
Your other assessable income for non-commercial loss purposes for the relevant financial year was less than $250,000. A portion of your other assessable income is from a superannuation income stream.
You are over 60 and submit that if your superannuation income was from a taxed source it would not be counted towards assessable income and, therefore, you would be able to use the loss from the business.
Relevant legislative provisions
Income Tax Assessment Act 1997 paragraph 35-55(1)(a)
Reasons for decision
For the 2009-10 and later income years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:
· you meet the income requirement - section 35-10(2E) - and you pass one of the four tests - section 35-30, 35-35, 35-40, 35-45
· the exceptions contained in section 35-10 of the ITAA 1997 apply; or
· the Commissioner exercises his discretion under section 35-55 of the ITAA 1997.
Paragraph 35-55(1)(a) of the ITAA 1997 refers to 'special circumstances' outside of the control of the operators of the business activity, including drought, bushfire and other natural disasters, that have materially affected that activity. However, the list is not meant to be exhaustive. There are a range of other circumstances which may be considered as special.
Further, having special circumstances in itself is not sufficient for the discretion to be exercised. The Commissioner must also be satisfied that the special circumstances prevented you from passing a test.
No exhaustive definition of 'special circumstances' is given in the legislation. In the context of Division 35 of the ITAA 1997, special circumstances are ordinarily those affecting the business activity such that it would be unreasonable for the loss deferral rule to apply.
The information that you have provided is about why you have not been able to qualify for an exception to the non-commercial loss rules (that is, why your income from sources other than your professional business is more than $X) and not about special circumstances that affected your business.
There is nothing in the legislation that allows an exemption from the non-commercial loss rules because of payments that prevent you from qualifying for an exception.
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 relevant financial year.
There are no other discretions, exemptions or exclusions that apply to your situation.
Therefore, as there are no special circumstances that materially affected your ability to pass a test in the 2011-12 financial year, the Commissioner will not exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 for the 2011-12 financial year.
This means that the loss from your activity cannot be taken into account in calculating your taxable income for the relevant financial year. These losses will need to be deferred until a future income year where one of the four tests is met or there is a profit from the activity.