Edited version of your private ruling

Authorisation Number: 1012441187499

Ruling

Subject: Non-commercial losses

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(a) of the ITAA 1997 to allow you to include any losses from your business activity in your calculation of taxable income?

Answer

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You do not satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You carry on a business.

The business made a loss that you attribute to the Global Financial Crisis

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)(a)

Reasons for decision

For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

· you satisfy the income requirement and you pass one of the four tests

· the exceptions apply

· 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 Commissioner's discretion in paragraph 35-55(1)(a) of the ITAA 1997 may be exercised for a financial year where the business activity is affected by special circumstances outside the control of the operators of the business activity and the Commissioner considers that it would be unreasonable to require the loss to be deferred.

'Special circumstances' are those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire or some other natural disaster.

Taxation Ruling TR 2007/6, paragraph 14, states the special circumstances must be outside the control of the operator of the business. Natural disasters are considered special circumstances. In the case of other events, failure for no adequate reason to adopt practices commonly used in industry to prevent or reduce the effects of special circumstances may point to the special circumstances not being outside the control of the operator.

Paragraph 47 of TR 2007/6 states that ordinary economic, weather or market fluctuations that might reasonably be predicted to affect the business activity would not be considered to be special circumstances.

In application to your case you have requested that the Commissioner exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997 in the 2011-12 income year.

In the 2010-11 financial year you made a share trading loss which you attribute to the global financial crisis.

The question that must be addressed is whether this is considered special circumstances. It is not accepted that this constitutes special circumstances in the way this term is used in the legislation. Market fluctuations within the stock market, irrespective of how abnormal, are generally considered to be normal part of a share trading business.

The Commissioner will not exercise his discretion under paragraph 35-55(1)(a) of the ITAA 1997. You are therefore required to defer your losses in the 2011-12 financial year.