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Edited version of your private ruling
Authorisation Number: 1012473944597
Ruling
Subject: Non-commercial losses - income requirement
Question
Does the withdrawal of funds from a farm management deposit (FMD) cause you to fail the income requirement contained in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You operate a business as a sole trader.
The business ran at a loss in the 2011-12 financial year.
The business satisfies any one of the four business tests for non-commercial loss purposes for the 2011-12 financial year.
In the 2011-12 financial year, you withdrew $X from a FMD, which was originally derived from your business.
If the FMD withdrawal was included in your calculation of your income for non-commercial loss purposes, it would cause you to fail the income requirement under subsection 35-10(2E) of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2E)
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 satisfy the income requirement and you pass one of the four tests;
· the exceptions apply; or
· the Commissioner exercises his discretion.
The income requirement prevents you from accessing the four tests where your adjusted taxable income exceeds $250,000 (that is, your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses but excluding your business losses).
However not all of your assessable income is included in calculating your adjusted taxable income. Any assessable income attributed to the business activity incurring the loss is not included in your adjusted taxable income. This is because it forms part of the business losses, which are disregarded (the business losses are calculated by deducting the expenses attributed to the business activity from the assessable income 'from' that business activity).
As your FMD is properly attributable to your business activity (the income is from the activity), the withdrawal will be excluded from your adjusted taxable income and you will satisfy the income requirement.
As you satisfy the income requirement and meet at least one of the four non-commercial loss tests, you are not required to defer your loss from the business. Therefore, the special circumstances discretion does not need to be considered.