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Edited version of your private ruling
Authorisation Number: 1012490377952
Ruling
Subject: Non-commercial losses - Commissioner's discretion
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) 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 for the relevant financial year?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
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, which has previously earned assessable income.
Your business was affected by factors unique to your situation which delayed your business from making a profit in the 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) and
Income Tax Assessment Act 1997 paragraph 35-55(1)(c).
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 meet the income requirement and you pass one of the four tests;
· the exceptions apply; or
· the Commissioner exercises his discretion.
In your situation, you do not satisfy the income requirement (that is your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.
The relevant discretion may be exercised for the financial year in question where:
· it is in the nature of your business activity that there will be a period before a tax profit can be produced; and
· there is an objective expectation your business activity will produce a tax profit within the commercially viable period for your industry.
TR 2007/6 states that the 'lead time' discretion provided for by paragraph 35-55(1)(c) of the ITAA 1997 is available for a business activity if there is an initial period from when the activity commenced where the nature of the activity prevents a tax profit from being made.
Your activity is of a type that is able to produce assessable income quite soon after its commencement, as the income in your first three years of trading demonstrates. The reason for your failure to meet the assessable income test was due to factors unique to your situation.
Therefore, the Commissioner is unable to exercise the 'lead time' discretion in with respect to the relevant financial year.