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Edited version of your private ruling
Authorisation Number: 1012582337831
Ruling
Subject: Non-commercial losses
Question 1
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 in your calculation of taxable income for the 2012-13 to 2015-16 financial years?
Answer
Yes
Question 2
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 in your calculation of taxable income for the 2016-17 financial years?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
You commenced a business as a sole trader in the relevant financial year.
You have provided information from an independent source that provides the lead time for your industry is six years.
You have provided information in relation to your future estimated tax profit or loss.
You satisfy the income requirement set out in subsection 35-10(2E) of the ITAA 1997.
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 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; or
· the Commissioner exercises his discretion.
In your situation, none of the exceptions would apply and although you satisfy the income requirement, based on your projected profits you will not meet any of the four tests in the 2012-13 to 2015-16 financial years. 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; and
· 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 accepted that it is in the nature of the business activity that will prevent one of the four tests being passed in the 2012-13 to 2015-16 financial years. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry.
Consequently the Commissioner will exercise the discretion in the 2012-13 to 2015-16 financial years.
However, as your figures show that you will meet the assessable income test in the 2016-17 financial year, the Commissioner will not exercise the discretion for that year.