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Edited version of private advice
Authorisation Number: 1012642114556
Ruling
Subject: Non-commercial losses
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 activity in your calculation of taxable income for the 20XX-BB financial year?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 20BB.
The scheme commences on
1 July 20XX.
Relevant facts and circumstances
You have carried on a sole trader business for many years.
In 20XX you were injured and were unable to operate in your business for more than six months.
In the 20YY-ZZ to 20ZZ-XX financial years you passed the assessable income test and you expect to pass that test in the 20BB-CC financial year.
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)(a)
Reasons for decision
For the 20AA-YY 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, you do not meet any of the four tests in the financial year under consideration. The relevant discretion may be exercised for the financial year in question where your business activity is affected by special circumstances outside your control.
'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.
For individuals who satisfy the income requirement, special circumstances are those which have materially affected their business activity, causing it not to meet any of the four tests. In this context, the Commissioner may exercise this discretion for the financial year in question where, but for the special circumstances the activity would have passed at least one of the tests.
Paragraph 49 of Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion allows the discretion to be exercised where the operator of a business is unable to perform their duties.
Having regard to your full circumstances, it is accepted that your business activity was affected by special circumstances outside your control and that these prevented you meeting one of the four tests.
Consequently the Commissioner will exercise the discretion in the 20XX-BB financial year.