Edited version of private advice

Authorisation Number: 1012642783919

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 2013-14 to 2014-15 financial years?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

A private ruling was issued dd/mm/yyyy allowing you to include losses from your business activity in the calculation of taxable income for the 2009-10 to 2011-12 financial years. This was issued on the basis that your business would produce a tax profit within the commercially viable period of your industry.

In early 2013 your business suffered significant damage from a natural disaster. These events prevent you from achieving your expected tax profit within the normally accepted commercially viable period.

You now expect to generate a tax profit in the 2015-16 financial year.

Your income for non-commercial loss purposes exceeded $250,000 for the relative financial years.

You have provided an independent source that provides that a tax profit can be expected within eight years.

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 paragraph 35-55(1)(a)

Income Tax Assessment Act 1997 subsection 35-10(2E)

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

• the Commissioner exercises the discretion.

In your situation, you do not satisfy the income requirement and you do not come under any of the exceptions. The relevant discretion may be exercised for the financial year in question where your business activity is affected by special circumstances outside your control.

Taxation Ruling TR 2007/6 paragraph 53 provides examples of natural disasters.

Paragraph 35-55(1)(a) refers to 'special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster'. Cyclones, hailstorms and tsunamis are examples of other natural disasters that would come within the scope of the paragraph.

For individuals who do not satisfy the income requirement, the business activity must have been materially affected by the special circumstances, causing it to make a loss. In this context, the Commissioner may exercise this discretion for the income years in question where, but for the special circumstances:

• your business activity would have made a tax profit

• the activity passes at least one of the four tests or, but for the special circumstances, would have passed one of the four tests.

In your case you produced evidence that you passed a test and expected to make a tax profit in the 2012-13 financial year however special circumstances intervened to prevent this happening. Therefore it is considered that special circumstances prevent you from making a profit in the 2013-14 to 2014-15 financial years and consequently the Commissioner will exercise the discretion for those years.