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Edited version of your written advice
Authorisation Number: 1012888816842
Date of advice: 2 October 2015
Ruling
Subject: Non-commercial losses
Question 1
Does your business activity satisfy the assessable income test in section 35-30 of the Income Tax Assessment Act 1997 (ITAA 1997) based on a reasonable estimate?
Answer
Yes.
Question 2
Can you offset any losses from your activity against your other income in your calculation of taxable income for the 2014-15 income year?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You commenced business activities in the second half of the 2014-15 income year.
The assessable income from your business activity up to 30 June 2015 was less than $20,000.
The assessable income from your business activity from 1 July to 30 September 2015 has exceeded $20,000.
Relevant legislative provisions
Income tax assessment Act 1997 section 35-30
Income tax assessment Act 1997 paragraph 35-30(b)
Income tax assessment Act 1997 paragraph 35-55(1)(b)
Reasons for decision
Assessable income test
Division 35 of the ITAA 1997 is an integrity measure to prevent losses from non-commercial activities that are carried on as businesses by individuals being offset against other assessable income in the income year the loss is incurred.
Section 35-1 of the ITAA 1997 provides that an income requirement must be met (along with certain other tests) in order to include losses from a business activity in your taxable income calculation. If the income requirement is not met, the Commissioner may exercise discretion to allow the inclusion of the losses.
In your case, you meet the income requirement under subsection 35-10(2E) of the ITAA 1997 as your income for non-commercial loss purposes is below $250,000. As such, if you satisfy one of the four tests, you can offset your business activity losses against your other assessable income.
Of those tests is the assessable income test under section 35-30 of the ITAA 1997.
In terms of paragraph 35-30(b) of the ITAA 1997 the rule in section 35-10 of the ITAA 1997 does not apply to a business activity for an income year if you started to carry on the business activity, or stopped carrying it on, during the year, and a reasonable estimate of what would have been the amount of that assessable income if you had carried on that activity throughout the year is at least $20,000.
In your case, you commenced your business activities in the second half of the 2014-15 income year. The business earned less than $20,000 up to 30 June 2015. However, it has earned more than $20,000 for the first three months of the 2015-16 income year.
Therefore, the Commissioner accepts that based on a reasonable estimate, your assessable income from the activity had you carried on the activity throughout the year would have been at least $20,000 and thereby you have satisfied the assessable income test in section 35-30 of the ITAA 1997 for the 2014-15 income year.
Ability to claim loss
As your business activity has satisfied the assessable income test in subsection 35-30(b) of the ITAA 1997, the deferral on non-commercial loss rule in subsection 35-10(2) of the ITAA 1997 does not apply to your loss. This means that any loss from your business activity can be included in calculating your taxable income for the 2014-15 income year.