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Edited version of your written advice
Authorisation Number: 1013047141918
Date of advice: 11 July 2016
Ruling
Subject: Deductibility of your isolated transaction
Question
If your isolated investment is not profitable, are your losses an allowable deduction?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2016.
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are an Australian citizen for tax purposes.
You entered into a Private Investor's Deed ('the Deed') with the company
Under the Deed, you:
• invested a specific amount
• will receive a profit from the investment's gross receipts.
• will recoup your initial investment amount from the gross receipts.
Assumption(s)
The project may not generate a profit.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Section 15-15
Reasons for decision
Summary
If the project you invested in does not generate a profit, you can claim losses as a deduction.
Detailed reasoning
Taxation Ruling TR 92/4 examines whether losses incurred in relation to an isolated transaction are deductable.
A loss from an isolated transaction is generally deductible under if:
(a) in entering into the transaction the taxpayer intended or expected to derive a profit which would have been assessable income; and
(b) the transaction was entered into, and the loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction.
In your case, the Commissioner determined in a previous private ruling that any profits made on your projects investment with the company would be considered assessable income under section 6-5 of the ITAA 1997 pursuant to Taxation Ruling TR 92/3 as profits from an isolated transaction.
In addition, you entered into a Deed which states that you are entitled to recoup your initial investment plus a share of the director's share of the profits. Whilst you were not carrying on a business of investment, it is considered that this was a transaction with a commercial character.
Therefore, as both requirements set out in TR 92/4 have been met, any losses incurred in relation to the investment are an allowable deduction.
Further information
When completing your tax return, you should include the loss incurred from the investment in the year it was incurred at 'Other deductions - not claimable at items D1 to D14 or elsewhere on your tax return. This was question D15 on the 2015 tax return.