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Edited version of your written advice
Authorisation Number: 1051375780067
Date of advice: 25 May 2018
Ruling
Subject: Non-commercial loss income requirement
Question
Did you satisfy the income requirement under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) for non-commercial loss purposes in the 2016-2017 financial year?
Answer
Yes
It is accepted that purchasing shares in company X was a direct consequence of carrying on your business, and it follows that any capital gain made on the disposal of the shares is also a direct consequence of carrying on the business.
Therefore, for the purposes of calculating the $250,000 income requirement, the net capital gain from the disposal of the shares will be first offset against any excess deductions from your business.
As a result, your income for non-commercial loss purposes in the 2016-17 financial year is less than $250,000, satisfying the income requirement under subsection 35-10(2E) of the ITAA 1997.
This ruling applies for the following period
Year ended 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
You previously carried on a dairy farming business in a partnership for a number of years.
As a supplier to company X the partnership was required to hold shares in the company, and to acquire additional shares based on the quantity of milk supplied.
The partnership dissolved in 200X and you became a sole trader.
You acquired your portion of the partnership shares when the partnership dissolved in 200X.
You continued to supply milk to company X when you became a sole trader.
Company X became company X Limited, an unlisted public company, in 200X and you were no longer required to purchase shares.
Company X Limited became a listed public company in 201X, and you were no longer required to hold shares in the company.
You sold your Company X shares in the 20XX financial year due to financial pressures on the business, and as a result you made a gain of $X.
You also received dividends from the ownership of company X Limited shares in the same year.
Your business incurred a primary production loss during the 20XX financial year.
Your non-business related income for the 20XX-XX financial year totalled $X,000.
You do not have reportable fringe benefits, reportable superannuation contributions or net investment losses for the 20XX-XX financial year.
Your sales for the 20XX to 20XX financial years were greater than $20,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 35
Income Tax Assessment Act 1997 Subsection 35-10(2E)