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Edited version of private advice
Authorisation Number: 1051580933647
Date of advice: 23 September 2019
Ruling
Subject: Commissioner's discretion for non-commercial losses
Question
Will the Commissioner exercise the discretion to allow you to include any losses from your business in the calculation of your taxable income for the 2018-19 financial year?
Answer
Yes.
Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted that your business activity was affected by special circumstances outside your control which prevented you from passing a test. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commenced on:
1 July 2018
Relevant facts and circumstances
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You carry on a business which commenced in the 20XX-XXfinancial year.
You submit that you were affected by special circumstances in the 2018-19 financial year.
You have submitted the following evidence to substantiate your claim:
· Data sourced from the relevant Australian Government authority which confirms that the area where you conducted your business activity was directly affected by severe weather conditions in early 2019.
· Correspondence from your medical practitioner confirming that you were experiencing health issues in early to mid-2019, along with you also having a reduced capacity to work.
· A medical certificate issued by your medical practitioner which certified that you were unfit for work in early to mid- 2019.
You submit that the special circumstances impacted on your business in the following ways:
· Towards late 2018 you were planning to sell off a significant amount of your business infrastructure as there was a downturn in business, and you were also planning to use the proceeds to reinvest into the business by purchasing new infrastructure / equipment, with a long term view of diversifying your business activity.
· In early 2019 the severe weather conditions experienced in the area in which you conducted your business activity had a direct effect on your business activity, whereby it damaged a significant amount of your business infrastructure.
· Your business infrastructure lost most of its value as a result of the severe weather conditions, and had it not been for the severe weather conditions you would have been able to sell of your business infrastructure at a higher price and reinvest the proceeds into the business early in 2019, in accordance with your intentions.
· The severe weather conditions also resulted in you spending a significant portion of time completing repairs on your property, site clean- up and preparing insurance reports. This also included attending to related issues on your business premises which are also located on your property. As your attention was diverted to these other priorities as a necessity following the severe weather conditions, you have only just got your business fully back up and running in the 2019-20 financial year.
· Your year to date figures for the 2019-20 financial year show that you have made a significant amount of gross turnover, which indicates that it not been for the severe weather conditions, the capital outlay on the new infrastructure could have been made earlier, and you would therefore been able to derive over $20,000 in gross business income in the 2018-19 financial year (and therefore pass that commerciality test).
· You also started to experience symptoms of depression following the period of the severe weather conditions in early 2019. During this time you were working in a demanding employment position outside of your business activity, whereby you eventually suffered from burnout before eventually leaving that employment position.
· You were also greatly affected by your child's ongoing serious medical condition, which also created additional strain on your health.
You intend to make $20,000 in assessable in come in the 2019-20 financial year
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)