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Edited version of private advice
Authorisation Number: 1051909206714
Date of advice: 15 October 2021
Ruling
Subject: Non-commercial losses - lead time
Question
Will the Commissioner exercise the discretion in paragraph 35-55(1)(b) 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 20XX to 20XX financial years?
Answer
Yes
Having regard to your full circumstances, it is not considered that your business had commenced in the 20XX, 20XX and 20XX financial year.
However, it is accepted that it is the nature of the business activity that has prevented one of the four tests being passed after its commencement. It is also accepted that you will pass one of the four tests or make a tax profit within the commercially viable period for your industry. Consequently, the Commissioner will exercise his discretion in the 20XX to 20XX financial years.
This ruling applies for the following periods:
Financial year ending 30 June 20XX
Financial year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
There was no XX industry in Australia. You intended to carry on a XX marketing business.
You purchased the sole rights to exploit the XX previously developed by Mr W, for which you entered the 'XX production & marketing letter of intent' on X XX 20XX, with Mr W.
You did research and prepared for the 'XX trails'. No business income was derived in that period.
The 'XX trails' commenced in X 20XX (in the 20XX financial year). Within this financial year, small amounts of product were produced and prepared for sale. Sales then occurred from late XX through to late XX. You also derived XX related consultancy income, but the income was minimal as affected by COVID-19 pandemic.
It is therefore considered that you commenced the business from XX 20XX (in the 20XX financial year).
You satisfy the <$250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.
You stated that many years of lead time exists for your industry, but you intend to produce at least $20,000 assessable income in the 20XX 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)(b)