Edited version of private advice

Authorisation Number: 1052124101933

Date of advice: 15 June 2023

Ruling

Subject: Commissioner's discretion - non-commercial loss

Question

Will the Commissioner exercise the discretion under subsection 35-55(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to include losses from your activity as a rideshare/taxi driver in calculating your taxable income for the 2021-22 financial year?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

1 December 2017

Relevant facts and circumstances

You satisfy the under $250,000 income requirement set out in subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997).

You have been engaged in rideshare/taxi driving activity in a metropolitan area for over 5 years. Your assessable income from this activity in the financial years prior to the COVID-19 related lockdowns and restrictions was over $20,000 in 3 of those years, and you made a profit in 2 of the 5 previous financial years.

In the relevant financial year the lockdowns and restrictions continued for some months before restrictions on movement and public and private gatherings were lifted across the metropolitan area. You again made a loss from your rideshare/taxi driving activity. You believe this loss was caused by the reduced demand for driving services brought on by state government lockdowns and restrictions imposed to limit the spread of the COVID-19 viral infection.

Your assessable income from this activity in that year was below $20,000 and your expenses exceeded your income. You believe that your rideshare/taxi driving activity would have generated more than $20,000 in assessable income in the relevant year if these government lockdowns and restrictions had not occurred.

You have provided monthly statements of your income from this activity, a list of your expenses, and the pattern of your driving activity.

You have applied for the Commissioner to exercise his discretion under subsection 35-55(1)(a) of the ITAA 1997 to allow you to offset these losses against your other income for the 2021-22 financial year.

You have your own ABN and are registered for GST.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) subsection 35-55(1)(a)

Income Tax Assessment Act 1997 (ITAA 1997) subsection 35-10(2E)

Reasons for decision

Division 35 of the ITAA 1997 prevents losses from a non-commercial business activity carried out by an individual taxpayer from being offset against other assessable income in the year in which the loss is incurred, unless:

•         the individual meets the income requirement and the business activity satisfies one of the 4 stipulated tests (subsection 35-10(1)(a));

•         an exception in subsection 35-10(4) applies; or

•         the Commissioner exercises the discretion in subsection 35-55(1) for the business activity for one or more income years.

Your rideshare/taxi driving activity meets the income requirement set out in subsection 35-10(2E) of the ITAA 1997 but will not meet any of the tests in subsection 35-10(1)(a) of that Act. The exceptions in subsection 35-10(4) will also not apply in this case. This means your losses must be deferred to be offset against future profits unless the Commissioner exercises his discretion.

You have requested the Commissioner exercise his discretion under subsection 35-55(1)(a) of the ITAA 1997 in the relevant financial year on the basis of special circumstances.

Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's Discretion sets out the Commissioner's interpretation of the exercise of the Commissioner's discretion. Special circumstances are described in TR 2007/6 as those circumstances which are sufficiently different to distinguish them from the circumstances that occur in the normal course of conducting a business activity, including drought, flood, bushfire, or some other natural disaster. Other examples of special circumstances given in paragraph 54 of TR 2007/6 include oil spills, chemical spray drifts, explosions, disturbances to energy supplies, and government restrictions.

For individuals who satisfy the income requirement, the business activity must have been materially affected by the special circumstances, preventing it from making a profit or passing one of the four tests. In this context the Commissioner may exercise his discretion for the income year in question where, but for the special circumstances, your business would have passed one of the four tests.

The four tests set out in subsection 35-10(2E) qualifying a business activity for exercise of the Commissioner's discretion are:

•         assessable income of over $20,000 from the relevant business activity

•         profits in 3 out of the previous five years, including the year in question

•         use of or interest in real property with a value of over $500,000 on a continuing basis in the business activity

•         use of certain other assets with a value of over $100,000 on a continuing basis in the business activity.

You believe that your rideshare/taxi driving activity would have generated more than $20,000 in assessable income in the relevant financial year if the government lockdowns and restrictions had not occurred.

Lockdowns and restrictions on public and private gatherings persisted in the metropolitan area for some months into the relevant financial year before easing. By the end of that financial year the metropolitan area had been free of restrictions on movement and gathering capacity and density for more than 6 months.

Your income in the months following the easing of the COVID-19 related restrictions can be calculated from the monthly income statements you have submitted.

As this amount represents your income from this activity over a COVID-19 related lockdown and restriction free period of more than 6 months in the relevant year then you would not have generated the $20,000 in assessable income necessary to qualify for the Commissioner's discretion in the full 12 months of that year. This means that your rideshare/taxi driving activity would not have qualified even if the COVID-19 related lockdowns and restrictions had not applied.

The Commissioner will not exercise his discretion under subsection 35-10(1) of the ITAA for the relevant financial year as it cannot be accepted that your rideshare/taxi driving activity would have met the assessable income test had it not been for COVID-19. This being the case you will have to defer your losses from your Uber driving business for this year to be offset against future profits from this activity.