Edited version of private advice

Authorisation Number: 1052139230416

Date of advice: 12 July 2023

Ruling

Subject: Non-commercial loss - income requirement

Question

Can you claim your primary production business loss against your 2021-22 taxable income under Division 35 of the Income Tax Assessment Act 1997 (ITAA 97)?

Answer

No

To be eligible to offset your loss in the relevant income year, you must meet the income requirement and meet one of the four tests. The income requirement is met when your taxable income, reportable fringe benefits, reportable super contributions and total net investment losses not related to the business activity is less than $250,000. Considering the information provided, your income exceeds this amount. Therefore, you must defer the loss to a later income year or apply for Commissioner Discretion.

This ruling applies for the following period:

Period Ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an individual partner in a partnership.

The partnership operates a primary production business.

You provided details on the partnership annual turnover figures.

The property used for the business activity is valued over property test requirement of $500,000.

Your income not related to the primary production business activity exceeds $250,000.

You incurred a loss in the relevant income year due to a capital acquisition under temporary full expensing rules.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 35-10(2)

Income Tax Assessment Act 1997 Section 35-10(4)

Income Tax Assessment Act 1997 Section 35-30

Income Tax Assessment Act 1997 Section 35-40

Income Tax Assessment Act 1997 Section 35-55(1)

Reasons for decision

Division 35 of the ITAA 1997 applies to losses from certain business activities. Therefore, when an individual has a business loss, Division 35 needs to be considered.

Applying Section 35-10(2) of the ITAA 1997, a loss made by an individual from a business activity will not be taken into account in an income year unless:

•         the exception in subsection 35-10(4) of the ITAA 1997applies,

•         you satisfy the income requirement in subsection 35-10(2E) of the ITAA 1997 and one of the four tests in sections 35-30, 30-35, 35-40 or 35-45 of the ITAA 1997 are met, or

•         the Commissioner exercises the discretion in section 35-55 of the ITAA 1997.

Exception

The exception in subsection 35-10(4) of the ITAA 1997 applies to a primary production business or a professional arts business and where your assessable income for the income year from other sources not related to that activity, is less than $40,000.

In your case, the exception does not apply as the income not related to the business activity exceeds the exception threshold of $40,000.

Income Requirement

The income requirement outlined in section 35-10(2E) of the ITAA 1997 applies from 1 July 2009 and will be met where the sum of the following amounts for an income year is less than $250,000:

•         taxable income

•         reportable fringe benefits

•         reportable superannuation contributions

•         net investment losses.

If you meet the income requirement, you must satisfy one of the four tests. If you pass, you can offset the loss in the year in question.

In your case, you do not meet the income requirement as the sum of your income exceeds $250,000.

Summary

For you to be eligible to offset your losses in the relevant financial year, you must meet the income requirement and satisfy one of the four tests. For the relevant income year, the total of your income not related to the business activity exceeded $250,000 and therefore you do not meet the income requirement eligibility. Therefore, you cannot offset the loss and will need to defer the loss to a later income year.