Edited version of private advice

Authorisation Number: 1052225686104

Date of advice: 15 March 2024

Ruling

Subject: Non-commercial losses - Commissioner's discretion

Question

Will the Commissioner exercise his 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 the calculation of your taxable income for the 20YY-YY and 20YY-YY financial years?

Answer

Yes. Having considered your circumstances and the relevant factors the Commissioner has granted his discretion. It is accepted there is a 'lead time' in the nature of your business activity and you will make a tax profit within your industry's commercially viable period. Further information on non-commercial losses can be found by searching 'QC 33774' on ato.gov.au

This ruling applies for the following periods:

Period ended 30 June 20YY

Period ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are a sole trader.

You do not satisfy the $250,000 income requirement set out in subsection 35-10(2E) of the ITAA 1997.

You commenced your business activity, starting up a business in a small country town.

The building in which you conduct business was formerly used for a similar business but has required investment of capital to repair damage and to install new equipment.

You commenced trading but were still installing equipment up to six months later.

You employ a few young local staff, and specialise in selling locally sourced produce, baked goods and take away meals.

The small country town in which you trade is a popular tourism destination in the summer.

You plan to capitalise on the tourism market, due to the increased traffic in the area which drives up revenue in the summer, to compensate for the quieter winter months.

Your business is consequently seasonal and relies on the peak times to ensure viability.

Between the initial start-up costs of the business, the high wage expenses, and the fact that the business was not able to trade fully in this peak period, a loss has been observed in the 20YY-YY financial year and will be observed in the 20YY-YY financial year.

You have supplied a business plan and profit and loss projections that indicate your business will make a profit in the 20YY-YY financial year now that set up costs have been established and full trade is able to be observed.

This is consistent with the supplied independent evidence outlining an industry standard lead time of X years.

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)(c)