Non-Commercial Business Losses

The Federal Commissioner of Taxation has recently issued draft ruling TR 2000/D16 on non-commercial business losses dealt with under Division 35 of the Income Tax Assessment Act 1997 ("ITAA 97"). This draft ruling applies to individual taxpayers and partners involved in a partnership

Division 35 was introduced into the Income Tax Assessment Act 1997 via the New Business Tax System (Integrity Measures) Act 2000 together with many other Business Tax Reform changes. The major rule in this division is that unless:

(a) the individual's business activity meets one of the four tests; or

(b) the individual satisfies an exception; or

(c) the individual is covered by an exercise of the Commissioner's discretion in relation to that business activity,

a loss from the business activity will not be deductible in the income year in which it arose. Division 35 does not apply to activities that do not constitute carrying on a business.

The ruling therefore, provides a guidance on the meaning of "business activity" for these purposes. A "business activity" is described in the ruling as one that is capable of producing assessable income and having certain amounts attributable to it that an individual taxpayer could otherwise deduct.