Non-commercial losses at the Commissioner’s discretion

Division 35 of ITAA 1997 deals with the non-commercial loss provisions for an individual or partnership in a tax year.

Under the Act, an individual can offset their business or partnership loss if it is deemed to be a commercial loss.


 For a loss to be a commercial loss, the following criteria must be met:

  • The business needs to have assessable income greater than $20,000
  • The particular activity had a profit in three of the last five years
  • The value of real property used in the business is greater than $500,000, or
  • The value of other assets used in the business is greater than $100,000.

Other specific exceptions may apply to allow a loss to be classified as commercial.

These include:

  • Arts and Primary production businesses where non-business income is less than $40,000
  • The taxpayer has an investment loss that is allowed under a specific Product Ruling, or
  • The Commissioner of Taxation allows the loss to be claimed.

For the Commissioner to exercise the discretion to allow the loss to be claimed against other income, one of two conditions must be satisfied.

The first condition is that the Commissioner agrees that the business activity has been or will be affected by special circumstances that are outside the control of the business operators. Taxation Ruling TR 2007/6 outlines some effects which the Commissioner may consider to be special circumstances, such as:

  • Destruction of stock or equipment
  • Delays in ploughing, planting or harvesting
  • Delay in growth of crops
  • Inability of operator to perform duties, or
  • Loss of business opportunities.

The second condition is that the Commissioner may allow the deduction of the business loss as the business is just starting.

In these circumstances, the business will not initially satisfy one of the four tests but within a commercially viable period the business expects to be profitable.

Private Binding Ruling 1013120507963 outlines a specific situation in which an individual did not meet the $20,000 assessable income test for the entire year. However, the taxpayer was able to get an allowance from the Commissioner under special circumstances. The circumstances surrounding the taxpayer were as follows:

The taxpayer was…

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