Private ruling: Non-commercial business losses and activity grouping
Date of advice: 30 May 2016
Published: July 2016
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Can you group your two business activities for the purpose of section 35-10(3) of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: You are carrying on two business activities, one under a partnership arrangement and one as a sole trader. You manage both businesses. The businesses are located close to each other, and therefore they use common plant and equipment, and labour. During the 2014-15 financial year the partnership business made a tax loss. However the sole trader business was profitable.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 35-10(3)

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to defer a non-commercial loss from a business activity unless: • you satisfy the income requirement and you pass one of the four tests • the exceptions apply • the Commissioner exercises his discretion. Subsection 35-10(3) of the ITAA 1997 states you may group together business activities of a similar kind in applying Division 35. In relation to your case, we accept your assertion that both activities are businesses in their own right. Taxation Ruling TR 2001/14 considers the operation of Division 35 of the ITAA 1997, and states at paragraph 51: what will be a business activity 'of a similar kind' to another business activity is very much a question of fact and degree. The question will involve a comparison of the relevant characteristics of each, for example: • the location(s) where they are carried on; • the type(s) of goods and/or services provided; • the market(s) conditions in which those goods and/or services are traded; • the type(s) of assets employed in each; and • any other features affecting the manner in which they are conducted. Some of these characteristics may be the same for the business activities being compared, however, some difference must always be expected. The presence or absence of similarity in respect of a single characteristic will rarely be determinative ( Goodfellow v. FC of T 77 ATC 4086 at 4094; (1977) 7 ATR 265 at 274). As overall comparison of the separate business activities will be called for, weighing up the extent of the characteristics which are the same or similar against those where there are significant differences. In application to your case, you carry on business activities under both a partnership and sole trader arrangement. Both activities are carried out in close geographical location and therefore use common plant and equipment and labour. It is therefore considered that these two activities are of a similar kind and are able to be grouped together under section 35-10(3) of the ITAA 1997.