Private ruling: Non-commercial losses
Date of advice: 3 January 2018
Published: May 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to group together your business activities carried on as a sole trader and your business activity carried on in partnership under subsection 35-10(3) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: One of your retail businesses is operated under a partnership and made a profit in the 2016-17 financial year. Your other retail business is operated as a sole trader and made a loss in the 2016-17 financial year. Combined the two businesses have made a profit. You receive a distribution of profits from your second business in you capacity as partner. You have provided profit and loss statement for 2016-17 financial year. You expect your business to return to profitability in the 2017-18 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 – Division 35 | Income Tax Assessment Act 1997 – Section 35-10

Reasons for decision: Summary: Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to losses from certain business activities for the year ended 30 June 2001 and subsequent years. The provisions only apply to individuals who conduct a business activity as either a sole trader or a partner in a partnership and made a loss from that business activity. From 1 July 2009 where a taxpayer’s taxable income for non-commercial loss purposes exceeds $250,000 their activity must meet certain additional requirements before a loss from the activity can be offset against the taxpayer’s other income. Taxation Ruling TR 2001/14 discusses the Commissioner’s view of the non-commercial business loss provisions of the taxation legislation. In Allied Mills Industries Pty Ltd v. FC of T 88 ATC 4852 it was acknowledged that a taxpayer might carry on several distinct businesses. It is considered that the business you operate as a sole trader is a separate business from the business that you operate in partnership primarily due to the differences in ownership and their location. However, where a taxpayer’s activities are viewed as separate businesses, subsection 35-10(3) of ITAA 1997 allows the activities to be grouped together as a single activity for all purposes in Division 35 if they are of a similar kind. What will be a business activity ‘of a similar kind’ to another business activity will be a question of fact and degree. The question involves a comparison of the relevant characteristics of each activity. 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 ● any other features affecting the manner in which they are conducted. Applying the above indicators to the information you have provided, it can be concluded that the activities you are carrying on are ‘of a similar kind’. ● You are carrying on retail business activities. You operate one business as a sole trader. and the other business is carried on in partnership ● The businesses are located in different locations but carry out the same types of activity. ● The types of assets employed in each of the retail outlets are the same. In view of the above, under subsection 35-10(3) of the ITAA 1997, your activities can be grouped together as they are considered to be ‘of a similar kind’.