Private ruling: Non-commercial losses - activities of a similar kind
Date of advice: 23 June 2015
Published: June 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are your business activities of professional sportsperson and professional assistant able to be grouped together for the purposes of the non-commercial loss provisions in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You made a loss from a business activity (Activity 1) which was not the subject of a Commissioner's discretion and did not satisfy any of the 4 tests in Division 35 of the ITAA 1997 or come within the exception in subsection 35-10(4) of the ITAA 1997. You earned more than $20,000 from a profit making business activity (Activity 2).

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 35 | Income Tax Assessment Act 1997 subsection 35-10(3)

Reasons for decision: Summary: Business losses from activities that do not satisfy any of the four tests set out in Division 35 of the ITAA 1997, or come within the exception in subsection 35-10(4) of the ITAA 1997, will be subject to the loss deferral rule in subsection 35-10(2) of the ITAA 1997 unless the Commissioner considers that it would be unreasonable to apply the loss deferral rule and exercises a discretion in subsection 35-55(1) of the ITAA 1997. In certain situations a taxpayer's business activities may be so discrete in character and in the manner they are conducted that the question arises as to whether they are carrying on separate and distinct business activities for Division 35 purposes. Such situations are ones where the separate business activities are each capable in their own right of producing assessable income and having attributed to them amounts that would otherwise be deductible. Where a taxpayer's activities are viewed as separate businesses subsection 35-10(3) of the ITAA 1997 allows the activities to be grouped together for all purposes in Division 35 if they are 'of a similar kind'. This produces practically the same result as if those activities had not been identified as separate business activities in the first place. A similar activity may be one that has evolved from the first business activity, or it may simply be another business activity carried on in the same year that fits the description of being 'similar'. In considering the similarity of business activities, it is not necessary that the activities are identical. Determining whether business activities are 'of a similar kind' to one another involves comparing and contrasting them in relation to characteristics such as: • the location(s) where they are carried on • the type(s) of assets employed in each • the type(s) of goods and/or services produced and/or provided • the market conditions in which those goods and/or services are traded, and • any other features affecting the manner in which those separate activities 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 is rarely determinative. An overall comparison of the separate business activities is called for, weighing up the extent of the characteristics which are the same or similar, against those which are significantly different. In your case, you earned from 2 business activities. An overall comparison of the two activities shows that there are both many similarities and differences. The overall impression is that your activities are 'of a similar kind' and therefore may be grouped together for the purposes of Division 35 of the ITAA 1997. As such, the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will not apply to defer the loss Activity 1.