Private ruling: Non-commercial losses similar business
Published: September 2013
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Can your sole trader business primary production business activity and your partnership business primary production business activity be grouped as activities 'of a similar kind' for non-commercial loss purposes? | A1: Yes.

Relevant facts and circumstances: You and your former spouse operated a primary production business activity under a partnership structure for over 20 years. During Family Court proceedings, an interim court order had allowed you and your spouse to choose some of the livestock that you would like to keep. You chose several animals and commenced operating as a sole trader in your own right. You have now increased your original stock. Your sole trader activity produced a loss of over $150,000 in the 2011-12 financial year. As a result of the marriage breakdown, the court directed that the partnership was to cease and dissolve with the remaining partnership assets to be sold at auction. As a result of the sale of the remaining partnership assets, you received a partnership income distribution of more than $300,000 in the 2011-12 financial year.

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

Reasons for decision: Summary: Subsection 35-10(3) of the Income Tax Assessment Act 1997 (ITAA 1997) allows business activities to be grouped where they are activities 'of a similar kind' for non-commercial loss purposes. 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'. Business activities which are of a similar kind are those which inherently have the same nature or character. The activities must be similar; they do not need to be identical. 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. In your case, in your sole trader business you are producing and trading in the same goods, using the same assets and the same professional registrations as you did in partnership. The only change is the location and business structure through which you operate. Therefore, your partnership business activities and your sole trader business activity are of a similar kind for non-commercial loss purposes and can be grouped to determine any profit or loss in an income year. In your case, the 2011-12 financial year your partnership distribution was over $300,000 and your sole trader activity produced a loss of approximately $150,000. When grouped together, your business activity produced an overall profit. This means that the business activity is profitable overall and there is no need to identify any separate loss making activities and, hence, the loss deferral rule in Division 35 will not apply.