Private ruling: non-commercial losses
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 February 2010

Ruling: Q1: Does the income from your old partnership cause you to fail the income requirement under subsection 35-10(2E) of the Income Tax Assessment Act 1997 ( ITAA 1997)? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were partners in a partnership on a farm that has been held for many years, some of the partners have left the partnership to carry on a separate partnership on a section of the farm. A new partnership has been created. The partnership has a primary production operation. The change in the partnership resulted in a profit (in excess of $250,000 for each partner) from the old partnership and a loss for the following period in the new partnership. The new partnership farms exactly the same land and uses the same equipment as the old partnership. Reduced income is expected due to severe drought conditions in the region. Your taxable income for non-commercial loss purposes exceeds $250,000 for the 2010 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 35-10(3) | Income Tax Assessment Act 1997 ( ITAA 1997) Subsection 35-10(2E)

Reasons for decision: Summary: Division 35 of the 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. A single business may consist of several separate business activities. Where there are separate business activities, each business activity must individually meet the requirements of Division 35 of the ITAA 1997. Paragraph 45 of TR 2001/14 provides a list of factors which may be considered in determining if separate business activities are being carried on. The factors include: · the type of activities being carried on · the location the activities are carried out · the types of assets used · the types of goods and services produced and related market conditions · interdependency between the activities · commercial links between the activities. 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 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. | Detailed Reasoning - Application to your circumstances: You were a partner in a partnership which operated primary production. You formed a new partnership after some of the partners created a separate farm on a section of the land. The new partnership carries out the same farming activities as the old partnership, wheat and sheep farming. The same assets are used on the farm. As the business activities are of a similar kind, they can be grouped together. Thus, your income from the grouped activities is calculated as the income from the old partnership plus the loss from the new partnership. As there will be an overall profit from your grouped activities, the non-commercial loss provisions of the income tax legislation do not apply. Therefore, the loss attributable to the new partnership may be offset against the income from the old partnership.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.