Private ruling: Non-commercial losses
Published: April 2014
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2009

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

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 businesses you operate as a sole trader are separate businesses 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 activities. In one state, you operate two businesses as a sole trader. In another state, the activities are carried on in partnership • The businesses are located in different locations but carry out the same types of activity being the provision of retail goods to the general public • The market conditions in which those goods are sold are the same • The types of assets employed in each of the retail outlets are same. In view of the above, under subsection 35-10(3) of the ITAA 1997, your multiple business activities can be grouped together as they are considered to be 'of a similar kind'.

Relevant facts: You operate two businesses as a sole trader in one Australian state. | You are also a partner in a business in another state. | The businesses you operate as a sole trader have been making losses for several years. | You receive a distribution of profits from your partnership business in you capacity as partner. | The businesses are fundamentally the same, that is, they are all retail businesses with the same product lines. | You have an active interest in all of the businesses. | The mix of assets and the manner of operation of each retail business is virtually identical. | The market conditions in which the goods in each location are purchased, handled and sold are the same. | Your taxable income for non-commercial loss purposes exceeded $250,000 for the years ended 30 June 20XX to 30 June 20YY.