Private ruling: Non Commercial Losses
Published: May 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Does Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to defer your losses? | A1: No.

Relevant facts and circumstances: You operate multiple businesses. The turnover of the businesses exceeds $X million. The businesses combined produced an overall net profit. Some of the businesses produced tax losses in the 2014 year. Your income for the 2014 year for non-commercial loss purposes is greater than $250,000.

Relevant legislative provisions: Division 35 of the Income Tax Assessment Act 1997. | Subsection 35-10(3) of the Income Tax Assessment Act 1997.

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to defer a non-commercial loss from a business activity unless: • you satisfy the income requirement and you pass one of the four tests • the exceptions apply, or • the Commissioner exercises his discretion. Generally, a loss in this context is, for the income year in question, the excess of a taxpayer's allowable deductions attributable to the business activity over that taxpayer's assessable income from the business activity. Losses that cannot be taken into account in a particular year of income, because of subsection 35-10(2) of the ITAA 1997, can be applied to the extent of future profits from the business activity, or are deferred until one of the tests is passed, the discretion is exercised, or the exception applies. For the purposes of applying Division 35 of the ITAA 1997, subsection 35-10(3) of the ITAA 1997 allows you to group business activities 'of a similar kind'. Taxation Ruling TR 2001/14 states that subsection 35-10(3) provides that those business activities can be grouped together for all purposes in Division 35 if they are 'of a similar kind.' This would produce, for a particular income year, the same result practically as if those activities had not been identified as separate business activities in the first place. However, where an individual does identify that their business is in fact made up of more than one business activity, they may choose not to group those activities under subsection 35-10(3) if it would not be to their advantage to do so. 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. Some of these characteristics may be the same for the business activities being compared, but some differences must always be expected. The presence or absence of similarity in respect of a single characteristic will rarely be determinative ( Goodfellow v . FC of T 77 ATC 4086 at 4094; (1977) 7 ATR 265 at 274). An overall comparison of the separate business activities will be called for, weighing up the extent of the characteristics which are the same or similar against those where there are significant differences. The whole enterprise can be treated as a single business activity if the individual taxpayer so chooses. This means that if the enterprise is profitable overall there is no need to identify any separate loss making activities and, hence, the loss deferral rule in Division 35 will not apply at all. In this case, you carry on three businesses in the retail industry, two businesses as a sole trader and the other as a partner in partnership. Two of your businesses have made losses for the 2014 financial year. All three businesses are of a similar kind and therefore the income can be grouped. As the three businesses as a whole are profitable overall there is no need to identify any separate loss making activities and, hence, the loss deferral rule in Division 35 of the ITAA 1997 will not apply at all.