Edited version of private ruling

Authorisation Number: 1011769359983

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Ruling

Subject: Non commercial losses

Question

Are you able to offset the loss from your sole trader activity against your other income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

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 operate a business activity as a sole trader.

You are a partner in some other business activities.

All business activities:

· offer the same services

· use the same bookkeeper

· use the same administration manager who manages payrolls, activity statements and some bookkeeping

· use the same manager who manages marketing and related administration.

You attend to the negotiations for the leases of all premises.

Two locations combine supply purchases on occasions. Supplies are transferred between these premises to meet demand.

Your sole trader activity made a loss while the partnerships made each made a profit.

Your taxable income for non-commercial loss purposes exceeds $250,000 for the year ended 30 June 2010.

This ruling is given on the basis that each activity is being carried on as a business for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 35-10(3).

Reasons for decision

Summary

It is considered that your sole trader and partnership business activities are of similar kind. This means they can be combined together resulting in an overall profit from the grouped activity. As an overall profit has been achieved, the non-commercial loss provisions of the legislation do not apply.

Therefore you are able to offset the loss attributable to your sole trader business activity against your other income.

Detailed reasoning

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.

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.

Application to your circumstances

You operated a business activity as a sole trader and are a partner in two other business activities.

The premises are located in different locations but carry out the same types of activity.

The same types of assets are used at each location.

All of the premises use the same bookkeeper and managers.

At times two of the locations place joint orders for supplies and transfer the supplies between the premises.

It is considered that premises are separate business activities primarily due to the differences in ownership and their location.

However, they are also business activities of similar kind as they carry out similar functions and share bookkeepers and managers.

As the business activities are of a similar kind, they can be grouped together resulting in an overall profit for the group.

As there is 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 your sole trader business activity may be offset against your other income.