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Edited version of your private ruling
Authorisation Number: 1012441974736
Ruling
Subject: Non-commercial losses
Questions:
1. Are your businesses operated in partnership and your business operated as a sole trader, considered to be of a similar kind for non-commercial loss purposes?
Answer:
Yes.
2. Does the loss deferral rule in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to your businesses in the relevant financial year?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 June 2011
Relevant facts
You operate several retail businesses, both as a sole trader and in partnership.
The same services/products are offered in all businesses.
All businesses produced a profit except one.
The one retail business had produced profits for all previous years and is expected to make a profit in the subsequent financial year.
When grouped together the retail businesses made an overall profit.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 35
Income Tax Assessment Act 1997 - Section 35-10
Reasons for decision
Subsection 35-10(3) of the 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, you operate retail businesses, either in partnership or as a sole trader. The same services/products are offered, the only difference is the location and business structure through which you operate. Therefore, your partnership activities and your sole trader activities 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 the relevant financial year when you group your partnership distributions and your sole trader proceeds together, you make 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.