Edited version of your private ruling

Authorisation Number: 1012456227899

Ruling

Subject: Non-commercial losses

Questions:

1. Is your partnership business activity of providing professional services and your sole trader business activity of providing professional services 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 business activity of providing professional services in the 2011-12 financial year?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2012

Year ending 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· your application for private ruling which we received on 15 April 2013

You operate a professional business activity as a sole trader.

In the 2011-12 financial year, your sole trader activity produced assessable income of more than $20,000 and produced an overall loss of less than $40,000.

You are also a partner in two other professional businesses, which trade under the same name as your sole trader business.

Your share of the net profits of the partnerships in the 2011-12 financial year was over $40,000.

You carry on the same activities in your sole trader business as you do in the partnership activities, and under the same business name.

Administrative support for sole trader and partnership business activities is supplied by the same service entity.

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 are providing the same services using the same assets and the same professional registrations in your sole trader business as you do in partnership. The only change is the location and business structure through which you operate. Therefore, your partnership business activities and your sole trader business activity 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 2011-12 financial year your partnership distribution was over $40,000 and your sole trader activity produced a loss of less than $40,000. When grouped together, your business activity produced 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.