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Edited version of your written advice
Authorisation Number: 1012793252825
Ruling
Subject: Business activity" considered income under Division 35 of the Income Tax Assessment Act 1997
Question
Does the rule under Subsection 35-10(2) of the Income Tax Assessment Act 1997 apply in the 2013-14 income year?
Advice/Answers
No
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You are equal partners in a partnership which conducts a business.
In the 2013-14 income year the partnership received an amount from the sale of an item.
In the 2013-14 income year the partnership business made a loss.
The amount from the sale of the item was more than the primary production business loss.
The partnership distributed the profit to the partners.
The funds received from the sale of the item were used by the partnership in the business.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(2)
Reasons for decision
Summary
The amounts attributable to the business for the 2013-14 income year that you could otherwise deduct do not exceed your assessable income from your business activity therefore the rule under Subsection 35-10(2) of the ITAA 1997 does not apply to the partners in the 2013-14 income year.
Detailed reasoning
The income that arises from the sale of the item is considered assessable income from the business activity when:
(a) applying the loss deferral rule in Division 35, in subsection 35-10(2) of the ITAA 1997; and/or
(b) determining whether the assessable income test in section 35-30 of the ITAA 1997 has been satisfied.
Subsection 35-10(2) of the ITAA 1997 states:
If the amounts attributable to the business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess:
(a) were not incurred in that income year; and
(b) were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on.
In application to your case the amounts attributable to your business activity for the 2013-14 income year that you could otherwise deduct under this Act (partnership loss) do not exceed your assessable income, which included the proceeds from the sale of the item which is considered your assessable income from the business activity, therefore the rule under Subsection 35-10(2) does not apply to either of you.
As no loss was made from the business in the 2013-14 income year, Division 35 of the ITAA 1997 does not apply.