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Edited version of your written advice
Authorisation Number: 1051200924284
Date of advice: 9 March 2017
Ruling
Subject: Non-commercial Losses- Grouping
Question 1
Are your retail business activities able to be grouped together for the purposes of the non-commercial loss provisions in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 20YY
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You operate a sole trader activity running a retail business. Your sole trader activity produced a profit in the 20YY income year.
You received a partnership distribution loss from a partnership that you are a partner of. The partnership also operates a retail business located in another state.
Both businesses are operated under the same retail banner. The products sold and the services provided are identical.
The partnership income for non-commercial loss purposes in the 20YY year is in excess of $250,000. The partnership has made a loss for the past three financial years. The partnership will return to profitability in 20ZZ income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 35-10(3)
Reasons for decision
For the 2009-10 and later financial years, Division 35 of the 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
● the Commissioner exercises his discretion.
Subsection 35-10(3) of the ITAA 1997 states you may group together business activities of a similar kind in applying Division 35.
Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial losses considers the operation of Division 35 of the ITAA 1997, and states at paragraph 51: 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; however, some difference must always be expected. The presence or absence of similarity in respect of a single characteristic is rarely determinative. An overall comparison of the separate business activities is called for, weighing up the extent of the characteristics which are the same or similar, against those which are significantly different.
In application to your case, you carry on retail business activities under both a partnership and sole trader arrangement. Both activities are community businesses, carried out under the same retail banner. The services provided and the products sold are identical in both stores. The types of assets employed in each of the outlets are also the same.
It is therefore considered that these two activities are of a similar kind and are able to be grouped together under subsection 35-10(3) of the ITAA 1997.