Edited version of private advice

Authorisation Number: 1051718239214

Date of advice: 14 July 2020

Ruling

Subject: Non-Commercial Losses - Commissioner's Discretion - grouping similar business activities

Question 1

Can your partnership business activities and your sole trader business activities be 'of a similar kind' for the purposes of the non-commercial loss rules in Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) such that the loss deferral rule does not apply?

Answer:

Yes.

This ruling applies for the following period:

Year ending 30 June XXXX

The scheme commences on:

1 July XXXX

Relevant facts and circumstances

1.               The taxpayer operates several similar businesses in partnership or as a sole trader.

In the XXXX year the taxpayer incurred expenses relating to the sole trader businesses that were out of the ordinary, resulting in a loss.

2.               The partnership businesses returned a net profit.

Relevant legislative provisions

Income Tax Assessment Act 1997, Division 35.

Income Tax Assessment Act 1997, Subsection 35-10(2).

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

Reasons for decision

Summary

You operated a number of businesses in partnership or as a sole trader that are 'of a similar kind' and therefore may be grouped for the purposes of Division 35 of the ITAA 1997.

As such, the loss deferral rule in subsection 35-10(2) of the ITAA 1997 will not apply to defer the loss from your pharmacy business activities.

Detailed reasoning

1.               Subsection 35-10(3) of the ITAA 1997 allows business activities to be grouped together 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'.

2.               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.

3.               Taxation Ruling 2001/14 Income tax: Division 35 - non-commercial business losses states that a business activity 'of a similar kind' to another business activity is very much a question of fact and degree and 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.

4.               In your case, you operate several similar businesses, either in partnership or as a sole trader. The same services and products are offered, the only difference is the location and business structure through which they are operated. Based on these facts, your partnership activities and your sole trader activities are of a 'similar kind' for non-commercial loss purposes and can be grouped together to determine any profit or loss for the year ended 30 June 2019.

5.               When you group your partnership profits and your sole trader proceeds together you will 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 the loss deferral rule in Division 35 of the ITAA 1997 will not apply.