What is a qualifying trade under section 257MP of the Income Tax Act 2007?

A qualifying trade under section 257MP is one conducted on a genuine commercial basis with a view to making profits, and which does not consist wholly or substantially of excluded activities during the shorter applicable period. Both conditions must be met for the trade to qualify for Social Investment Tax Relief.

What are the two conditions a trade must satisfy to qualify for Social Investment Tax Relief?

First, the trade must be conducted on a commercial basis with the intention of generating profits, ensuring it is a viable business. Second, during the shorter applicable period the trade must not consist wholly or substantially of excluded activities as defined in sections 257MQ to 257MT of the Income Tax Act 2007.

Does the word trade in section 257MP carry the same meaning as in section 989 of the Income Tax Act 2007?

No. The word trade in section 257MP and the related excluded activities sections 257MQ to 257MT carries a broader, ordinary meaning rather than the specific statutory definition found in section 989 of the Income Tax Act 2007. This wider interpretation is relevant when assessing whether a social enterprise's activities constitute a trade.

Can a commercially run social enterprise fail to have a qualifying trade under section 257MP?

Yes. Even if a social enterprise operates on a genuine commercial basis with a profit motive, its trade will not qualify if a substantial part of its activities consists of excluded activities. For example, a community interest company deriving substantial income from property development would fail the second condition despite being commercially operated.

Income Tax Act 2007 section 257MP

Meaning of "qualifying trade"

Section 257MP defines what counts as a "qualifying trade" for the purposes of Social Investment Tax Relief.

A qualifying trade must be conducted on a commercial basis with the intention of making profits
The trade must not consist wholly or substantially of excluded activities during the shorter applicable period
Both conditions must be met for a trade to qualify under the Social Investment Tax Relief provisions
References to "trade" in this section and the excluded activities sections (257MQ to 257MT) use a broader meaning than the standard definition in section 989

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