How to determine your main business activity under IFRS 18
A new assessment, a genuine judgement, and the gate every interest and dividend classification hangs off. What the tests are and what to write in the file.
IFRS 18 asks whether an entity has, as a main business activity, either of two specified things. The answer decides where interest and dividends sit in your income statement, so nothing downstream can be settled until this is. It is a new requirement with no equivalent in IAS 1, and it is a judgement rather than a calculation (KPMG).
That combination, new and judgemental and load bearing, is why the useful output of this assessment is not a category. It is a paragraph in your file.
The two specified activities
Investing in assets that generate a return individually and largely independently of the entity's other resources. Debt and equity instruments held for a return, and investment property let to third parties, are the standard examples.
Providing financing to customers. Lending, instalment credit, and financing the purchase of the entity's own goods.
If either is a main business activity, the income and expenses of that activity are classified in operating. If neither is, interest and dividends earned on assets held independently of operations fall into investing, and interest on borrowings falls into financing. That is the ordinary corporate outcome, and it is the one that splits the finance line most statements present as a single figure.
The two tests, in the order that matters
Practitioners get this wrong by collapsing two separate questions into one. They are not the same question and the second only exists if the first is answered yes.
First: do you hold such assets at all?
Look for assets earning a return without being combined with your people, premises, inventory or processes. Cash on deposit qualifies on that test. So does a portfolio of listed equities, and so does a building let to an unconnected tenant.
Second: is holding them a main business activity?
This is the test that decides it, and it is the one people skip. Almost every group of any size holds cash on deposit. Very few of them invest in assets as a main business activity.
A treasury function holding surplus cash is not an investing business. A manufacturer with a legacy property let out is not an investment property group. Concluding that you have a specified main business activity because there are deposits on your balance sheet is the most common error available here, and it mis-classifies every interest and dividend line you have.
The word carrying the weight is "main". If the activity were to stop, would the business be substantially the same business? If yes, it is not a main activity.
Having a specified activity does not move everything
Where an entity does have one of the specified activities, it is the income and expenses of that activity that move into operating, not the whole statement (PwC).
An investment property group still has borrowings unrelated to the portfolio, and the interest on those is still financing. A lender still holds its own surplus cash. Reading the exception as "we are a financial business so it all goes in operating" produces an operating profit subtotal that means nothing.
What to write in the file
An auditor will not ask what you concluded. They will ask why, and they will trace each interest and dividend classification back to this assessment. So the record needs four things:
- The conclusion. One sentence.
- The facts it rests on. What the entity does, which assets it holds, and why holding them is or is not a main business activity. This is the paragraph that does the work.
- The consequences. Which lines are classified where as a result, so the link between the judgement and the statement is explicit.
- When it was made and by whom, and a note to revisit it if activities change. A conclusion reached in 2026 and never reviewed is a conclusion that will be wrong eventually.
Our free main business activity tool asks the four questions in the right order, keeps the two tests apart, and produces a draft of that rationale for you to edit. It deliberately does not decide for you, because it cannot know your facts.
The cases that are genuinely hard
Three that come up and do not resolve cleanly:
Corporate venture arms. A trading group with a fund making minority investments in its own sector. The investments generate returns largely independently. Whether that is a main business activity or a strategic activity incidental to the trade is arguable both ways.
Captive finance for dealers. A manufacturer financing the dealers who distribute its products. Financing customers is one of the specified activities, and the question is whether it is a main activity or a means of selling goods.
Groups where the answer differs by entity. The assessment is made for the reporting entity. A group whose subsidiary is a licensed lender but whose consolidated business is manufacturing has to reach one conclusion for the consolidated statements, and articulating why is real work.
One limit worth stating
This will not tell you what your answer is. The whole assessment turns on facts about your business that no article and no tool can see, and the standard's phrasing, "largely independently", is exactly the sort of wording that is settled by discussion with your auditor rather than by reading. Get that discussion booked early: a classification that is agreed in advance is a working paper, and one that is challenged at year end is a restatement risk.
If it would help to have the reclassification worked through on your own statement, with the paragraph behind each answer, join the waitlist.