| In last week's Federal Budget, the Australian | | | | |
| government announced an extension of the | | | | 1. Does the business have assessable income of |
| anti-avoidance provisions that deal with | | | | at least $20,000 in an income year? |
| non-commercial business losses. | | | | 2. Has the business produced a profit in three out |
| First, some background. | | | | of the past five years? |
| For some years, the government and the Tax | | | | 3. Does the business use real property or an |
| Office have been concerned about people | | | | interest in real property worth at least $500,000 |
| obtaining tax deductions for what are, in effect, | | | | on a continuing basis? |
| hobbies. For example, a person has a small | | | | 4. Does the business use other assets worth at |
| vineyard from which they make small quantities | | | | least $100,000 on a continuing basis? |
| of wine. There are some sales of the wine, but it | | | | Passing these tests, particularly for wealthy |
| is nowhere near enough to cover the costs of | | | | people, is not that difficult. So, the government |
| production. So, the "business" makes a loss and | | | | has reacted to make it even more difficult for |
| the person claims this as a tax deduction. Often, | | | | people on high incomes to be able to claim a tax |
| the person claiming the tax deduction has a high | | | | deduction for losses from their business activities. |
| salary income. Hence the expression "Pitt Street | | | | The change is that people with "adjusted taxable |
| farmer" (for New South Wales) and "Collins Street | | | | income" of over $250,000 will have excess |
| farmer" (for Victoria). (Those living in other states | | | | deductions quarantined to the business activity. |
| will have to make up their own phrase). | | | | This appears to be a "blanket" exception to the |
| So, for a number of years now, we have had in | | | | four tests I mention above. For people with an |
| the Australian taxation law what are known as | | | | adjusted taxable income of $250,000 or less, the |
| the non-commercial loss provisions. If these | | | | existing rules will continue to apply. |
| provisions apply, they prevent the claiming of a | | | | The Treasurer has referred to the ability of |
| tax loss immediately from what the legislation | | | | wealthy people to claim tax deductions in the |
| defines as a non-commercial activity. However, | | | | circumstances outlined above as a "loophole". |
| the tax loss can be carried forward to be set off | | | | Accordingly, the government will move quickly to |
| against future income from the business activity. | | | | close this tax planning opportunity from 1 July |
| In certain circumstances, even though a loss has | | | | 2009. It should be remembered, that this is only |
| been made, the losses can still be claimed as a | | | | an announcement and the legislation must be |
| tax deduction. The idea of these exceptions was | | | | passed by Parliament before it is effective. The |
| to try and ensure that people who are carrying | | | | exact application of the changes to the |
| on genuine businesses are not get caught by | | | | non-commercial loss provisions may be somewhat |
| these provisions. Broadly, you can offset losses | | | | different after it has passed through the |
| from the business activity against other income if | | | | parliamentary process. |
| the business activity passes at least one of the | | | | Wishing you easier business... |
| following four tests: | | | | |