Business taxpayers operating as sole traders or partners in a partnership should know that special rules relate to business losses. These rules apply equally to Australian and foreign taxpayers. Taxpayers may claim business losses against other taxable income, only where they meet specific rules.
Firstly, taxpayers must meet the income rule, where total income must be less than $250,000. Total Income is calculated as taxable income plus total reportable fringe benefits plus reportable superannuation contributions plus net investment loss. If total income is not less than $250,000, business losses cannot be claimed against income from other sources. These losses must be carried forward and may be offset against profits from the same business activity, in future years.
Special rules apply to primary producers and professional art businesses: where assessable income from other sources (excluding capital gains) is less than $40,000, business losses can be claimed in the year incurred.
Other taxpayers with total income less than $250,000, must satisfy one of the following additional tests to be eligible to claim current year business losses against other assessable income.
- the business produced an assessable income of $20,000 or more for the current income year, or
- the business produced a profit for tax purposes, in at least three years of the last five years (including the current year), or
- the value of real property assets continuously used in the business is $500,000 or more, or
- the value of other assets continuously used in the business, excluding vehicles, is $100,000 or more.
P.S. A taxpayer can’t claim business losses if the activity has no prospect of producing a profit. Nor can the taxpayer claim losses from private recreational activities and hobbies.
For more information about taxes in Australia, contact a Specialist to discuss your particular circumstances.
Ershad Ullah is the Managing Partner of Chan & Naylor Sydney CBD. He is very passionate in helping his clients increase their personal wealth and grow their business by advising on various areas like tax minimisation, investment property, start-up business structures, restructure of business for future growth and exit strategies with estate planning.