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If you have a net loss from a business activity you carry on as an individual, either as a sole trader or in partnership, the non-commercial loss rules will apply. These rules determine whether you can use your business loss to offset income from other sources.   

Changes to the operation of the non-commercial loss rules apply for the 2009-10 and later income years.

The key changes include:

• The introduction of an income requirement to further restrict the circumstances where a business loss can offset other income. You will meet the income requirement where your income for non-commercial loss purposes is less than $250,000.
• A new exception for business losses solely caused by deductions claimed for the small business and general business tax break.
• A new Commissioner’s discretion for individuals who do not meet the income requirement but whose business activity is subject to a lead time.
• Ensuring existing Commissioner’s discretions continue to apply.

The new rules became law on 14 December 2009

For income years prior to 2009-10, you can only offset your loss against assessable income from other sources if:

• one of the exceptions for primary production or professional arts businesses apply
• your business activity passes one of four tests (profits test, assessable income test, other assets test, real property test), or
• the Commissioner of Taxation (the Commissioner) exercises a discretion to allow the loss to be offset against other income.

For the 2009-10 and later income years, you can only offset your loss against assessable income from other sources if:

• one of the exceptions for primary production or professional arts businesses apply
• you meet the income requirement and one of the four tests is satisfied (profits test, assessable income test, other assets test, real property test)
• the Commissioner has exercised his discretion to allow you to claim the loss, or
• the loss is solely due to a deduction claimed under the small business and general business tax break.

In every year that your business activity makes a net loss, you must consider whether:

• you can deduct the loss in the current year, or
• you must defer the loss.

Details of the four tests can be found in the ATO fact sheet

In a recent speech, Dr Ken Henry discussed some progress of the review into the tax system. Some of the points he raised included:
• the review panel needs to seriously consider the merits of a reduction in the company tax rate
• Australia and New Zealand are now the only two countries in the OECD that maintain dividend imputation systems, though most OECD countries provide some form of shareholder relief, such as through a lower tax rate on dividends or a uniform credit. Dr Henry said, however, that he thought the time had not yet come ‘for dividend imputation to be abandoned’
• the trans-Tasman mutual recognition of imputation credits will be considered by the review panel

- Perspectives on company tax

MORE than a million small businesses will get relief on their tax bills in the new year to help cope with the economic slump.

In a fresh move to prop up the economy, the Federal Government will cut the December quarter tax instalment for small businesses by 20 per cent. Most businesses pay the instalment in February.

The Government will announce the move today as more danger signs emerge, with unemployment edging up for a second successive month and with China suffering a slump in exports and imports — a development one analyst described as a disaster for Australia.

About 1.3 million Australian businesses with an annual turnover of $2 million or less will qualify for the tax relief.

The Government says the reduction in the December quarter instalment will more accurately reflect small businesses’ average actual profit growth in the current economic environment.

It says it will provide immediate and much-needed cash flow relief to small businesses and encourage small business confidence.

If a business’s income ultimately justifies higher tax than is paid, the business will have to make up the unpaid amount later. But it will have had advantage of the cash until then.

More at http://smallbusiness.smh.com.au/

The Tax Office has written to 3,122 trustees of self managed super funds offering them a new tax file number (TFN) for their funds.

The funds’ existing tax file numbers were on a CD of scanned letters being sent to the Tax Office via an authorised (door to door) courier from the company contracted to print the letters. The courier received the CD but it was not delivered to the Tax Office and has gone missing.

Tax Commissioner Michael D’Ascenzo said he wanted to assure the community the Tax Office takes the privacy of their personal details very seriously.

“Nothing is more important to the community and fundamental to good tax administration than the security of taxpayer information,” Mr D’Ascenzo said.

“I am concerned that this parcel containing taxpayer information has failed to be delivered, even though the courier believes the parcel is still within their warehouse facilities.

“While there is no evidence the information has fallen into the wrong hands or been misused, I am taking the matter seriously.

“As there is a risk the information could be misused if the courier is unable to locate the CD, we are providing the relevant trustees the opportunity to ensure that there is no unauthorised use of their funds’ relevant tax records.

Tax office Media release 2008/53

The Assistant Treasurer, Chris Bowen MP, today announced the entry into effect of the Assistance in Collection of Taxes Article in Australia’s tax treaty with New Zealand.

This article signifies that the Australian Taxation Office (ATO) and New Zealand’s tax authorities will work together to collect tax debt.

“The entry into effect of this Article along with the current renegotiation of other provisions in the treaty will further enhance economic links between the two countries and will strengthen trans-Tasman tax administration,” Mr Bowen said.

“It will also assist the ATO’s efforts in tracking down outstanding tax debts from people who have left Australia.

“Entry into effect of this Article reinforces the strong commitment the governments of Australia and New Zealand have to strengthening co-operation in the enforcement of tax laws and the collection of tax.”

Australia and New Zealand have now exchanged diplomatic notes confirming that they have completed the relevant internal procedures required and consequently the Article shall have effect from 8 September 2008.

The Article was inserted by the 2005 amending protocol, which focussed on strengthening the integrity aspects of the 1995 tax treaty.

The protocol entered into force in January 2007, with the entry into effect of the Assistance in Collection of Taxes Article to take effect after both countries had put in place supporting domestic arrangements.

The ATO annual compliance program serves as a fair warning to all taxpayers, CPA Australia has said.

CPA Australia CEO Geoff Rankin said the ATO’s 2008 – 2009 compliance crackdown gave taxpayers, especially individuals and smaller enterprises, ample time and information to ensure their tax affairs were in order.

‘The program acknowledges the complexity and scope of the Australian tax system while aiming to ensure that all taxable entities are compliant,’ he said.

‘The system’s complexity is such that 73 per cent of individuals and 95 per cent of businesses now see a registered tax agent.

The compliance program is a timely reminder for businesses and individuals to speak to a qualified CPA tax agent where necessary to ensure their affairs are in order.
‘The compliance program’s approach which emphasises education, information and transparency as opposed to being purely punitive is a positive step. Nevertheless the program will utilise the technology and resources available to the ATO to ensure compliance and collect tax revenue due.’

Mr Rankin said the focus on smaller enterprises, ‘mum and dad’ investors, international transactions and individuals, meant reviewing and modifying behaviour where necessary was crucial.

‘Individuals, smaller enterprises and smaller investors, including those with offshore transactions, must take care in ensuring their affairs are in order. The complexity of some of these affected transactions means some taxation requirements may sometimes be overlooked but the need to be thorough, from a compliance viewpoint, has never been greater.’

The annual compliance program will focus on the following areas among others:

* investors (undisclosed capital gains including gains from disposing of assets to invest in superannuation)
* international transactions (using technology and agreements with international authorities to verify tax compliance of international transactions)

• undeclared income (particular emphasis on partners and beneficiaries who have not returned their share of partnership or trust income)
• work related expenses (focus on occupations with a pattern of rising claims)
• cash economy (ATO will contact 50,000 businesses to inquire about their cash economy activity and conduct 5000 reviews)
• rental property deductions (under-reporting of rental income and over reporting of deductions

‘The increasing use of sophisticated technology allows the ATO increased access to data and a greater capacity for data matching to determine compliance for a wide range of transactions. In 2007 – 2008 the ATO received around 78 million income records to ensure assessable income was correctly returned,’ Mr Rankin said.

‘While individuals and entities are being given every opportunity to comply, the penalties for non-compliance are high so if unclear as to your status speak to a CPA

ATO second commissioner Jennie Granger has given an ‘early bird’ view of some of the areas that the ATO’s Compliance Program 2008 – 2009 will be addressing, and an overview of the ATO’s tax time focus for individuals and small business. She said:

· for tax time this year, the ATO will be paying particular attention to:

o investors, particularly rental properties, dividends and interest, sale of investments, avoiding dodgy tax schemes, saving for retirement

o salary packages of executives and directors – the ATO will expand its review of highly paid executives and directors, generally people with income over $1 million

o employees and their work expense claims – the ATO will look at the growth in work expense claims particularly by nurses, medical practitioners and chefs

· the ATO will also be expanding its coverage of income tax issues this year. This includes: sale of assets and investments, foreign source income, and employer obligations (including superannuation).

In an interview on ABC Radio National, the treasurer has indicated that the government intends to close what he calls a tax loophole concerning the use of executive share option schemes. Mr Swan said there has been a loophole in the system ‘where those with the shares who are predominately higher income earners and people who’ve accumulated shares or rights through their company, have been able to avoid paying their fair share of tax’.

It is estimated that $77 million in tax is avoided annually through this “loophole”.

Now that the election is over, it is probably worthwhile to summarise what was promised in respect of tax changes.

The major tax promises made included:

* significant cuts in personal tax rates for those individuals whose taxable income is less than $180,000 by the year ended 30 June 2011. Labor also has an ‘aspirational goal’ to further reduce rates by the year ended 30 June 2014 so that there will only be a three tiered scale of marginal tax rates

* the introduction of a 50 per cent education refund for the costs of laptops, personal computers, software and internet costs used by students. The refund will be capped at $375 and $750 respectively for eligible primary school and secondary school students, and will only be available for families who receive Family Tax Benefit A

* an increase in the child care rebate from 30 per cent to 50 per cent on out of pocket child care costs which will be paid every 3 months rather than annually. The maximum rebate available will be lifted to $7500 annually per child

* the introduction of housing affordability credits and the introduction of a first home saver account scheme