Tag: Tax

Non-commercial losses

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

Henry tax review to examine company tax reduction

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

Small businesses to get (temporary) tax relief

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/