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Do you run a side business in addition to your main employment? This could be in primary production (ie a farm or winery), retail or any other profession, trade, vocation or calling, provided it is not in a role of an employee. If you do, you may be subject to non-commercial loss rules, which are designed to restrict losses from “non-commercial” business activities from being offset against income from other sources, say your employment income.
A “non-commercial” business activity in this context is any business where the deductions exceed the assessable income in any particular year. However, the non-commercial loss rules will not apply (ie you are able to offset losses from the business activity against other income) under the following circumstances:
– the assessable income from the business for the year is at least $20,000;
– the business made a profit (for tax purposes) in at least 3 of the past 5 income years including the current year;
– the total value of real property (or interests in real property) used on a continuing basis to carry out the business is at least $500,000; or
– the total value of other assets (excluding cars, motorcycles or similar vehicles) used on a continuing basis in carrying on the business is at least $100,000.
The above conditions only apply to those with an adjusted taxable income of less than $250,000. Those with an adjusted taxable income of $250,000 or more are considered to be “high-income earners” and will have their deductions from the business quarantined to the business activity. As such, they will only be allowed to deduct the loss when the business makes a profit. However, high-income earners and those that who do not satisfy the above conditions can still make a request to the Commissioner of Taxation to exercise his or her discretion not to apply the rules.
However, the Commissioner will generally only apply his or her discretion if the business was affected by factors outside your control and it is expected that the business will make a profit within a commercially viable period for the industry. Each case is assessed on its own merits, as such, any application should be accompanied by supporting evidence of special circumstances, and/or evidence from independent sources including industry bodies, professional associations, and government agencies as to what a “commercially viable period” for the industry is.
If you’re a primary producer or a professional artist and your income from other sources that do not relate to the business is less than $40,000 (excluding net capital gains), the non-commercial loss rules will not apply to you. You will be able to deduct any losses from the business against your other income, but you should beware of the $40,000 threshold which may change from year to year based on your personal circumstances.
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