Non-commercial losses: income requirement
Non-commercial losses: income requirement
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. Under these rules, you can work out whether you can use your business loss to offset income from other sources.
You must first meet the income requirement before you can apply the non-commercial loss tests. If you then pass one of the four tests, you can deduct your loss.
You meet the income requirement if your income for non-commercial loss purposes is less than $250,000.
Income for non-commercial loss purposes is the sum of all of the following:
- your taxable income (ignoring any business losses)
- your total reportable fringe benefits
- your reportable super contributions
- your total net investment losses.
Your taxable income is your assessable income less your allowable deductions for an income year. For the purposes of the income requirement, any business losses are ignored; that is, they are added back to your taxable income.
Where this amount is a loss after adding back the business losses, we will use zero for this part of the calculation.
Refer to your tax return for more information that may help you make an estimate of your taxable income.
Reportable fringe benefits
Your total reportable fringe benefits are the total of reportable fringe benefits amounts shown on your payment summaries.
If the total amount is less than $3,738, it is not a reportable fringe benefits amount and will not be included when working out if you meet the income requirement.
Refer to your payment summaries from your employer for information that may help you estimate your reportable fringe benefits.
Reportable super contributions
Reportable super contributions include your:
- reportable employer super contributions
- personal deductible contributions.
For the 2009-10 income year and all future years, your reportable super contributions will also affect the income tests for some tax offsets, the Medicare levy surcharge, and certain government benefits and obligations.
Reportable employer super contributions
Reportable employer super contributions are salary sacrificed super contributions or other contributions your employer makes to a super fund on your behalf where both of the following apply:
- you influenced the amount or rate of super your employer contributes
- the contributions are additional to the minimum contributions they must make under one of the following
- super guarantee law
- an industrial agreement
- the trust deed or governing rules of a super fund
- a federal, state or territory law.
If your employer makes reportable employer super contributions for your benefit, they must include the total amount of these contributions on your payment summary for the relevant income year. You must then include this amount in your income tax return and we will use it to work out your total reportable super contributions for the year.
Check with your employer for details of your salary sacrificed super contributions.
Personal deductible contributions
Your personal deductible contributions include any personal contributions you made to a super fund for which you can claim an income tax deduction on your individual tax return.
You can claim an income tax deduction for personal contributions you make to a super fund if you meet certain eligibility criteria. Generally, you must:
- be self-employed
- earn less than 10% of the sum of your assessable income plus your reportable employer superannuation contributions plus your total reportable fringe benefits amounts from activities you conduct as an employee for super guarantee purposes.
If you made a personal contribution and you did not claim a deduction for it, that amount is not a reportable super contribution.
Fred is self-employed and earns $40,000. Fred is not an employee for the purposes of super guarantee law.
Fred contributes $1,000 to his super fund. If he lodges a notice of intent to deduct, which is acknowledged by his super fund:
- he can claim a personal income tax deduction of $1,000
- his taxable income will be $39,000, as he claims no other deductions.
However, for the non-commercial losses income requirement, Fred's income will be $40,000; that is, $39,000 taxable income, plus the $1,000 reportable super contribution amount.
Total net investment losses
You will have a total net investment loss when the amount of allowable deductions you claim for your financial investments and rental properties is more than the gross income you receive from those investments. It doesn't matter whether the investment is overseas or in Australia.
Your total net investment loss is the sum of your net investment losses from the following two types of investments:
- rental property investments, such as negatively geared rental properties
- financial investments, such as negatively geared share portfolios.
Financial investments include the following classes of investment:
- managed investment schemes
- forestry managed investment schemes
- a right or option in respect of any of the above.
Only the net losses from your rental properties and the net losses from your financial investments will be taken into account when we calculate your total net investment losses. Net income from a rental property investment does not offset a loss from a financial investment, or vice versa.
For more information that may help you estimate your total net investment losses, refer to your rental property and dividend income and expenses from your last tax return, or current year information if you have it.
From 1 July 2009, your total net investment losses will be used in a range of income tests to work out whether you are entitled to receive a range of government support programs and certain tax offsets.
Joe makes a combined net loss on his negatively geared share portfolio and managed investment scheme of $10,000. He also receives $15,000 in net rental income, with no allowable deductions.
To calculate Joe's total net investment loss, the net rental income he receives is not offset against the net loss he makes on his shares and managed investment scheme. This means Joe's total net investment loss for the income year is $10,000.
Last Modified: Friday, 5 October 2012