The income requirement
To be eligible to offset your loss, you must first determine if you meet the $250,000 income requirement. You meet this requirement where the sum of the four elements for calculating your income is less than $250,000.
The four elements for calculating the income requirement are:
Your taxable income is your assessable income less your allowable deductions for an income year. For the purposes of the income requirement, any assessable First home super saver (FHSS) scheme released amount and any losses from the business activity are ignored. That is, any:
- business losses are added back to your taxable income, if they were already included in the calculation of your taxable income
- assessable FHSS released amount is subtracted from your taxable income, if it was already included in the calculation of your taxable income.
If your taxable income is a loss after adding back the business losses and subtracting the FHSS amount, use zero for this part of the calculation.
Example: taxable income calculation
Alex has a salaried job. She also carries on a natural therapies business. Alex’s taxable income for the year is $200,000. The calculation of her taxable income includes assessable FHSS scheme released amount of $20,000 and a business loss of $6,000.
For the purposes of the income requirement, Alex’s calculation of taxable income should not include her:
- assessable FHSS scheme released amount
- business loss amount.
Therefore, Alex will have to subtract the assessable FHSS scheme released amount of $20,000 from, and add the business loss of $6,000 to, her taxable income of $200,000. As a result, Alex’s taxable income for the purposes of the income requirement is $186,000.
End of example
Reportable fringe benefits
Your total reportable fringe benefits are shown on your payment summaries. If the total amount is less than the reportable fringe benefits threshold, it will not be shown on your payment summary and would not form part of the calculation.
Reportable super contributions
Reportable super contributions include your:
- reportable employer super contributions
- personal deductible contributions.
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:
- you influenced the amount or rate of super your employer contributes
- the contributions are additional to the minimum contributions they must make under:
- super guarantee law
- an industrial agreement
- the trust deed or governing rules of a super fund, or
- 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.
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.
If you made a personal contribution and you did not claim a deduction for it, that amount is not a reportable super contribution.
Example: reportable super contribution
Fred is self-employed and not eligible for super guarantee. He earned $50,000 as a plumber. Fred contributed $1,000 to his super fund and 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. He claims no other deductions.
When Fred works out his other income for the non-commercial losses income requirement, he adds his reportable superannuation contribution ($1,000) to his taxable income ($49,000) so his other income is $50,000.
End of example
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.
When working out your net investment losses, you can't use net income from your:
- rental property investment to offset a loss from your financial investment, or
- financial investment to offset a loss on your rental property investment.
Example: working out other income for income requirement
Joe has three sources of income:
- employment as a web developer of $150,000 (with no allowable deductions)
- a negatively geared share portfolio with a combined net loss of $10,000
- rental income, with an assessable income of $25,000 and $10,000 allowable deductions.
Joe’s taxable income is $155,000 ($150,000 salary + $15,000 net rental income $10,000 share portfolio loss).
When Joe works out his other income for the non-commercial losses income requirement, he:
- includes his taxable income of $155,000
- ignores his net rental income of $15,000 as it is already included in his taxable income
- includes his total net investment loss of $10,000.
The total net investment loss is added back to Joe's taxable income so his other income for the non-commercial losses income requirement is $165,000 ($155,000 taxable income + $10,000 share portfolio loss).
Joe meets the income requirement for the non-commercial loss rules as his income is less than $250,000.
End of example
To offset your non-commercial loss, you must meet the income requirement.
- Four tests – if you meet the income requirement, you must also pass one of the four tests to offset your loss
- Commissioner's discretion – if you do not meet the income requirement, you may seek the Commissioner's discretion in limited circumstances