• Activity 1

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Part A: Description of activity

    Completing this part

    Describe the business activity from which you made the largest loss and print this at D, item P9 on your schedule. If your business activity is the result of an investment in a tax effective arrangement, print the product ruling number (if any) and the name of the project at D.

    Part B: Partnership or sole trader

    Completing this part

    Print either P in the box at Partnership (loss from a business activity carried on in partnership with others) or S in the box at Sole trader (loss from a business activity carried on as a sole trader), as appropriate, at F item P9 on your schedule.

    Part C: deferred non-commercial business loss from a prior year, and net loss

    You need to know

    Rules relating to deferred non-commercial business losses have applied since 1 July 2000. Under the rules, you can only use a 2003-04 loss from a business activity you conduct either as a sole trader or in partnership in calculating your 2003-04 taxable income where:

    • the exception applies
    • one of the four tests is satisfied, or
    • if one of the four tests is not satisfied, the Commissioner has exercised his discretion to allow you to claim the loss or has given you a ruling that he will exercise his discretion.

    For more information about the exception, the four tests and the Commissioner's discretion, see question 15 in TaxPack 2004 supplement.

    If you are unable to claim your loss against other income this year because of these rules, you must defer the loss this year by showing the amount at item 15 on your tax return.

    This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity or one of a similar kind. The deferred loss is a deduction when calculating any net profit or loss from the activity in that future year.

    Whether any overall loss from that activity can be taken into account in your calculation of taxable income for that future year will depend on the application of the non-commercial business loss deferral rules in that year.

    Example

    In 2003 Kieren had to defer his non-commercial business loss of $6,000 from his beef cattle primary production business activity. Because he operated the same activity in the 2004 income year he can claim the $6,000 as a deduction in relation to calculating any net profit or loss from the business activity for this income year. Kieren would show the amount as a deduction at D item P8 on his 2004 business and professional items schedule for individuals.

    P8 Business income and expenses

    Primary production

    Non-primary production

    Totals

    Deferred non-commercial business losses from a prior year

    D

    6,000

    E

     

    6,000

    This year, Kieren made a loss of $4,000. However after taking into account his deferred non-commercial business loss of $6,000 from the prior year, he made a net loss of $10,000. He did not satisfy any of the Division 35 criteria that allow a business loss to be used to reduce other income so he must defer the $10,000 net loss this year.

    Kieren would show the $6,000 deferred non-commercial business loss from the prior year at H item P9 and the net loss of $10,000 at I item P9 on his 2004 business and professional items schedule for individuals. As the loss is to be deferred he would show loss code 8 at G item P9 in the Type of loss box. See Part D Type of loss below for a description of the loss codes.

    P9 Business loss activity details

    Activity 1

    Description of activity

    D

    Beef cattle

    ATO use only

    E

     

    F

    Partnership

     

    Sole trader

    S

    Type of loss

    G

    8

    Deferred non-commercial business from a prior year

    H

    6,000

    Net loss

    I

    10,000

    Kieren would also need to complete G item 15 on his tax return deferring his $10,000 net loss. He would not be able to use this net loss to reduce his other income this year.

    15 Deferred non-commercial business losses

    Your share of deferred losses from partnership activities

    F

     

    Deferred losses from sole trader activities

    G

    10,000

    Total deferred losses

    H

    10,000

    Completing this part

    Step 1

    Write the amount of your deferred non-commercial business loss from a prior year for the business activity at H item P9 on your schedule. Do not show cents.

    Step 2

    Write your net loss from the business activity for 2003-04 at I item P9 on your schedule. Do not show cents. For partners in a partnership this would be your share of the net loss from the business activity and includes any deferred non-commercial business losses from the prior year claimed at X or Y item 12 on your tax return.

    Part D: Type of loss

    You need to know

    The code you use at G item P9 on the schedule will determine whether you can take into account your net loss from the business activity when calculating your taxable income this year.

    Choose the most appropriate code from the following list.

    1. Your assessable income from the business activity for this income year is at least $20,000.
    2. The business activity has produced a profit for tax purposes in three out of the past five years (including the current year).
    3. The value of real property assets or interests in real property (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
    4. The value of certain other assets (except cars, motor cycles or similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.
    5. The Tax Office has advised you in writing that the Commissioner will exercise his discretion to allow you to claim a loss in relation to that business activity for this income year. This would include instances where the Commissioner has issued a product ruling or a private binding ruling allowing losses to be claimed from an activity you participate in.
    6. The loss is from a business activity you operated that is a professional arts business and your assessable income (excluding any net capital gain) from sources not related to that activity is less than $40,000. (A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work; a performing artist; or a production associate.)
    7. The loss is from a business activity you operated that is a primary production business and your assessable income (excluding any net capital gain) from sources not related to that activity is less than $40,000.
    8. None of the above codes applies and the loss is required to be deferred.

    Using loss code 5

    Some business activities may be covered by a product ruling or private ruling that does not relate to the current income year. Only use loss code 5 where you have advice in writing that the Commissioner's discretion will be exercised for 2003-04. If you have applied for a private binding ruling about the exercise of the Commissioner's discretion for 2003-04 but have not yet received the ruling, you should use loss code 8.

    For more information see Taxation Ruling TR 2001/14 - Division 35: non-commercial business lossesExternal Link.

    Completing this part

    Print the code you have chosen from the above list at G item P9 on your schedule.

    Electronic lodgements

    For some tax returns lodged electronically:

    • Where there is a loss from a partnership from a passive investment - for example, from a rental property - it will be necessary to use code 0 at G item P9.
    • Where you have correctly shown the relevant loss code but an electronic edit prevents you from lodging your return electronically, please phone the Small business infoline on 13 28 66 for assistance.
    Last modified: 28 May 2009QC 27547