• P9 business loss activity details

    Did you have a loss from a business activity you carried on either as a sole trader or in partnership?

    No

    If you are an STS taxpayer, go to P10 STS depreciating assets.

    Otherwise, go to Other business and professional items.

    Yes

    Read on.

    Note
    You need to read all the information in this question and complete Activity 1 and (if necessary) Activity 2 and 3, before you complete question 15 on your tax return (supplementary section).

    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 2004-05 loss from a business activity you conduct either as a sole trader or in partnership in calculating your 2004-05 taxable income if it meets one of these conditions:

    • the exception applies
    • one of the four tests is satisfied
    • if none of the four tests are satisfied, the Commissioner has exercised his discretion or ruled that it will be exercised to allow you to claim the loss.

    You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby where there is no likelihood of profit.

    Important
    Keep records of each of the net losses deferred for your separate business activities.

    The exception

    If you operate a primary production business or a professional arts business and your assessable income for 2004-05 (except any net capital gain) from other sources that do not relate to that activity is less than $40,000, you may claim your business loss this year.

    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.

    Note
    Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.

    The four tests

    You will not have to defer your loss from your business activity if the activity satisfies at least one of the following four tests:

    • there is at least $20,000 of assessable income from the business activity for this income year
    • the particular business activity has produced a profit for tax purposes in three out of the past five years, including this year
    • the value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000
    • the value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.

    Note
    Special rules apply for these four tests if you are undertaking a business activity in partnership. See the publication Non-commercial losses: partnerships NAT 3385, or phone the Business Infoline (see More information).

    The Commissioner's discretion

    In limited circumstances, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises, even though none of the four tests are satisfied, provided that either:

    • The business activity has been affected by special circumstances outside the control of the operators of the business - for example, natural disasters - where the activity would have satisfied one of the four tests but for these special circumstances.
    • The business activity, because of its nature, has a lead time and, for this reason, does not satisfy any of the four tests, but there is an objective expectation that it will eventually do so within a period that is commercially viable for the industry concerned. 'Commercial viability' is measured against independent industry standards.

    You must apply in writing for advice on whether the Commissioner will exercise this discretion. To do this, complete the application in Private ruling form (Non-commercial losses). For more details about these rules, phone the Business Infoline for assistance (see More information).

    Deferring your loss

    If you are unable to claim your loss this year because of these rules, you must defer the loss.

    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 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.

    If you are unable to claim your loss against other income this year because of these rules, you must defer your loss by showing the amount at item 15 on your tax return (supplementary section). The amount shown at item 15 cannot be used to reduce your 2004-05 taxable income.

    Make sure you complete Activity 1 and Activity 2 and 3 below before you complete question 15 on your tax return (supplementary section).

    What you may need

    If you are a partner in a partnership, you will need the following details for each business activity that, as a partner, you were involved in:

    • the amount of assessable income earned by the partnership for the activity
    • the share of partnership assessable income, real property and certain other assets, attributable to partners who are not individuals
    • your share of income or loss from the partnership of the activity.

    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

    Description of activity

    Completing this question

    Describe the business activity from which you made the largest loss and print this at D item P9 on page 4 of 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.

    Partnership or sole trader

    Completing this question

    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.

    Deferred non-commercial business loss from a prior year, and net loss

    Completing this question

    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 page 4 of your schedule. Do not show cents.

    Step 2

    Write your net loss from the business activity for 2004-05 at I. 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 (supplementary section).

    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 you must defer your loss. Complete item 15 on your tax return (supplementary section).

    For more information, see Taxation Ruling 2001/14 - Division 35: non-commercial business losses.

    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 2004-05. If you have applied for a private binding ruling about the exercise of the Commissioner's discretion for 2004-05 but have not yet received the ruling, you should use loss code 8.

    Using loss code 8

    If you print code 8 at G, M or S item P9 you must defer your loss. You must also complete item 15 on your tax return (supplementary section).

    Electronic lodgments

    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 Business Infoline for assistance (see More information).

    Completing this question

    Print the code you have chosen from the above list at G item P9 on page 4 of your schedule.

    The example on the next page will help you work out P9.

    Activity 2 and activity 3

    Fill out details for the second and third largest losses (if applicable) in the same way you have done for activity 1.

    Note
    If you made a loss from more than three business activities, determine whether you need to defer the loss, for each additional business activity. You will need the total amount of your deferred non-commercial losses to complete question 15 on your tax return (supplementary section).

    Example

    The following example shows how to fill in P8 and P9 on your schedule and how the amounts link to your tax return (supplementary section).

    In 2004 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 2005 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 Business and professional items schedule for individuals 2004-05.

    This year, Kieren made a loss of $4,000. 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 Business and professional items schedule for individuals 2004-05. As the loss is to be deferred he would show loss code 8 at G item P9 in the Type of loss box. See Type of loss on the previous page for a description of the loss codes.

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

    Last modified: 15 Mar 2007QC 27592