Non-commercial losses: real property test
If you have a net loss from a business activity you carry on as an individual, either as a sole trader or in a partnership, the non-commercial loss rules will apply. These rules determine whether you can use your business loss to offset income from other sources.
Before you apply the real property test
For the 2009-10 and later income years, you first need to meet the non-commercial losses income requirement before you can use the real property test.
You meet the income requirement if the total of the following amounts is less than $250,000:
- taxable income (ignoring any business losses)
- total reportable fringe benefits
- reportable superannuation contributions
- total net investment losses.
If you meet the income requirement, you can use the real property test.
You will pass the real property test if real property of at least $500,000 in value is used in the business activity on a continuing basis.
Real property includes:
- structures, such as buildings, fixed to the land
- interests in that property, such as a lease of that property.
Real property, for the purposes of this test, does not include:
- a dwelling and adjacent land that is used mainly for private purposes, or
- fixtures owned by you as a tenant.
If you pass the real property test, you can claim your losses for the relevant year.