To offset your business loss against other income, you need to meet the income requirement.
If you pass the income requirement, you then need to look at whether you meet one of the four tests. When you do the four tests, you need to value your assets.
You may value your real property assets at either their:
- reduced cost base
- market value.
If you lease real property and you use it on a continuing basis in your business activity, you may include the market value or the reduced cost base of either the lease or the underlying real property, in the total you use to meet the $500,000 threshold.
In calculating the market value of the lease, you may take into account such things as:
- the amount of your lease payments
- the term of the lease
- any premium payable.
In calculating the reduced cost base of the lease, you may take into account any premium paid for entering the lease, but not the value of the periodical lease payments.
Leasing your business premises and installing your own fixtures
These fixtures are subject to the rules for the other assets test.
If you use real property in two or more business activities that are not similar, you must divide the value of the property between the different activities. The proportion of the real property value that is assigned to each activity will then count towards the total real property value for that activity.
If you undertake similar business activities in the same year, you may combine the value of the real property you use in those activities to meet the $500,000 threshold.
If you use real property partly for business and partly for private purposes, you only include the value of that portion used for business purposes.
You will pass the other assets test if the value of the other assets you use in your business activity on a continuing basis is at least $100,000.
You can count the value of four types of asset. They are valued in different ways.
When assessing the value of these assets for the test, you must use the same valuation method that you use for income tax purposes. (This does not apply if you are valuing leased assets.)
Valued according to the:
written-down value of the asset.
value of each item of trading stock on hand at the end of the income year, assessed by any of the following:
amount of the future lease payments you are irrevocably committed to (minus any interest component to the payments).
Trademarks, patents, copyrights and similar rights
reduced cost base of the asset.
- Assets excluded from the test
- When to value assets
- Use on a continuing basis
- Lease payments
- Assets installed in a leased property
- Assets used in more than one business activity
- Assets used for private purposes
Assets excluded from the test
For the purposes of passing this test, exclude the value of:
- real property assets you took into account for the real property test
- interests in real property that you took into account for the real property test
- cars, motorcycles and similar vehicles.
All-terrain vehicles (ATVs), so-called ag bikes and bull catchers are considered to be similar vehicles to cars and motorcycles and are therefore excluded.
Assets under construction would not normally be available for continual use in a business and would therefore also be excluded.
You should normally value your assets at the end of the income year.
However, if you ceased your business activity during the year, you should value the asset at the time the activity ceased or, if you sold or disposed of the asset before that time, you should value the asset at the time of disposal.
What constitutes use on a continuing basis will depend on your business circumstances.
However, you cannot include the value of an asset used:
- on a short-term basis
- for a one-off task
- through an agreement for intermittent use on an hourly, daily, weekly, monthly or other short-term basis.
Payments already made, or for which a binding contract has been made, will be considered to be irrevocably committed payments.
If you lease property and install fixtures (such as shop fittings) you may count these assets among your other assets, provided that you retain ownership of them. You should value them at their written-down value.
If you use an asset in two or more business activities that are not similar, you must divide the value of the asset between the different activities. The proportion of the asset value that is assigned to each activity will then count towards the total value of the assets for the activity.
If you undertake similar business activities, you may combine the value of the assets you use in those activities to pass the $100,000 threshold.
If you use an asset partly for business and partly for private purposes, you only include the value of that portion used for business purposes.When you do the four tests, you need to value your assets.