If you are a partner in a partnership, you – as an individual – may offset your share of a partnership loss against your other income, subject to the non-commercial loss rules.
The non-commercial losses income requirements are applied to the individual partners the same as for an individual.
If you are a member of a partnership and all the other partners are individuals, the assessable income of the whole partnership must be at least $20,000 before the individual members can deduct losses.
If an individual member earns assessable income from the business activity outside of the partnership, that assessable income can be taken into account by that member only.
If you have partnership members that are companies or trusts, you must exclude their share of the assessable income.
If a partnership carries on more than one business activity, the income and deductions must be accounted for separately for each unless they are similar activities.
Example: Assessable income test
Jarli is in business in partnership with Ross and a company. The partnership earned $22,000 assessable income last year from the business activity.
$4,000 of that income went to the company, and $9,000 to each individual in the partnership, therefore the partnership income would not be sufficient to allow Jarli to pass the income test ($22,000 − $4,000 = $18,000).
However, Jarli has an interest in the business activity outside the partnership. He received $3,500 in assessable income from this non-partnership interest, so that the total assessable income he can count for the purposes of this test is $21,500 ($3,500 + $9,000 + $9,000). He also meets the income requirement; therefore, he is able to deduct a loss.
Ross cannot take into account the non-partnership assessable income earned by Jarli for the purpose of this test. Ross does not satisfy the assessable income test.End of example
If you are carrying on a business activity in a partnership, you will be able to claim a loss if your income from the activity has been greater than your tax deductions for the activity for at least three out of the past five years (including the current year) and you meet the income requirement.
In calculating your income and deductions, you must consider both your income from the partnership and any income you may have earned in your own right from that activity.
Members of a partnership may be affected differently.
Example: Partnership and the profits tests
Neha and Raj operate a business activity as a partnership. This year, Neha and Raj both meet the income requirement. They each receive $5,000 in income from the partnership and have received the same amount for the past four years.
Raj does not have any tax deductions for his part in the business, so he has made a profit every year – therefore, has no loss to offset.
Neha took out a loan to finance her investment in the partnership and is paying $8,000 a year in interest. Therefore, she has made a net loss of $3,000 every year for the past four years but the she does not pass the profits test so can't offset her losses.End of example
If you are a member of a partnership and all the other partners are individuals, the value of the real property used in the whole partnership business must be at least $500,000 before the individual members can deduct losses.
If you have partnership members that are companies or trusts, you must exclude the value of any real property attributable to them.
You must also exclude the value of any of the property that is owned by individual partners in their own right. However, you can include the value of any property you own outside the partnership that the business uses on a continuing basis.
Example: Partnerships and the real property test
John, Bill and George are equal partners in a real estate business. The business has five offices.
The partnership owns four of the offices, which have a property value of $450,000. Bill and George have no property interests in the business except as partners, so neither Bill nor George pass the real property test as the property value is less than $500,000.
However, John meets the income requirement and owns the fifth office in his own right. It is valued at $70,000. Adding the value of his property to the value of the property assets held in partnership allows him to pass the real property test and claim a loss ($450,000 + $70,000 = $520,000).End of example
If you are a member of a partnership and all the other partners are individuals, the value of the other assets of the whole partnership must be at least $100,000 before the individual members can deduct losses.
If partners of the partnership are companies or trusts, you must exclude the value of any other assets attributable to them.
You must also exclude the value of any other assets that are owned by individual partners in their own right. However, you can include the value of any other assets you own outside the partnership that are used in the business activity on a continuing basis.
Example: Partnerships and the other assets test
Marika and Bill meet the income requirement. They are in partnership with Steelco Pty Ltd. They are equal partners in a manufacturing enterprise that has plant, equipment and trading stock valued at $210,000.
Steelco owns $70,000 of these assets and as Steelco is a company, this amount must be ignored for the purposes of the other assets test.
However as the balance is still above $100,000 ($210,000 − $70,000 = $140,000) both Marika and Bill are entitled to deduct losses.End of example
Next steps:Explains the income requirement, assessable income test, profits test, real property test and other assets test.