ato logo
Search Suggestion:

64 Income tests

Last updated 11 February 2019

Income tests are used to work out an individual's eligibility for certain tax offsets and determining other obligations, such as:

  • Higher Education Loan Program and Student Financial Supplement Scheme repayments
  • Super co-contributions
  • Medicare levy surcharge.

Income test information is also used by other agencies, such as Centrelink and Child Support Agency, to work out eligibility for other government benefits and obligations.

These income tests require the individual (where applicable) to provide their net financial investment loss and net rental property loss in their income tax return.

The individual's net financial investment loss and net rental property loss includes any financial investment income or loss and any rental property income or loss received as part of an overall distribution from a partnership.

You do not lodge a partnership tax return where the only income derived jointly (or in common) with another person was:

  • rent from a jointly owned property, or
  • dividends from jointly held shares

and you were not in a partnership carrying on a business.

In these instances, each person shows their share of the income and expenses at the appropriate items on their own tax return.

The information provided at items 64 and 65 (the statement of distribution) will assist each partner to complete their income test information in their individual income tax return.

Net financial investment income or loss

If the partnership received income or claimed deductions during the 2011-12 financial year, then work out the net income or loss from financial investments and show it at G.

Financial investments for income test purposes include the following:

  • shares
  • an interest in a managed investment scheme
  • rights or options in respect of any of shares or interests in a managed investment scheme
  • distributions from a partnership that included income or losses from an investment listed above
  • interests in trusts that the partnership provided consideration to acquire
  • any investment that is of a similar nature to those listed above.

We consider that if a financial investment is held by a trust, then for the purposes of the income tests the trustee will generally be the owner of the investment.

Do not include any of the following when calculating the partnership's net financial investment income or loss:

  • interest from everyday transactions accounts
  • capital gains
  • capital losses.

Managed investment schemes

The investment manager will be able to tell you whether your investment is a managed investment scheme - that is, a scheme registered under the Corporations Act 2001.

Managed schemes include:

  • cash management trusts
  • property trusts
  • Australian equity (share) trusts
  • international equity trusts
  • agricultural schemes, which include horticultural, aquaculture and commercial horse-breeding schemes
  • some film schemes
  • some time-share schemes
  • some mortgage schemes
  • actively managed strata title schemes.

Investments that are not managed investments schemes include:

  • regulated superannuation funds
  • approved deposit funds
  • debentures issued by a body corporate
  • barter schemes
  • franchises
  • direct purchases of shares or other equities
  • schemes operated by an Australian bank in the ordinary course of banking business, such as term deposits.

Rights and options

To work out the partnership's financial investment income or loss, you need to include income and deductions from rights and options the partnership holds over shares and interests in managed investment schemes. Rights and options include:

  • warrants
  • futures contracts.

For more information on financial investments and income tests, see What is your total net investment loss' in Income tests: an overview.

Deductions

Allowable deductions the partnership can claim for an investment include (but are not limited to) expenses paid to:

  • borrow money to purchase an investment
  • manage investments
  • obtain advice about changes to the mix of investments.

The expenses should be taken into account only to the extent that they are attributable to the partnership's financial investments.

Answering this question

Completing G Net financial investment income or loss item 64:

Step 1

Use example 11 and the worksheet below to list the partnership income and deductions from financial investments - then calculate the net financial investment income or loss.

Step 2

Write the result from step 1 at G.

Step 3

Write each partner's share of the net financial investment income or loss at J item 65.

Start of example

Example 11: Net financial investment income or loss

The XYZ partnership has a share portfolio. The partnership's total dividend income for the financial year is $7,000 from Australian shares, all of which are unfranked (shown at K item 12). The partnership claimed interest expenses of $4,300 (shown at P item 16) on the money borrowed to purchase the Australian shares.

During the financial year, XYZ also received income from a cash management trust (managed investment scheme), forestry managed investment scheme, and dividends from foreign shares. XYZ completed the partnership tax return questions as follows:

  • R item 8 - $400 from non-primary production distribution from cash management trust (managed investment scheme)
  • K item 12 - $7,000 income from Australian shares
  • Q item 10 - $1,200 from forestry managed investment scheme income
  • B item 23 - $1,230 income from gross dividends from foreign shares.

This example uses only the income for the financial investments. In many cases the financial investment income is only part of the income shown at particular items.

XYZ incurred expenses against the financial investment income and showed deductions at the following items:

  • T item 8 - $2,500 for expenses for the cash management trust
  • P item 16 - $4,300 for interest on money borrowed to purchase Australian shares
  • D item 17 - $2,600 deductions for the forestry managed investment scheme
  • Q item 18 - $3,000 as the interest expense on money borrowed to purchase the foreign shares was $3,000.

In addition to the above, XYZ received $300 as a share of net financial investment income from the ABC partnership. The $300 was shown at J item 65 on the statement of distribution for the ABC partnership tax return.

XYZ's net financial investment income or loss is the difference between the financial investment income and deductions, plus the net financial investment income from the ABC partnership.

End of example

Worksheet: Working out the partnership's net financial investment income or loss

Financial investment income

XYZ Partnership

Partnership

 

Managed investment scheme income included at R item 8

$400

$

(a)

Forestry managed investment scheme income included at Q item 10

$1,200

$

(b)

Dividends from Australian shares shown at item 12:

 

 

 

K Unfranked amount

$7,000

$

(c)

L Franked amount

$

$

(d)

M Franking credit

$

$

(e)

Gross dividend income from foreign companies and gross income from foreign managed investment schemes, shown at B item 23

$1,230

$

(f)

Any other income from a financial investment (other than the partnership's share of net financial investment income or loss from other partnerships shown on the statement of distribution from the other partnership)

 

 

(g)

Add (a) to (g).

$9,830

$

(h)

Financial investment deductions

Deductions relating only to the managed investment scheme income you have included at T item 8

$2,500

$

(i)

Deductions relating to Australian investment income where the investment type is included in definition of financial investment shown at P item 16

$4,300

$

(j)

Forestry managed investment scheme deductions you have shown at D item 17

$2,600

$

(k)

Dividend deductions from foreign companies and deductions for foreign managed investment scheme income (other than debt type deductions you have shown at Q item 18) you used to calculate the combined net foreign dividend and net foreign managed investment scheme amount shown at V item 23

$0

$

(l)

Any other deductions relating to a financial investment (including deductions you have shown at Q item 18).

$3,000

 

 

Add (i) to (l).

$12,400

$

(m)

Net financial investment income or loss

Take (m) away from (h) - show a loss as negative.

$-2,570

$

(n)

If applicable, write your partnership's share of net financial investment income or loss from other partnerships shown on the statement of distribution from the other partnership - if it is a loss, write as a negative number.

$300

$

(o)

Add (n) and (o) - show a loss as negative.

$-2,270

$

(p)

The amount at (p) is the partnership's net financial investment income or loss. Write this amount at G item 64. If the amount is a loss, write L in the box on the right hand side of G.

Statement of distribution

Once you have shown the net financial investment income or loss at item 64, you also need to show each partner's share of the financial investment income or loss at J item 65. If the amount at J is a loss, print L in the box at the right of the figure.

Go to H item 64.

Net rental property income or loss

Show at H item 64 the amount of partnership net income or loss from rental properties. When calculating the partnership's net rental property income or loss, you need to consider Australian rent, foreign rent, and net rental income or loss distributed from other partnerships.

Net rental property losses occur when the amount of allowable deductions you claim for the partnership's rental properties is greater than the gross rental income you receive.

Capital gains or losses made in regard to a rental property are not included in your net rental property income or loss.

If the partnership earned rental income or claimed rental deductions, you must complete H item 64 and K item 65 showing each partner's share of net rental property income or loss.

Answering this question

Completing H 'Net rental property income' or loss at item 64.

Before completing this question, first complete item 9 'Rent' and item 23 'Other assessable foreign source income'.

Step 1

Use the worksheet below to list all rental income and deductions and then calculate the net rental property income or loss - write a loss as a negative number.

Step 2

Write the result from step 1 at H item 64.

Step 3

Write each partner's share of net rental property income or loss at K item 65.

Worksheet: Net rental property income or loss

Net rental property income or loss

Partnership

 

Net rental property income shown at item 9 Rent - write a loss as a negative number.

$

(a)

Net foreign rental property income or loss included at V item 23 Other assessable foreign source income' - write a loss as a negative number.

$

(b)

If applicable, write your partnership's share of net rental property income or loss from other partnerships shown on the statement of distribution from the other partnership - write a loss as a negative number.

$

(c)

Add up (a) to (c).

$

(d)

Write the amount at (d) at H item 64. If the amount is a loss, write L in the box on the right hand side of H item 64.

Statement of distribution

Once you have shown the net rental property income or loss at item 64, you also need to show each partner's share of the net rental property income or loss at K item 65 Statement of distribution'.

QC25837