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Ruling
Subject: net financial investment loss
Question
Are the income and expenses from your total share portfolio included when calculating your net financial investment loss for income test purposes?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You have a freehold share portfolio that pays dividends or distributions.
You took out a margin loan part way through the year.
A portion of your original portfolio is used as collateral for your margin loan.
The margin loan is to buy more shares in the same companies held in your original share portfolio.
The interest and other charges on the loan are more than the dividend income from the newly purchased shares.
You are not in the business of share trading.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1.
Reasons for decision
The concept of a 'total net investment loss' was part of a series of measures announced in the 2008-09 Budget to ensure better account is taken of losses for various income test purposes.
This means that a taxpayer's total net investment loss plus other amounts are taken into account when determining eligibility for certain tax concessions.
The definitions of 'total net investment loss' and 'financial investment' were inserted into the Income Tax Assessment Act 1997 (ITAA 1997) and are relevant to financial years starting on or after 1 July 2009.
The definitions are found in section 995-1 of the ITAA 1997 and are follows:
· total net investment loss of an individual for an income year means the sum of:
(a) the amount (if any) by which the individual's deductions for the income year that are attributable to financial investments exceed the individual's gross income for that year from those investments; and
(b) the amount (if any) by which the individual's deductions for the income year that are attributable to rental property exceed the individual's gross income for that year from rental property.
· financial investment includes the following:
(a) a share in a company;
(b) an interest in a managed investment scheme (within the meaning of the Corporations Act 2001);
(c) a forestry interest in a forestry managed investment scheme;
(d) a right or option in respect of an investment referred to in paragraph (a), (b) or (c);
(e) an investment of a like nature to any of those referred to in paragraphs (a) to (d).
From 1 July 2009, your net financial investment loss will be used in certain income tests to work out whether you are entitled to receive a range of government support programs, certain tax offsets, concessions and deductions. We will also use your total net financial investment loss to work out whether you need to pay the Medicare levy surcharge.
The new income tests do not change the income tax thresholds or the way you work out your assessable income. However, they may affect the amount of tax you pay.
Your total net financial investment loss does not affect the way you work out your taxable income. You can still claim allowable tax deductions for the expenses you pay for your financial investments such as shares. A loss on your share portfolio can be offset against your other income.
Your net financial investment loss does not include any capital gains or losses. A net financial investment loss is simply the amount by which your income tax deductions exceed the income you obtain from your investments.
You will have a net financial investment loss where your total deductions for the relevant income year from financial investments exceed your gross income from those activities for the year.