Rules tightened on Non Commercial Losses
3rd July 2009
Exposure Draft legislation issues to implement changes announced in the 2009-10 Federal Budget to tighten the non-commercial losses rules for individuals with an adjusted taxable income in excess of $250,000.
The changes are included in the Exposure Draft - Tax Laws Amendment (2009 Measures
No 5) Bill 2009.
The proposed changes to the ITAA 1997 to implement the amendment essentially add a $250,000 income test limit so that unless that income requirement is met and one of the 4 existing objective tests is met, losses from non-commercial business activities are quarantined. The income requirement will be met when, in a given income year, the sum of an individual's taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses is less than $250,000.
The existing 4 objective tests remain the same and are:
- assessable income test - the assessable income generated from the activity must be at least $20,000;
- profits tests - the activity must have produced a profit in three of the last five income years, including the current income year;
- real property test - the reduced cost base value of real property or interests in real property used on a continuing basis to carry out the activity is at least $500,000; and
- other assets test - the reduced cost base of any other assets used on a continuing basis to carry on the activity is at least $100,000.
The changes will also introduce a new Commissioner's discretion for individuals who do not meet the income requirement, but who have excess deductions from a business that - based on an objective assessment - is a commercial business ie on an objective basis, is expected to produce assessable income.
As with the current rules, the revised non-commercial losses rules will not apply to individuals that are involved in a primary production business or a professional arts business and who have other income of less than $40,000. |
