ATO limits use of offset rules

An ‘exposure draft’ released by the Australian Tax Office in June may affect those that operate loss-making businesses, such as hobby farms, even if their taxable income is below $250,000.

The draft clarifies the Budget announcement that people earning over $250,000 cannot offset any losses made in ‘hobby’ businesses against their personal income even if these losses pass the non-commercial business tests.

The $250,000 limit is calculated by adding taxable income, reportable fringe benefits, reportable superannuation contributions plus total net investment losses.

People with loss-making businesses will need to make sure they have correctly estimated their income for 2010 to include all these elements. This can be difficult for those taxpayers with businesses that have large fluctuations in profit, are eligible for discretionary bonuses or even unexpected capital gains. For example, a business that is facing a company take-over or forced sale of an asset may encounter difficulty.

The non-commercial rules are still limited to individuals.

Published : 7 December 2009