In May 2009, the Treasurer Wayne Swan announced during his second budget changes to the “non-commercial loss” (NCL) provisions, with a proposed start date of 1 July 2009.

In their current form, the non commercial loss rules allow an individual to apply their business losses against their other income provided the business satisfies one of four commerciality tests, as follows:

1. Assessable income test: Annual income exceeding $20,000;
2. Real property test: The value of real property used in the business exceeds $500,000;
3. Other assets test: The value of other assets used in the business exceeds $100,000;
4. Profits test: The business has reported a taxable profit in three of the last five years, including the current year.

For individual taxpayers with an “adjusted taxable income” of under $250,000, these rules will continue to apply.

For individual taxpayers with an “adjusted taxable income” of over $250,000, any business losses will be quarantined (cannot be offset against other income) for utilisation against future profits of that business activity only. This is regardless of the fact that the business may have satisfied the existing commerciality tests.

“Adjusted taxable income” is proposed to be defined as follows:
- Taxable Income; and
- Any salary sacrificed super contributions; and
- Any reportable fringe benefit amounts; and
- Any losses they might ordinarily claim to reduce their income.

The Commissioner’s discretion to provide relief from these rules will continue to apply to all taxpayers notwithstanding their taxable income. In addition, this has been widened somewhat with the loss able to be claimed where evidence from an independent source indicates that the business will become profitable within a period that is commercially viable for the specific industry.

Our firm, concerned with the impact that these proposed changes could have on the thoroughbred industry, offered our services pro bono to Thoroughbred Breeders Australia (TBA) to assist with their submission to the Government. We will continue to be involved in lobbying a more favourable outcome for breeders. A copy of the TBA submission is available on our website . [Click Here] to download PDF.