Wednesday 13th May 2009
FEDERAL GOVERNMENT ON IT’S HIGH HORSE
2009 FEDERAL BUDGET AND THE HORSE INDUSTRY
The Treasurer Wayne Swan handed down his second budget last night including proposed changes to the “non-commercial loss” (NCL) provisions. These changes will have a direct, adverse affect on the horse industry because those individuals affected by the changes may be forced to extract themselves, and their investment, from the horse industry. For hard working, higher salary and wage earners ($250,000 plus), the Federal Government is basically saying, “Stick to your day job”.
The proposed changes to NCL
The non commercial loss rules currently 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 +
- Any salary sacrifice super contributions +
- Any reportable fringe benefit amounts +
- 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.
Our initial comments on the proposed changes are as follows;
1. This policy is political point scoring rather than achieving significant revenue gains for Government;
2. The Labour Government is effectively saying that you are not a commercial business if you are operating at a loss;
3. The horse breeding industry like other industries has a lead time between commencement of business and eventual profit;
4. Jobs will be lost to the horse industry (Australia’s third biggest employer) as it is inevitable that some horse breeders will extract themselves from the horse industry because of the changes;
5. The changes do not appear to address any significant integrity issues;
6. Practically, most of the more wealthier horse industry participants have their horse interests in either companies or trusts so the rules DO NOT APPLY to these;
7. These changes should not affect a large number of horse industry participants (We hope). Nevertheless, one person lost to the horse industry is not desirable;
8. There may be tax planning/structuring opportunities for those affected;
9. A horse business remains a horse business regardless of the Federal Government’s lack of understanding;
10. For genuine, commercial horse breeders it would advisable to apply to the Commissioner for relief, with professional assistance, from the new rules.
11. Importantly, those required to “quarantine” their losses are still able to recover GST as usual.
In a nutshell
The proposed Federal Government changes to NCL provisions should not have a widespread affect on the horse racing and breeding industry. What is of more concern is the rhetoric used by the Federal Government in its 2009 budget stating; “Many of these activities do not have a commercial purpose or character and are no more than hobbies or lifestyle choices.” The ongoing battle to justify to the Government that the horse industry consists of a diverse mix of large and small businesses carrying on legitimate, commercially sound businesses continues.
- Ends
Contacts;
Adam Tims
Director – Stable Financial
03 9629 3023 or 0410 437 887
Paul Scanlon
Senior Manager – Stable Financial
03 9629 3023 or 0439 991 145
This media release is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any person acting on or refraining from action as a result of this media release can be accepted.
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