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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-5 - RULES ABOUT DEDUCTIBILITY OF PARTICULAR KINDS OF AMOUNTS  

Division 35 - Deferral of losses from non-commercial business activities    View history reference

Operative provisions  

SECTION 35-10  Deferral of deductions from non-commercial business activities  

 View history reference

35-10(1)  

The rule in subsection (2) applies for an income year to each *business activity you carried on in that year if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), unless:


(a) you satisfy subsection (2E) for that year, and one of the tests set out in any of the following provisions is satisfied for the business activity for that year:

(i) section 35-30 (assessable income test);

(ii) section 35-35 (profits test);

(iii) section 35-40 (real property test);

(iv) section 35-45 (other assets test); or
 View history reference


(b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity for that year; or


(c) the exception in subsection (4) applies for that year.

Note:

This section covers individuals carrying on a business activity as partners, but not individuals merely in receipt of income jointly. Compare the definition of partnership in subsection 995-1(1).

Rules

35-10(2)  

If the amounts attributable to the *business activity for that income year that you could otherwise deduct under this Act for that year exceed your assessable income (if any) from the business activity for that year, or your share of it, this Act applies to you as if the excess:


(a) were not incurred in that income year; and


(b) were an amount attributable to the activity that you can deduct from assessable income from the activity for the next income year in which the activity is carried on.

Note 1:

There are modifications of this rule if you have exempt income (see section 35-15) or you become bankrupt (see section 35-20).

Note 2:

This rule does not apply if your excess is solely due to deductions under Division 41 (see section 35-10 of the Income Tax (Transitional Provisions) Act 1997).

Example:

Jennifer has a salaried job, and she also carries on a business activity consisting of selling lingerie.

Jennifer starts that activity on 1 July 2002, and for the 2002-03 income year, the activity produces assessable income of $8,000 and deductions of $10,000. The activity does not pass any of the tests and the discretion is not exercised so the $2,000 excess is carried over to the next income year in which the activity is carried on.

For the 2003-04 income year, the activity produces assessable income of $9,000 and deductions of $10,000 (excluding the $2,000 excess from 2002-03). Again, no tests passed and no exercise of discretion.

$3,000 is carried over to the next income year (comprising the $1,000 excess for the current year, plus the previous year's $2,000 excess) when the activity is carried on.

35-10(2A)  

 View history reference
You cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a *business activity you used to carry on if you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership) unless:


(a) you satisfied subsection (2E), and one of the tests set out in any of the following provisions was satisfied for the business activity:

(i) section 35-30 (assessable income test);

(ii) section 35-35 (profits test);

(iii) section 35-40 (real property test);

(iv) section 35-45 (other assets test); or
 View history reference


(b) the Commissioner has exercised the discretion set out in section 35-55 for the business activity; or


(c) the exception in subsection (4) applied;

for the income year in which the business activity ceased to be carried on or an earlier income year.

35-10(2B)  

 View history reference
If you are an individual, either alone or in partnership (whether or not some other entity is a member of the partnership), you cannot deduct an amount under section 40-880 (business related costs) for expenditure in relation to a *business activity:


(a) you propose to carry on; or
 View history reference


(b) another entity proposes to carry on if the other entity is not an individual, either alone or in partnership;

for an income year before the one in which the business activity starts to be carried on.

35-10(2C)  

 View history reference
This section applies to an amount that you could have deducted, apart from paragraph (2B)(a), as if it were an amount attributable to the *business activity that you can deduct from assessable income from the activity for the income year in which the business activity starts to be carried on.

35-10(2D)  

 View history reference
You can deduct expenditure covered by paragraph (2B)(b) for the income year in which the *business activity starts to be carried on.

Income requirement

35-10(2E)  

 View history reference
You satisfy this subsection for an income year if the sum of the following is less than $250,000:


(a) your taxable income for that year;
 View history reference


(b) your *reportable fringe benefits total for that year;


(c) your *reportable superannuation contributions for that year;


(d) your *total net investment losses for that year.

For the purposes of paragraph (a), when working out your taxable income, disregard any excess mentioned in subsection (2) for any *business activity for that year that you could otherwise deduct under this Act for that year.

[CCH Note: S 35-10(2E) will be amended by No 132 of 2017, s 3 and Sch 1 item 27, by inserting ", disregarding your *assessable FHSS released amount for that year" after "that year" in para (a), effective 1 July 2018.]

Grouping business activities

35-10(3)  

In applying this Division, you may group together *business activities of a similar kind.

Exceptions

35-10(4)  

 View history reference
The rule in subsection (2), (2A) or (2B) does not apply to a *business activity for an income year if:


(a) the activity is a *primary production business, or a *professional arts business; and


(b) your assessable income for that year (except any *net capital gain) from other sources that do not relate to that activity is less than $40,000.

35-10(5)  

A professional arts business is a *business you carry on as:


(a) the author of a literary, dramatic, musical or artistic work; or

Note:

The expression "author" is a technical term from copyright law. In general, the "author" of a musical work is its composer and the "author" of an artistic work is the artist, sculptor or photographer who created it.


(b) a *performing artist; or


(c) a *production associate.


 



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