Newsletter
July 2013 Newsletter
Losses from farming activities to be deferred
A medical doctor has been unsuccessful before the AAT in arguing that the Tax Commissioner should exercise his discretion to allow the doctor to claim non-commercial business losses of his cattle and sheep farming activities against his medical practice income.
The taxpayer had applied to the ATO for a private binding ruling, requesting that the Commissioner allow him to claim the losses from the farming activities against his medical practice income. However, the Commissioner issued a private ruling in which he refused to exercise the discretion sought. Notwithstanding the ruling, the taxpayer then lodged his 2010 tax return and claimed losses in relation to the farming business.
The AAT affirmed the Commissioner’s decision and found that the taxpayer had not discharged the onus of proving that the conditions of the relief sought had been met. Accordingly, the AAT held that the losses incurred must be deferred until those activities produce assessable income against which the deductions could be claimed.
TIP: There are rules in the tax law designed to prevent losses from a non-commercial business activity from being offset against income from other sources, unless the activity satisfies one of the commerciality tests, or the Commissioner exercises his discretion to not apply the non-commercial loss rules. However, there are strict requirements surrounding the exercise of this discretion. Note that there are specific exemptions from the non-commercial loss rules for low income primary producers and professional artists.
Also, since 1 July 2009, losses incurred by individuals with an adjusted taxable income of $250,000 or more from non-commercial business activities have been quarantined, even if they satisfy the relevant commerciality tests. The effect is that these individuals are not able to offset excess deductions from non-commercial business activities against their salary, wages or other income. Please call our office for further information.