Did you have a loss from a business activity you carried on either as a sole trader or in partnership?
No |
If you are a small business entity using the simplified depreciation rules, go to P10 Small business entity simplified depreciation. Otherwise, go to Other business and professional items |
Yes |
Read on |
Business losses
You must read all the information in this question and complete Activity 1 and (if necessary) Activity 2 and Activity 3, before you complete item 16 on your tax return (supplementary section). Foreign business losses shown at M item 20 are to be included here. If your activity is carried on partly in Australia and partly overseas, you need to combine the results of both to see if you have an overall loss from the activity before completing this item.
You need to know
Under the rules for non-commercial business losses, you can use a 2015–16 loss from a business activity you conduct either as a sole trader or in partnership to calculate your 2015–16 taxable income only if it meets one of these conditions:
- an exception applies (see below)
- you meet the income requirement and one of the four tests is satisfied
- you meet the income requirement and none of the four tests is satisfied, but the Commissioner of Taxation has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss
- you do not meet the income requirement, but the Commissioner has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.
You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby, or if there is no likelihood of profit.
The rules for non-commercial business losses apply to both foreign and Australian business activities.
Keep records of each of the net losses deferred for your separate business activities.
The exceptions
If you operated or proposed to operate a primary production business or a professional arts business and your assessable income for 2015–16 (except any net capital gain) from other sources that did not relate to that activity is less than $40,000, you may claim your business loss this year.
A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
GST excluded
Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.
The income requirement
You must meet the income requirement to continue to have access to the four tests to offset your loss from a business activity against other assessable income.
If you do not meet the income requirement, you may request that the Commissioner exercise his discretion to allow your loss, see The Commissioner’s discretion.
You will meet the income requirement and have access to the four tests if the total of the following amounts is less than $250,000:
- Taxable income is the amount shown on page 4 of your tax return. Any business losses you are claiming at item P9 will be ignored when working out this amount. If you had a loss, we will use zero for this calculation.
- Total reportable fringe benefits amounts shown on your payment summary and totalled at W item IT1 on your tax return.
- Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your payment summary and totalled at T item IT2 on your tax return), plus any deductible personal superannuation contributions shown at item D12 on your tax return (supplementary section).
- Net investment losses are the total of your financial investment losses (shown at X item IT5 on your tax return) and rental properties losses (shown at Y item IT6 on your tax return) less a farm management repayment at N or R item 17 where the repaid amount was from the same business activity that gave rise to the loss.
If you do not meet the income requirement, you will have to defer your loss unless the Commissioner has exercised his discretion or ruled that it will be exercised, or you satisfy another exception.
You will not have to defer your loss from your business activity if you meet the income requirement and the activity satisfies at least one of the following four tests:
- There is at least $20,000 of assessable income from the business activity for this income year.
- The business activity has produced a profit for tax purposes in three out of the past five years, including the current year.
- The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
- The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.
Find out about:
- Partnerships
- Phone 13 28 66
Where you meet the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises, even though none of the four tests are satisfied, provided that either:
- the business activity has been affected by special circumstances outside the control of the operators of the business (for example, natural disasters) where the activity would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not satisfy any of the four tests, but there is an objective expectation that within a period that is commercially viable for the industry either
- it will satisfy one of the four tests
- produce assessable income for an income year greater than the tax deduction attributable to that income for that year. ‘Commercial viability’ is measured against independent industry standards.
Where you exceed the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity in more limited circumstances. The Commissioner can exercise his discretion in this instance if:
- the business activity has been affected by special circumstances outside the control of the operators of the business (for example, natural disasters) where the activity was unable to produce a tax profit and would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not produce assessable income greater than the tax deduction attributable to that income, but there is an objective expectation that it will do so within a period that is commercially viable for the industry concerned. ‘Commercial viability’ is measured against independent industry standards.
Applying for the Commissioner’s discretion
You must apply in writing for advice on whether the Commissioner will exercise his discretion. To do this, complete the Application for a private ruling on the exercise of the Commissioner’s discretion for non-commercial business losses. For more details about these rules, phone 13 28 66.
Deferring your loss
If you are unable to claim your loss this year because of these rules, you must defer the loss.
This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity, or one of a similar kind.
The deferred loss is a deduction when calculating any net profit or loss from the activity in that future year.
Whether any overall loss can be taken into account in your calculation of taxable income for that future year will depend on the application of the deferral rules for non-commercial business losses in that year.
If you are unable to claim your loss against other income this year because of these rules, you must defer your loss by showing the amount at item 16 on your tax return (supplementary section). The amount shown at item 16 cannot be used to reduce your 2015-16 taxable income.
Make sure you complete Activity 1, and if necessary, Activity 2 and Activity 3 on page 4 of your schedule before you complete item 16 on your tax return (supplementary section).
What you may need
If you are a partner in a partnership, you will need the following details for each business activity that you, as a partner, were involved in:
- the amount of assessable income earned by the partnership for the activity
- the share of the partnership's assessable income, real property and certain other assets, attributable to partners who are not individuals
- your share of income or loss of the partnership from the activity.
Activity 1
Description of business activity
Completing this item
Describe the business activity from which you made the largest loss and enter this at D item P9 on page 4 of your schedule. If your business activity is the result of an investment in a tax-effective arrangement, enter the name of the project at D.
Partnership or sole trader
Completing this item
At F item P9, enter either P in the box at Partnership (loss from a business activity carried on in partnership with others) or S in the box at Sole trader (loss from a business activity carried on as a sole trader).
Select the most appropriate number code from the following list and enter it at G item P9 on page 4 of your schedule:
- Your assessable income from the business activity for this income year was at least $20,000 and you met the income requirement.
- The business activity produced a profit for tax purposes in three out of the past five years (including the current year) and you met the income requirement.
- The value of real property assets or interests in real property (excluding any private dwelling) used on a continuing basis in carrying on the business activity was at least $500,000 and you met the income requirement.
- The value of certain other assets (except cars, motor cycles or similar vehicles) used on a continuing basis in carrying on the business activity was at least $100,000 and you met the income requirement.
- We have advised you in writing that the Commissioner will exercise his discretion to allow you to claim a loss for that business activity for this income year. This is where the Commissioner has issued a product ruling or a private ruling allowing losses to be claimed from an activity you participated in.
This code also applies where codes 1, 2, 3 or 4 apply and you have a farm management deposit repayment that can be offset against the primary production loss so that you satisfy the income requirement for that loss. - The loss was from a business activity you operated that was a professional arts business and your assessable income (excluding any net capital gain) from sources not related to that activity was less than $40,000. A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
- The loss is from a business activity you operated that is a primary production business, and your assessable income (excluding any net capital gain) from sources not related to that activity was less than $40,000.
Use loss code 5 if you have a farm management deposit repayment that can be offset against the primary production loss so that your assessable income (excluding any net capital gain) from sources not related to that activity was less than $40,000 - The above loss codes don’t apply. You must defer your loss and complete item 16 on your tax return (supplementary section).
Using loss code 5, Commissioner's discretion
Some business activities may be covered by a product ruling or private ruling that does not relate to the current income year. Use loss code 5 only if you have advice in writing that the Commissioner’s discretion will be exercised for 2015–16. If you have applied for a private ruling about the exercise of the Commissioner’s discretion for 2015–16, but have not yet received the ruling, use loss code 8 unless another code applies.
Using loss code 8
If you wrote code 8 at G, M or S item P9, you must defer your loss. You must also complete item 16 on your tax return (supplementary section).
Electronic lodgments
For some tax returns lodged electronically:
- where there is a loss from a partnership from a passive investment, for example, from a rental property, you need to use code 0 at G item P9
- where you have correctly shown the relevant loss code, but an electronic edit prevents you from lodging your tax return electronically, phone 13 28 66.
Did you use loss code 5 at G item P9?
No |
Go to Deferred non-commercial business losses from a prior year |
Yes |
You must complete Reference for code 5 at C item P9 on page 4 of your schedule. Read on. |
Reference for code 5
Completing this item
If your business activity is covered by a product ruling that includes advice that the Commissioner will exercise his discretion to allow a loss from that business activity:
- enter PR at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- enter the year of the product ruling at Y in the Year section
- enter the product ruling number at A in the Number section (do not include the year of the product ruling or the slash / at A).
If you have been directed to use loss code 5 because you have a farm management deposit repayment:
- enter AN at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- leave Y blank in the Year section
- enter the authorisation number which was printed on the front page of your notice of private ruling at A in the Number section.
If you have a farm management deposit repayment that can be offset against a primary production loss so that you satisfy the income requirement for that loss:
- enter AN at C in the Code section of Reference for code 5 item P9 on page 4 of your schedule
- leave Y blank in the Year section
- print the number 200926 at A in the Number section.
You must provide one of these numbers if you used loss code 5 at G Type of loss.
If you use an invalid ruling or authorisation number, one which does not apply to you or one which does not apply for the 2015–16 income year, it may result in an understatement of your tax payable. Penalties and interest may apply.
Deferred non-commercial business loss from a prior year
Completing this item
Write the amount of your deferred non-commercial business loss from a prior year for the business activity at H item P9 on page 4 of your schedule. Do not show cents.
Net loss
Completing this item
Write your net loss from the business activity for 2015–16 at I item P9 on page 4 of your schedule. Do not show cents. For partners in a partnership, this would be your share of the net loss from the business activity and includes any deferred non-commercial business losses from the prior year claimed at X or Y item 13 on your tax return (supplementary section).
The example below will help you work out what to include at item P9.
Fill out details for the second- and third-largest losses (if applicable) in the same way you have done for Activity 1.
If you made a loss from more than three business activities, determine whether you need to defer the loss for each additional business activity. You will need the total amount of your deferred non-commercial business losses to complete item 16 on your tax return (supplementary section).
The following example shows how to complete items P8 and P9 on your schedule and how the amounts link to your tax return (supplementary section).
In 2015, Kieren had to defer his non-commercial business loss of $6,000 from his beef cattle primary production business activity. He also had to defer his non-commercial business loss of $3,000 from his retail (computer repairs) business activity. Because he operated the same activities in the 2016 income year, he can claim the $6,000 business loss from the beef cattle primary production business activity as a deduction for calculating any net profit or loss from that business activity for this income year, and the $3,000 business loss from the retail non-primary production business activity as a deduction for calculating any net profit or loss from that business activity for this income year.
Kieren would show the amount of $6,000 as a deduction at D item P8, the amount of $3,000 as a deduction at E item P8, and $9,000 at Totals on his Business and professional items schedule for individuals 2016.
This year, Kieren made a loss of $4,000 from the beef cattle primary production business. After taking into account his deferred non-commercial primary production business loss of $6,000 from the prior year, he made a net loss of $10,000. He did not satisfy any of the non-commercial business loss criteria that allow a business loss to be used to reduce other income, so he must defer the $10,000 net loss this year.
Kieren would show the $6,000 deferred non-commercial business loss from the prior year at H item P9, and the net loss of $10,000 at I item P9 on his Business and professional items schedule for individuals 2016. As the loss is to be deferred, he would show loss code 8 at G item P9 in the Type of loss box, see Type of loss for a description of the loss codes.
This year, Kieren made a loss of $5,000 from the computer repairs non-primary production business. After taking into account his deferred non-commercial non-primary production business loss of $3,000 from the prior year, he made a net loss of $8,000. He did not satisfy any of the non-commercial business loss criteria that allow a business loss to be used to reduce other income, so he must defer the $8,000 net loss this year.
Kieren would show the $3,000 deferred non-commercial business loss from the prior year at N item P9, and the net loss of $8,000 at O item P9 on his Business and professional items schedule for individuals 2016. As the loss is to be deferred, he would show loss code 8 at M item P9 in the Type of loss box – see Type of loss for a description of the loss codes.
Kieren would also need to complete G, I and J item 16 on his tax return (supplementary section), deferring his net losses of $10,000 from primary production and $8,000 from non-primary production, a total deferred net loss of $18,000. He would not be able to use this net loss to reduce his other income this year.
P10 Small business entity simplified depreciation
Item P10 is only for small business entities using the simplified depreciation rules.
Small business are now able to claim an immediate deduction for assets they start to use, or have installed ready for use, for a taxable purpose, provided each depreciable asset costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.
This measure applies to expenditure incurred from 7.30pm (AEST) 12 May 2015 until 30 June 2017.
Completing this item
To complete this item, use the amounts you calculated for small business entity depreciation deductions in worksheet 2.
At A Deduction for certain assets item P10 on page 4 of your schedule, enter the amount at (a) in the worksheet.
At B Deduction for general small business pool, enter the total of the amounts at (b) and (c) in the worksheet.
Write the depreciation deductions at A and B, not the pool balances.
Other business and professional items
For P11 to P19, you need to fill in all items relating to your business expenses.
If you have more than one business you must add the figures for all businesses, irrespective of whether they are primary or non-primary production, and enter only one figure at each item.
P11 Trade debtors
Did you have any trade debtors?
No |
Go to P12 Trade creditors. |
Yes |
Read on. |
You need to know
This is the total amount owing to the business at the end of the year for goods and services provided during the income year (that is, current trade and other debtors).
Completing this item
Step 1 Work out the total amount owing from trade and other debtors. If you have more than one business, add up all trade and other debtor amounts.
Step 2 Enter the total at E item P11 on page 4 of your schedule. Do not show cents.
P12 Trade creditors
Did you have any trade creditors?
No |
|
Yes |
Read on. |
You need to know
This is the total amount owed by the business at the end of the year for goods and services received during the income year (that is, current trade and other creditors).
Completing this item
Step 1 Work out the total amount owing to trade and other creditors. If you have more than one business, add up all trade and other creditor amounts.
Step 2 Enter the total at F item P12 on page 4 of your schedule. Do not show cents.
P13 Total salary and wage expenses
Did you pay salary and wages as a business expense?
No |
|
Yes |
Read on |
You need to know
Salary, wages and other labour costs actually paid or payable to persons employed in your business (excluding those forming part of capital expenditure or paid for private domestic assistance) are usually deductible. However, you cannot be an employee of your business. Payments to you of salary are not allowable deductions in calculating your income or loss; treat these payments as an allocation of profits.
Include any salary and wage component of Cost of sales, such as allowances, bonuses, casual labour, retainers and commissions paid to people who received a retainer, and workers compensation paid through the payroll.
Also include direct and indirect labour, holiday pay, locums, long service leave, lump sum payments, other employee benefits, overtime, payments under an incentive or profit-sharing scheme, retiring allowances and sick pay. Include any salary or wages paid to relatives and other related entities both here and at H item P14 on your schedule. Exclude agency fees, contract payments, sub-contract payments, service fees, superannuation, management fees and consultant fees.
Completing this item
Step 1 Add up total salary and wage expenses from each business.
Step 2 Enter the total at G item P13 on page 4 of your schedule. Do not show cents.
Step 3 Select from the following list the letter that matches the description of the expense component where the salary and wage expenses have been wholly or predominantly reported at item P8:
C All included in the expense component Cost of sales
A All included in the expense component All other expenses
B Included in the expense component of both Cost of sales and All other expenses
O Included in expense components other than Cost of sales and All other expenses.
Step 4 Enter the appropriate letter in the Type box at the right of the amount at G.
P14 Payments to associated persons
Did you make any payments to associated persons as a business expense?
No |
|
Yes |
Read on. |
You need to know
These are amounts, including salary, wages, commissions or allowances, paid to your relatives. These also include superannuation contributions paid for the benefit of your relatives.
You must also include amounts of salary or wages paid to your relatives and a partnership in which your relatives are partners at G item P13 on your schedule.
You need to keep the following records:
- full name of relatives or related partnerships
- age, if under 18 years old
- relationship
- nature of duties performed
- hours worked
- total remuneration
- salary or wages claimed as deductions
- other amounts paid, for example, retiring gratuities, bonuses and commissions.
Excessive or unreasonable payments to your relatives, or a partnership in which your relatives are partners, may not be deductible. The PSI rules (see P1 Personal services income (PSI)) also limit deductions for payments to associates.
Completing this item
Step 1 Add up payments made to relatives and related partnerships from each business.
Step 2 Write the total at H item P14 on page 4 of your schedule. Do not show cents.
P15 Intangible depreciating assets first deducted
Small business entities using the simplified depreciation rules: do not complete this item.
Did you start to deduct the decline in value of any intangible depreciating assets?
No |
|
Yes |
Read on |
You need to know
The following intangible assets are regarded as depreciating assets (as long as they are not trading stock):
- certain items of intellectual property, such as patents, registered designs, copyrights and certain types of licences
- computer software (or a right to use computer software) that you acquire, develop or have someone else develop for your use for the purposes for which it is designed (in-house software)
- mining, quarrying or prospecting rights and information
- certain indefeasible rights to use a telecommunications cable system
- certain telecommunications site access rights
- spectrum licences
- datacasting transmitter licences.
A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can only claim a deduction for the decline in value to the extent that you use the asset for a taxable purpose, such as for producing assessable income.
At item P15 you need to show the cost of all intangible depreciating assets for which you are claiming a business deduction for decline in value for the first time. If you have allocated any intangible depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, you also need to include the cost of those assets at item P15. Do not reduce the cost for estimated non-taxable use.
Expenditure on in-house software that you allocated to a software development pool is not shown at item P15.
See also:
Completing this item
Step 1 Add up the costs.
Step 2 Enter the total at I item P15 on page 4 of your schedule. Do not show cents.
P16 Other depreciating assets first deducted
Small business entities using the simplified depreciation rules: do not complete this item.
Did you start to deduct the decline in value of any other depreciating assets in 2015–16?
No |
Go to P17 Termination value of intangible depreciating assets |
Yes |
Read on |
You need to know
A depreciating asset that you hold starts to decline in value from the time you use it or install it ready for use for any purpose, including a private purpose. However, you can claim a deduction for the decline in value only to the extent you use the asset for a taxable purpose, such as for producing assessable income.
At item P16 you need to include the cost of all depreciating assets (other than intangible depreciating assets) for which you are claiming a business deduction for the decline in value for the first time.
If you have allocated any depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, you also need to include the cost of those assets at item P16. Do not reduce the cost for estimated non-taxable use.
To calculate the decline in value of these assets use the Depreciation and Capital Allowances Tool (DCAT) at ato.gov.au
See also:
Completing this item
Step 1 Add up the costs.
Step 2 Enter the total at J item P16 on page 4 of your schedule. Do not show cents.
See also:
P17 Termination value of intangible depreciating assets
Small business entities using the simplified depreciation rules: do not complete this item.
Did you stop holding or using any intangible depreciating assets in 2015–16?
No |
|
Yes |
Read on. |
You need to know
Do not show at this item any consideration you received during the income year in relation to in-house software for which you have allocated expenditure to a software development pool.
Include the termination values for intangible depreciating assets (including intangible assets allocated to a low-value pool) that you stopped holding or using during the year (for example, assets you sold, or that were lost or destroyed).
Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.
Completing this item
Step 1 Add up any amounts you received or are deemed to have received for all intangible depreciating assets that you stopped holding or using in your business, other than:
- assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
- low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
- in-house software for which you allocated expenditure to a software development pool.
Step 2 Write the total at D item P17 on page 4 of your schedule. Do not show cents.
See also:
P18 Termination value of other depreciating assets
Small business entities using the simplified depreciation rules: do not complete this item.
Did you stop holding or using any other depreciating assets in 2015–16?
No |
Go to P19 Trading stock election. |
Yes |
Read on. |
You need to know
At item P18 you include the termination values for other depreciating assets (including assets allocated to a low-value pool) that you stopped holding or using during the income year (for example, assets you sold, or that were lost or destroyed).
Generally, the termination value is the amount you received or are deemed to have received for the asset that you stopped holding or using. It includes the market value of any non-cash benefits, such as goods and services, you received for the asset.
Completing this item
Step 1 Add up the amounts you received or are deemed to have received for all depreciating assets that you stopped holding or using in your business other than:
- intangible depreciating assets
- assets allocated in a prior year to the general small business pool or the formerly available long-life small business pool
- low-cost assets for which an immediate deduction has been allowed under the simplified depreciation rules
- buildings or structures for which a deduction is available under the capital works provisions
- assets falling within the provisions relating to investments in Australian films.
Step 2 Write the total at K item P18 on page 4 of your schedule. Do not show cents.
See also:
P19 Trading stock election
Have you made a trading stock election?
No |
Go to Check that you have…. |
Yes |
Read on. |
You need to know
If you have valued trading stock on hand at the end of the income year at an amount that is less than the lowest amount available using one of the valuation methods at Closing stock, you must notify the Commissioner.
Completing this item
If you must notify the Commissioner about your trading stock election, print Y at P item P19 on page 4 of your schedule. Otherwise leave P blank.
- written the correct amount on your schedule for each item that applies to you
- correctly transferred the amount at A Net PSI item P1 on your Business and professional items schedule for individuals 2016 to A item 14 on page 13 of your tax return (supplementary section)
- correctly transferred the amounts at Y and Z NET INCOME OR LOSS FROM BUSINESS item P8 on your Business and professional items schedule for individuals 2016 to B and C (respectively) item 15 on page 14 of your tax return (supplementary section)
- completed and attached the Individual PAYG payment summary schedule 2016 to page 3 of your tax return, if you received business income that was subject to withholding
- kept your records to prove your claims, where required.