Activities: Partnership with a deferred loss and sole trader with a deferred loss passes a test

Activity one

Sam operates a direct selling business activity in a 50/50 partnership with his wife. This activity commenced in the year ended 30 June 2002. In the year ended 30 June 2002 each partner deferred a loss from the activity of $7,000.

The same activity is carried on by the partnership in the year ended 30 June 2003. In 2003, the business records for this activity for the year ended 30 June 2003 show the following results:

	P/ship	Sam's share
Total business income	$9,800	$4,900
Total expenses	$4,400	$2,200
Net income or loss for 2003	$5,400	$2,700
Deferred non-commercial loss for previous year		$7,000/L
Overall Net income or loss for 2003		$4,300/L

For both income years:

• the primary production and professional artists exception in subsection 35-10(4) does not apply
• the activity does not satisfy any of the four tests in Division 35:
• • the assessable income test (s35-30)
  • the profits test (s35-35)
  • the real property test (s35-40)
  • the other assets test (s35-45), and
   
• the Commissioner's discretion in s35-55 has not been exercised.

Sam's net loss for 2003 must be deferred to the next income year that the activity, or one of a similar kind, is carried on.

In 2003 the profit of $2,700 (the excess of income over expenses not including the loss deferred from the previous year) would mean the activity is profitable in this year. Therefore, 2003 can count as one of the years the activity has produced a profit for the purposes of the profits test in section 35-35.

Activity two

Sam also operates a home tutoring business activity as a sole trader. This activity commenced in the year ended 30 June 2002. In the year ended 30 June 2002 Sam deferred a loss from the activity of $1,500.

The same activity is carried on by Sam in the year ended 30 June 2003. In 2003, the business records for this activity for the year ended 30 June 2003 show the following results (included in Item P8 of the BPI schedule).

Total business income	$23,000
Total expenses	$24,200
Net income or loss for 2003	$1,200/L
Deferred non-commercial business year	$1,500/L
Overall net income or loss for 2003	$2,700/L

In 2003 the activity satisfies the assessable income test in section 35-30 as there is at least $20,000 assessable income from the home tutoring business activity in 2003. Sam can claim the current year and deferred loss in the 2003 return.

Tax return completion

Sam's tax return would include the following details:

Sam will also require a copy of the 2003 Business and Professional Items schedule (BPI) and the 2003 Taxpack supplement (Supp).

Item	Label	Amount	Comment
12 (Supp)	O	2,700	Sam's distribution from the partnership for 2003
	Y	7,000/L	A prior year deferred loss is recorded here only if the loss is from an activity which is the same or similar to the current year activity.
	Y	D (type box) (from page s4, Step 3, Taxpack 2003 Supplement)	All of the amount at Y is a deferred loss
	Net non-PP distribution	4,300/L	The excess of the prior year deferred loss of $7,000 less the profit of $2,700
P8 (BPI)	Total business income	23,000
	Total expenses (T)	24,200
	C	1,200/L	Total business income less total expenses
	E	1,500/L	Deferred non-commercial loss from the previous year
	Z	2,700/L	Transfer to Item 14 label C
14 (Supp)	C	2,700/L	From label Z item P8
P3 (BPI)	B	2	Number of business activities
P9 (BPI)	Activity one
	D	Direct Selling
	E	52596	ANZSIC code required for tax agent prepared returns
	F	P
	G	8	Loss is required to be deferred
	H	7,000	Prior year deferred non-commercial loss from this activity
	I	4,300	Net loss for 2002-03 for this business activity
	Activity two
	J	Tutoring service
	M	84400	ANZSIC code required for tax agent prepared returns
	L	S
	M	1	There is at least $20,000 income from this activity for 2003
	N	1,500	Prior year deferred non-commercial loss from this activity
	O	2,700	Net loss for 2002-03 for this business activity
15 (Supp)	F	4,300	See item P9, label I. The loss from Activity 2 is not included as it does not need to be deferred because a test has been met.
	H	4,300	The sum of F & G