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Business Services, Financial Advice, Tax Planning, Forensic Accounting

What is a tax loss, and how can it be turned to good use? [Podcast]

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What is a tax loss, and how can it be turned to good use?

You generally make a tax loss when the total deductions that can be claimed for a financial year exceed the total of assessable and net exempt income for the year.

If you operate a business that makes a oss you can generally carry forward that loss and claim a deduction for it in a future year as a tax loss. If you’re a sole trader or in a partnership, you may be able to claim business losses by offsetting them against your other personal income (such as investment income) in the same income year.

Only sole traders or individual partners in a partnership who meet one of the non-commercial losses requirements (see next page) can offset business losses against other income (such as salary or investment income) in the same income year.

If you do not meet any of these requirements, or if you operate through a company or a trust, you can still carry it forward to future years. If your business makes a profit in a following year, you can offset the deferred loss against that profit.

Note that a tax loss is different from a capital loss. A capital loss occurs when you dispose of a capital asset for less than its tax cost base. A capital loss can only be offset against any capital gains in the same income year or carried forward to offset against future capital gains – it cannot be offset against income of a revenue nature.

Your business structure can affect how you can claim tax losses. For example, companies can generally choose the year in which they claim a deduction for a carried forward tax loss. This can be useful as it means, for example, that a company can choose not to utilise prior year losses in a particular year in order to pay sufficient tax to be able to distribute franked dividends. However, if you operate as a sole trader, partnership or trust, you cannot choose the year or years in which you claim a deduction for your prior-year tax losses.


Individuals can generally carry forward a tax loss indefinitely, but must claim it at the first opportunity (that is, the first year that there is taxable income). You cannot choose to hold on to losses to offset them against future income if they can be offset against the current year’s income.

Carried forward tax losses are offset first against any net exempt income (such as pension income, government allowances and so on) and only then against assessable income. Losses must be claimed in the order in which they were incurred.


If you’re in business as an individual, either alone or in a partnership, and your business makes a loss, you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages.

You can ask TNR about the non-commercial loss rules, but briefly these rules dictate that you can’t claim a loss for a business that is little more than a hobby or lifestyle choice (based on the legal tests, not on your intentions). Even if it has business-like characteristics, if it is unlikely to ever make a profit and doesn’t have a significant commercial purpose or character, you generally can’t offset the loss against your other income.

In these cases, if you are thinking of ramping up your efforts and are sure you will make a profit in the future, you might decide to defer the loss until you realise that profit from the business.

The non-commercial business loss requirements are:

  • your business is a primary production business or a professional arts business and you make less than $40,000 (excluding any net capital gains) in an income year from other sources
  • your income for non-commercial business loss purposes is less than $250,000, and either
    • your assessable business income is at least $20,000 in the income year
    • your business has produced a profit in three out of the past five years (including the current year)
    • your business uses, or has an interest in, real property worth at least $500,000, and that property is used on a continuing basis in a business activity (this test excludes your private  residence and adjacent land)
    • your business uses certain other assets (excluding motor vehicles) worth at least $100,000 on a continuing basis.

If you fail all of the tests but you believe that you should be allowed to claim the loss due to special circumstances, you can apply to the ATO for the “Commissioner’s discretion” to apply, which would allow you to utilise the loss (TNR can help you with this application).


Companies can carry forward a tax loss indefinitely, and use it when they choose, provided that since the loss was incurred they have either:

  • maintained the same majority ownership and control, or
  • carried on the same business once the ownership test is failed.

If there is a change of ownership or control of a company during an income year and the company does not maintain the same business, it must work out its taxable income and tax loss. In broad terms, a company in this situation has both a taxable income and a tax loss for the same year. In some circumstances, the loss may be carried forward and used in later years, subject to the usual restrictions.

Also note that with tax losses, you must keep proper records relating to your tax affairs for at least five years. If you use information from those records in a later tax return, you may have to keep records for longer. So, if you carry forward a tax loss, you must keep the records until the end of any period of review for the income tax return in which the loss is fully deducted.

Certain deductions that would otherwise be allowable cannot be claimed as deductions where doing so would give rise to a tax loss. They are:

  • payments of pensions, gratuities or retirement allowances to employees, former employees, or their dependents
  • gifts or contributions made to deductible gift recipients
  • payments made under conservation covenants, and
  • personal superannuation contributions.

The post What is a tax loss, and how can it be turned to good use? [Podcast] appeared first on TNR Chartered Accountants Lismore Ballina Accounting, Tax Audit.

Jun 08 2017



Age Pension – Everything you need to know about the Aged Pension [Podcast]

Apr 06 2017



Reasons to Use a TNR Chartered Accountant [Podcast]

Apr 05 2016



Goods And Services Tax [Podcast]

Aug 21 2015



Wealth Creation [Podcast]

Aug 21 2015



Choosing a Tax Accountant [Podcast]

Jun 09 2015



Forensic Accounting [Podcast]

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For companies or others who may have a need for forensic accounting services, the staff at TNR have been providing these services for many years. A BRW Client Choice Awards Winner in 2013 and 2014, TNR has the experience and track record needed when getting to the truth is paramount.

The post Forensic Accounting [Podcast] appeared first on TNR Chartered Accountants Lismore Ballina Accounting, Tax Audit.

Jun 09 2015



HECS HELP Benefits Podcast

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Listen to our podcast episode about the Hecs Help Benefit.
Read the transcript here: Hecs Help Benefits

The post HECS HELP Benefits Podcast appeared first on TNR Chartered Accountants Lismore Ballina Accounting, Tax Audit.

Jun 09 2015



Age Pension: Do you fit the bill?

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Age Pension – Demystified

Australians have a long history when it comes to age pension schemes. The first national pension scheme in Australia was formed in 1909 and provided the grand sum of £1 per fortnight for men over the age of 65. As life expectancy for males at the time was around 55 years, most men did not reach the qualifying age and so the pension at the time was very affordable, which is just as well as its funding came out of general revenue.

Of course over the intervening years a lot has changed, including making the Age Pension available for women (although initially it was only provided to widows), introducing means testing, and tying the pension payment rates to inflation.

But given that a lot of recent budgetary changes have been focused on the welfare sector, and may or may not have been put in place, retirees and pre-retirees can be excused for feeling some confusion over just what exactly is the make up of the Age Pension in 2014, what are the conditions to receive it, and the eligibility factors involved.

The main features of the Age Pension as it now stands are:

  • a basic maximum rate of $776.70 a fortnight for singles and $1,171.00 a fortnight for couples (from September 20, 2014)
  • eligibility age of 65 years
  • the application of an income test and an assets test, which can reduce the payment rate for those that exceed certain thresholds for each.

Do you Qualify for the Age Pension?

To qualify for the Age Pension, you must first have been an Australian resident for at least 10 years, but you must also satisfy the age, income and assets tests. The Q&A list that follows will hopefully spell out the current status quo, whether you’re eligible, the hurdles to get there, and what benefits you receive.

Q1: What age do I have to be to qualify for Age Pension, and will this change?

A: The current qualifying age for all people, whether male or female, is 65. From July 1, 2017, the qualifying age will increase by six months, and will rise in six month increments every two years to reach age 67 by July 1, 2023. The Federal Government has said that it plans to further increase the eligibility age to 70 by 2035, but this is yet to be legislated.

Q2: What are the means tests to determine how much Age Pension I get paid?

A: The Age Pension payment amounts can be restricted because of income and assets tests. Generally whichever test results in a lower payment is the one that applies to you. If the level of assets or income exceeds the relevant threshold for full benefits, the benefit entitlement is “clawed back”, resulting in a partial pension payment. Of course going over the upper thresholds results in ineligibility for any pension amount. As a reminder about the difference between assets and income, remember that:

  • money in the bank is an asset, but the interest it earns is income
  • a holiday house is an asset, while the rent it generates is income
  • a business or equipment is an asset, while the net profit these make is income.

Age Pension Asset Test

An asset is defined to be “any property or possession you own either partly or wholly”. It includes assets held outside Australia and debts owing to you. Once a person reaches Age Pension age, their superannuation is counted as an asset under the assets test.

Assessable assets typically include:

  • amounts in superannuation for persons who have reached Age Pension age
  • reportable superannuation contributions (typically salary sacrifice)
  • cash and the market value of financial assets held (including interest bearing deposits, fixed deposits, bonds, debentures, shares, property trust units, friendly society bonds and managed investments)
  • real estate (including a holiday home) other than the principal home
  • total net losses from rental property
  • value of businesses or farms including goodwill (where goodwill is shown on the balance sheet), and
  • surrender value of life insurance policies etc.

Other assessable assets are more obvious, and include items such as boats, caravans, motor vehicles and other household contents and personal effects.

The asset test limits are also determined by a person’s home ownership status. For home owning singles, the value of all eligible assets must be less than $202,000 for a full pension, or $771,750 for a part pension. For non-home owning singles, the value limits are $348,500 full pension and $918,250 part pension.

For couples, the full pension asset value limit is $286,500 for home owners ($1,145,500 part pension) and $433,000 for non-home owning couples ($1,292,000 part pension).

There are however some excluded assets, which include but are not limited to:

  • the applicant’s principal home, or proceeds from the sale of it if it is intended to buy another within 12 months
  • assets used to support some income streams, depending on date of purchase
  • accommodation bonds paid for residential aged care
  • life interest (not created by the pensioner, beneficiary or their partner), and
  • granny flat interest.

There are other excluded assets, which Centrelink will be able to determine depending on personal circumstances.

Age Pension Income test

The income test allows for full benefits to be paid where a recipient’s income does not exceed a certain threshold. For singles (from September 20, 2014) this is up to $160 a fortnight, and for couples $284 (for the combined couple). For income above these thresholds, the benefit reduces by 50 cents for each additional dollar of income. Payments reduce to zero at or above the maximum income threshold, which is presently $1,868.60 a fortnight for singles and $2,860.00 for couples.

Q3: I know that to receive Age Pension, I have to be an Australian resident. What exactly constitutes being an Australian resident?

A: To lodge an Age Pension claim, you must be an Australian resident and in Australia on the day that you lodge your claim. To qualify as an Australian resident that can receive Age Pension, you must be living here as:

  • an Australian citizen, or
  • the holder of a permanent resident visa, or
  • a New Zealand citizen who was in Australia on February 26, 2011 or for 12 months in the two years immediately before that date, or was assessed as “protected” before February 26, 2004.

To meet the Age Pension requirements, you also need to fulfil the 10-year qualifying Australian residence requirements, except in special circumstances. This means you have been an Australian resident for a continuous period for at least 10 years, or for a number of periods which total more than 10 years, with one of the periods being at least five years.

Q4: Once I’ve found out that I fulfil all criteria, how do I apply for my Age Pension payment?

A: You should submit your claim to the Department of Human Services (Centrelink) as soon as possible so that you can be paid from the earliest possible date. When lodging your claim you will need to provide details of your income and assets, you partner’s income and assets as well as details of any overseas pension you receive.

You can either claim online by registering for Centrelink’s online services or fill in an Age Pension claim form, which Centrelink can provide.

Once you submit your claim, you will need to provide proof of identity, usually in the form of an Australian birth certificate or authorised extract, a current Australian passport, a citizenship certificate, an Australian visa, a document of identity, a certificate of evidence of resident status or a certificate of identity.

Centrelink will also tell you if there are other verification documents and forms that you need to provide. Centrelink will then send you a letter advising if your claim has been successful or not, which will also outline when your payment will start and how much you will get.

Q5: What are the payment rates?

A: The rates, from September 20, 2014, are as below:

Status Pension rate per fortnight Single $776.70 (plus clean energy supplement, $14.10) Couple $585.50 each (plus clean energy supplement, $10.60)

The next rate adjustment is due in March 2015.

There are additional amounts that may be added to the above, depending on personal circumstances, such as a pension supplement if you are also receiving other support such as a carer payment, bereavement allowance or Austudy. Centrelink can provide more guidance on this, as it will depend on your circumstances.

Q6: Will my payment be adjusted or reviewed?

A: From time to time, your Age Pension payment amount will be reviewed. The amount you receive may be adjusted because your or your partner’s circumstances change. This includes a change in income, accommodation or separation from your partner due to illness.

The Age Pension rate is also adjusted twice a year in line with inflation, usually in March and September. This includes adjustments in line with the Consumer Price Index (CPI), Male Average Weekly Total Earnings, and the Pensioner and Beneficiary Living Cost Index increases. The last is designed to index base pension rates when the cost of living index is higher than the CPI.

Q7: If I am eligible for the Age Pension …

A: You will be paid every fortnight. The Age Pension can include pension supplements to assist with the costs of regular bills such as energy and rates. You will also receive a Pensioner Concession Card to help reduce the costs for medicines under the Pharmaceutical Benefits Scheme. It may also make you eligible for a range of additional concessions. If you are privately renting your accommodation, you may also receive some rent assistance for this cost.

Q8: If I am not eligible for the Age Pension …

If you are deemed ineligible, you always have the right to appeal any decision made by Centrelink. You may still qualify for a Commonwealth Seniors Health Card and this will assist you with the costs of prescription medicines and other health care services. It is not assets tested but an income test applies, which is to be expanded from January 1, 2015, to include superannuation benefits.

The post Age Pension: Do you fit the bill? appeared first on TNR Chartered Accountants Lismore Ballina Accounting, Tax Audit.

Dec 18 2014



Facing A Possible Tax Audit [Podcast]

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Facing a Tax Audit?

The Australian Tax Office (ATO) rarely springs an unexpected tax audit on an individual or business. When you receive a call from the ATO, it may or may not lead to a tax audit. They actively review small business tax returns and activity statements to make sure they are meeting the ATO’s benchmark for that industry.

You’ll most likely be sent a letter stating that the ATO has found something missing from your tax return. If you agree with their assessment, you don’t need to do anything. They’ll send you a notice of amended assessment, and you pay the amount required.

If the ATO finds evidence that you or your business has not met its tax obligations, they may decide to conduct an audit. If this happens, they’ll expect free and full access to buildings, records, premises and documents.

Only confidential documents between you and your barrister, solicitor or professional accountant are excluded. The ATO is not interested in penalising you if you make an honest error. They are looking for businesses with a reckless disregard for the tax rules.

If the ATO informs you they plan to audit your books, you should immediately call for help from a professional accountant. They will make sure that you are aware of your rights and see that the audit is conducted properly according to the relevant tax law and the administrative practices of the ATO in the area.

There are two types of tax audits including audits and reviews.

What Are The ATO Looking For in a Tax Audit?

When the ATO does a tax audit, they are making sure the information you gave was accurate, such as:

• Did you declare all the income you received?
• Are you entitled to all the credits, deductions and tax offsets you claimed?
• Did you correctly withhold and report PAYG (W) amounts?
• Did you correctly calculate and report other tax-related obligations?

Reviews are used to look for inconsistencies or risks about some transactions, industries or activities. At this time, the ATO will help you comply with your tax obligation and give you the opportunity to correct any errors with a voluntary disclosure.

If you do not make a voluntary disclosure, for whatever reason, they may decide to upgrade the review to an audit. They’ll inform you of their decision.

Facing a Tax Audit?

Audits are used to find errors, measure them and correct them.

Audits can be conducted without first doing a review or they can follow a review. Even with an audit, you’ll be given the opportunity to make a voluntary disclosure.

If you have been informed by the ATO that they plan to do an audit, you can make corrections to your tax statement by phone using the correct procedures.

Your best protection from, accidently or on purpose, sending a false tax return is to have a professional accountant either fill out your forms or help you fill them out.

You should always be prepared for an audit. This will take the stress out of taxes.

Some tips for making the tax process easier are:

• Keep all receipts for expenses you plan to claim on your taxes
• Keep the receipts for three and a half years
• Don’t ignore the letter from the Tax Office and hope they will overlook you
• Take a professional tax accountant with you if you go to the Tax Office for an interview or with you in your home
• Never antagonize the auditor. Always be cooperative and polite
• Have your professional tax accountant check the amended assessment when you receive it

Business Audits

Business audits are much more complicated. The main way the ATO examines businesses is by comparing the assets owned by the business owner to the lifestyle with the declared income. If the expenditure is far more than the income, the ATO will consider that tax evasion is probable.

They will request an interview with the owner, which usually takes place on the business premises. They will look at the books for the past five years and ask questions about the business owner’s personal finances and may want to see his or her residence.

In the end, the auditor will tell the business owner what adjustments and penalties are being proposed. The business owner will then, with the help of an accountant, be able to contest the adjustments and give mitigating circumstances to reduce the penalties.

Need some professional advice in relation to a Tax Audit you may need to prepare for? Let the team at TNR help you. Phone (02) 6621 8544 today, or contact us.

The post Facing A Possible Tax Audit [Podcast] appeared first on TNR Chartered Accountants Lismore Ballina Accounting, Tax Audit.

Sep 21 2014