Have you heard of VPTAS?

Many people run a business alongside a job or other income. A small farm, a consulting side hustle, a weekend market stall, a hobby that has grown into something more. In the early years, or in a tough season, that business may well make a loss. A common assumption is that a business loss can simply be offset against your salary or other income to reduce the tax you pay. Sometimes it can. But often it can't, at least not straight away, because of a set of rules in the tax law called the non-commercial loss rules . Here's a plain-English guide to how they work. Who do the rules apply to? The non-commercial loss rules apply to individuals , including individuals who carry on a business in partnership. They don't apply to companies or trusts, which have their own loss rules. They also only apply to business losses. If your activity is a hobby rather than a business, the rules don't come into play, but then the loss isn't deductible at all. Whether an activity is a business depends on things like its size and scale, whether it's run in a commercial way, and whether there is a genuine intention to make a profit. The starting point: losses are deferred The default position is that a loss from a business activity cannot be offset against your other income in the year it arises. Instead, the loss is quarantined and carried forward. It can only be used in a later year against a profit from that same business activity (or a similar one), or in a year when you pass one of the tests below. The good news is the loss is not lost. It's just parked until it can be used. When can you claim the loss now? There are three ways a loss can be claimed against your other income in the year it arises 1. The primary production and professional arts exception If your business is a primary production activity (farming, grazing, cropping, horticulture and so on) or a professional arts activity, and your other income for the year is less than $40,000 , the loss can be claimed immediately. "Other income" here means your assessable income from sources outside the business, ignoring any net capital gain. This exception is a big one for many farming families, particularly where a spouse has a modest off-farm income. 2. Meeting the income requirement and one of the four tests If your adjusted taxable income for the year is less than $250,000 , you can claim the loss provided the business passes at least one of these four tests: • Assessable income test – the business produces assessable income of at least $20,000 in the year. • Profits test – the business made a tax profit in at least three of the past five years, including the current year. • Real property test – real property used in the business (land and buildings, but not your home) is worth at least $500,000. • Other assets test – other assets used in the business (plant, equipment, trading stock, motor vehicles and similar) are worth at least $100,000. Adjusted taxable income is your taxable income before deducting the business loss, plus reportable fringe benefits, reportable super contributions and any total net investment loss. So a high earner with negatively geared property may find themselves over the $250,000 line even if their taxable income looks lower. If your adjusted taxable income is $250,000 or more, the four tests are not available. You will need the Commissioner's discretion. 3. The Commissioner's discretion If you can't use the exception or the tests, you can apply to the ATO to exercise its discretion to let you claim the loss. There are two main grounds: • Special circumstances – something outside your control, such as drought, flood, bushfire or a serious illness, stopped the business from meeting a test in that year. • Lead time – the nature of the business means there is an inherent period before it can be expected to make a profit or pass a test. Think of a new vineyard, an orchard, or a cattle breeding program. You will need objective evidence, such as industry data or an independent business plan, that the activity is expected to become commercially viable within the accepted period for that industry. The discretion is applied year by year and must be applied for. It's not automatic. A worked example Sarah works as a nurse earning $95,000 a year. She and her husband also run a small beef cattle operation on 40 hectares they bought two years ago. This year the farm made a $30,000 loss, sold $12,000 of cattle, and the land is valued at $650,000. • Sarah's other income is above $40,000, so the primary production exception doesn't help her. • Her adjusted taxable income is under $250,000, so the four tests are available. • Sales of $12,000 don't meet the $20,000 assessable income test, and the farm hasn't yet been profitable, so the profits test fails. • But the land is worth more than $500,000, so the real property test is passed . Sarah can claim her share of the farm loss against her nursing income this year. If Sarah had instead been running the farm on leased land with $60,000 of plant and equipment, none of the tests would be met and her share of the loss would be deferred, unless she could make a case for the Commissioner's discretion. Practical tips • Keep good records. Valuations, asset registers and sales records are what let you demonstrate a test has been met. • Plan ahead. If you are close to a threshold, timing of sales or asset purchases can matter. • Don't forget deferred losses. They are tracked at the individual activity level and need to be recorded each year so they can be used later. • Get advice early on a new venture. If you are setting up something with a long lead time, an independent business plan prepared at the outset makes a discretion application far stronger down the track. The bottom line A business loss is not always an immediate tax deduction. Whether you can use it this year depends on the type of business, your other income, and the size and performance of the activity. Understanding where you sit against these rules before the end of the financial year gives you the best chance of a good outcome. If you are running a business at a loss and want to know how the rules apply to your situation, get in touch with our team.  This article is general information only and does not take into account your personal circumstances. Please seek advice specific to your situation.

Family trusts have long been a popular structure for Australian families and businesses due to their flexibility, asset protection benefits and succession planning advantages. The Federal Government has proposed introducing a minimum 30% tax on discretionary (family) trust income from 1 July 2028 . The aim is to reduce income-splitting opportunities and better align trust taxation with the tax paid by employees. While some trusts & types of income would be exempt (including primary production income & testamentary trusts), the proposal could affect family groups that regularly use trusts to distribute income, particularly where corporate beneficiaries are involved. Under the proposed rules, distributions to companies may not receive a credit for tax already paid by the trust, potentially leading to higher overall tax outcomes. The Government has also proposed a three-year window from 1 July 2027 to allow affected groups to restructure into alternative entities, such as companies or fixed trusts, without immediate tax consequences. However, restructures can involve significant legal, financial and administrative considerations. Importantly, these changes are not yet law . The proposal is currently undergoing consultation, and the final legislation may differ from the announcement. For now, there is no need to rush into major structural changes. Family trusts will continue to offer important benefits beyond tax, including asset protection and succession planning. However, if your business or investment structure includes a discretionary trust, it would be worthwhile to understand how the proposed changes could affect you. If you'd like to discuss your specific circumstances, please contact our team.

You will likely pay tax twice in your first year. Don't stress, you're not being taxed twice on the same income. Here's what's happening. When you're self-employed, tax is generally not automatically withheld from your income like it is for employees receiving wages or salaries.  When you lodge your first tax return, the ATO may ask you to pay: The tax owing for the financial year that has just ended; and An advance payment towards the tax you'll likely owe in the current financial year. This is called ‘PAYG Instalments’. PAYG Instalments are advance payments made throughout the year towards your expected tax bill. This helps spread your tax payments over time rather than receiving one large bill at tax time. For a more detailed explanation, read our blog article: Understanding (PAYG) Pay as you Go Instalments . Generally, you'll only be placed on the PAYG Instalment system if your tax bill exceeds $1,000. Paid too much or not enough? PAYG Instalments are only estimates based on your previous income, so the final amount may differ from your actual tax liability. If your PAYG Instalments are more than your final tax bill, you'll receive a tax refund from the ATO. If your PAYG Instalments are less than your final tax bill, you'll simply pay the difference. Our tip Many new business owners are surprised by their first tax bill because they haven't set money aside for tax. A good habit is to regularly transfer a portion of your business income into a separate savings account, so funds are available when tax time arrives.

Selling or closing a business involves more than simply stopping work or making your final sale. Before you finish up, you need to properly deal with the business’s tax obligations, registrations, employees, assets, debts and legal affairs. The exact process will depend on what entity you operate in.  Steps that generally apply to every business Following is a list of tasks that need to be ticked off for most ceasing business: prepare final invoices and collect outstanding customer debts; pay suppliers, loans and other liabilities; deal with remaining stock, equipment, vehicles and other business assets; terminate or transfer leases, contracts, licences and insurance policies; make final employee payments, including wages, leave entitlements and superannuation; finalise Single Touch Payroll reporting and PAYG withholding obligations; lodge any outstanding business activity statements, tax returns, fringe benefits tax returns and taxable payments annual reports; and retain relevant business and tax records, generally for at least five years. Selling, transferring or personally retaining business assets may have GST, capital gains tax, depreciation and other tax consequences. These issues should be reviewed before assets are distributed or registrations are cancelled. Sole traders A sole trader normally reports the final business income, expenses and asset disposals in their individual income tax return. If you are permanently closing all business activities, your GST, PAYG withholding and other registrations may need to be cancelled, followed by your Australian Business Number. If you are only closing one activity but intend to continue operating another business as a sole trader, you may be able to retain your existing ABN and update the business details instead. Remember to cancel any business names, permits or industry licences that are no longer required. Partnerships A partnership will need to prepare final accounts and lodge a final partnership tax return. Each partner must then include their share of the partnership’s final income, deductions and capital gains in their own tax return. The partners should review the partnership agreement and document how the partnership will be dissolved. This may include a written dissolution agreement covering: the closure date; responsibility for outstanding debts; the collection of unpaid accounts; the sale or distribution of assets; and the division of remaining funds. State or Territory partnership laws may impose additional requirements. Legal advice should be obtained to ensure the partnership is properly dissolved and the partners are protected from future liabilities. Trusts Closing a trust usually requires more than lodging a final tax return. A legal process called ‘Vesting’ is the formal process for closing down a trust. This needs to be done by a legal professional. The trustee should review the trust deed, settle liabilities, deal with loans and distribute all remaining trust property in accordance with the deed. Trustee resolutions, asset valuations and distribution records should be prepared and retained. Transferring assets directly to beneficiaries or unitholders can result in capital gains tax, GST or stamp duty consequences, even where no cash changes hands. Do not distribute trust assets without first obtaining appropriate tax and legal advice! Once the trust has been fully wound up, a final trust tax return should be lodged. Beneficiaries must also report their share of the trust’s final income and capital gains. Companies A company continues to exist until it is formally deregistered or wound up. Merely ceasing to trade does not end its obligations. Until deregistration, the company must generally continue meeting ASIC requirements, including paying annual review fees, updating company details and passing required solvency resolutions. Voluntary deregistration may be available where all shareholders agree, the company is no longer conducting business, its assets are worth less than $1,000, it has no outstanding liabilities or legal proceedings, and all ASIC fees and penalties have been paid. All outstanding tax lodgments should be completed before deregistration. Once ASIC deregisters a company, it ceases to exist and can no longer lodge forms with the ATO. Company assets should also be transferred or disposed of before deregistration. Assets left in the company may vest in ASIC or the Commonwealth after deregistration. Where a company cannot pay its debts, directors should seek immediate advice from a registered liquidator and lawyer rather than applying for voluntary deregistration. Plan before you close The order in which you sell assets, pay liabilities, make distributions and cancel registrations can significantly affect the outcome. Speak with us early so we can assist with the tax and reporting requirements and coordinate with your lawyer or financial adviser where necessary. Important: This article provides general tax information only. It does not constitute legal or financial advice and does not take into account your individual circumstances. We are registered tax agents and can advise on taxation matters within the scope of our engagement. You should obtain advice from an appropriately qualified lawyer regarding legal documents, dissolution, deregistration, insolvency and other legal obligations, and from a licensed financial adviser where financial product advice is required.