New Commercial Business Losses - Quarantining of Losses for High Net Worth Individuals

The Government will tighten the application of the rules on the use of non-commercial losses to prevent high income individuals from offsetting excess deductions from non-commercial business activities against salary and other income.  This measure will have effect from the 2009/10 income year.  
From 1 July 2009, taxpayers with an adjusted taxable income of over $250,000 will no longer be able to use excess deductions from unprofitable business activities to reduce their salary and wages and other income even if they pass the current non-commercial business loss tests.  Instead, excess deductions from non-commercial business activities will be quarantined to the business activity. The existing rules will continue to apply to taxpayers with an adjusted taxable income of $250,000 or less.

Taxpayers will still be able to apply to the Commissioner of Taxation for relief from the rules if there are exceptional circumstances or because the nature of the activities means that a taxpayer is temporarily carrying on an uncommercial business but the activities they are undertaking are nonetheless independently assessed as commercially viable.

This announcement forms part of the measures designed to improve the "fairness and integrity of the tax system" by closing tax loopholes that allow predominantly high wealth individuals to exploit parts of the tax system to unfairly minimise or avoid tax.  The Government considers that many of these non-commercial business activities are merely hobbies or lifestyle choices, and even those that have business-like characteristics are often unlikely to ever make a profit and do not have a significant commercial purpose or character.