Business

Can you have a business that doesn't earn the minimum $20k and claim tax deductions?

I'm presuming some start up businesses may lose money the first year or two so may be in this boat

 

Yes. Easiest way is as a sole trader, using your own name as the business name. Just get an ABN online from from Applying for an ABN | ABR . Don't use the proxy sites that come up first in a Google search. If you want a different company name then you apply for it separately and it will cost a few dollars.

Profit in business is not guaranteed so I am wondering about your $20k minimum statement. Depending on what you plan to do in your business then you should work through tax issues like is your income personal services income.

If you think the business is a real long term prospect then consider Company or other structures but they cost money for both registration/annual fees and additional tax costs. Do some reading on the risks and costs associated with each type of structure.

 

A business is not a separate entity and there is no $20k minimum. not sure what you mean here, but are you confusing the tax free threshold?

 

How about this

If your business runs at a loss

The four tests are:

your business produced assessable income of at least $20,000
your business has produced a profit in three of the past five years (including the current year)
your business uses real property or an interest in real property worth at least $500,000 on a continuing basis
your business uses other assets worth at least $100,000 on a continuing basis.

 

A individual resident taxpayer has a tax free theshold that is $18500 but with offsets is actually higher before the first cent of tax would apply. Taxable income is based on all income less allowable deductions. A net loss will need to satisfy a non-commercial loss test in a FUTURE year and will not offset other earned or investment income otherwise. Its also not uncommon that some costs initially may not be deductible.

 

Partner has side business

Tree plantation for fencing/firewood, he cuts them down and delivers, also constructs, repairs wooden post fences using the wood and wire if/as required

 

What the 4 tests do is determine whether any losses are commercial and if so can be deducted from other income. These tests were introduced to stop people keeping a couple of cows on their hobby farm and claiming massive losses incurred by the farm against their off farm income.

 

There is a minimum amount of land and revenue that must be held to claim primary producer status.

 

Thats a state land tax issue to get PP exemption for land use for land tax. TR 97/11 is best read to determine if a business exists rather than a hobby.

Non commercial loss rules are income tax based rules that are intended to stop losses from some activities being used. These losses may defer until a trigger is met and then offset that activities future profits. There is a primary production test which also applies to primary production losses beyond the 4 loss tests noted above. If the income from OTHER sources (eg driving a taxi, teaching or work in retail - common farming examples) is under $40K the PP loss may offset the other income. This test applies prior to the 4 NCL tests above.