Frank is a lawyer in the city who has an adjusted taxable income of $290,000 a year. His wife Margaret is an office manager with an income of $39,000. They run a beef cattle farming operation in partnership which is currently running at a loss of $30,000 a year. The value of the land where they operate their farming business is $600,000. They are trying to work out whether they can claim their farming losses against their employment income.
Items to consider
Provided adjusted taxable income is less than $250,000, one of the four following tests must also be passed in order to offset business losses:
- Land value for business operations being over $500,000;
- Gross sales turnover more than $20,000 p.a.;
- Profit in three of the last five years including the current year;
- Other business assets with a value over $100,000
Margaret is able to offset her 50% of the farming losses reducing her taxable income to $24,000, as her income from other sources is less than $40,000. However Frank is over the $250,000 threshold and therefore he has to carry forward his share of the farming losses until a year in which his income is less than the threshold.