Having a hobby-turned-business but not sure the tax implication of it? Let’s take a look at the story of Sara. Do you run a side business, and really is concerned about ways to save time and maximize the tax refund, well come and talk EndureGo Tax, as one of the most trusted and professional accountant and tax agent in Inner West Sydney and Ashfield, we would be able to help you to improve your tax position and maximize your tax refund, please read on.
In order to cope with the ever rising cost of living, Sara have been working in a full time job while investing her spare time and effort in share trading which is much entertaining and sometimes, profitable. However, she is not sure how to treat it, whether as capital even or normal business.
In this case, Sara should be cautious of the profit made from share trading. Should her hobby turned into business, the income gained from share trading should be subject to tax along with her employment income. And then it is important to consider which side will it be parked, the capital account or income account.
What about Sara is making losses in share trading?.
Even if Sara’s share trading activity has business-like characteristics, if it is unlikely to ever make a profit and doesn’t have a significant commercial purpose or character, Sara can’t offset the losses against her other income. In this case, she can defer the losses until she makes a profit from the business. However, if the loss is from the capital account, then it is only able to offset the loss with future capital gain.
However, Sara may offset the business losses against her other income provided she fulfilled:-
1) The income requirement – where the sum of taxable income, reportable fringe benefits, reportable super contributions and total net investment losses is less than $250,000.
2) One of the four tests (i.e. assessable income test, profit test, real property test and other assets test).
Let’s look back on Sara, if during the year, her employment income is $65,000 and her share trading business made income of $30,000 and loss of $70,000. Since Sara has fulfilled the requirements mentioned above, she is able to offset the net loss of $40,000 against her employment income. Eventually, Sara has only $25,000 taxable income which saves a significant amount of taxes to be paid. However, if Sara wrongly categorized the share trading as capital event, and then the loss would be capital loss, then the loss from the share trading would only be able to offset against the future capital gain.
In EndureGo Tax, as one of the most trusted accountant and tax agent in Ashfield and Sydney, we have a team of professionals equipped with in-depth tax knowledge and experience in dealing with the ATO in areas of personal tax, company tax as well as tax audit. Should you require any assistance in general tax inquiries or taxation advise, and to maximize your tax refund, we can provide the best solutions. Especially if you are having unfortunate occasions with ATO, we can also provide you with our best packs to resolve your problems.
Please give John a call on 0410-829-900 hence he can help you to maximize your tax position.