When you run a business the tax laws impact on you in a number ways. In addition to determining what expenses you can claim, the tax regulations also dictate when you can claim business losses against other income.
Q. I have started a small business that hasn't been doing very well. I have only earned $45. I fill in GST statements every three months and have noted the income there. Do I still need to claim the $45 on tax and if so how? I already completed my individual tax return and am panicking that I did something wrong. If I did do it wrong is there any way to fix this?
A. If you have already lodged your 2012 income tax return and not declared the $45 in income earned you don't have to worry. As you are registered for GST the actual income you earned, after taking account of the GST collected and paid to the ATO, was only $41.
I am sure in earning this income there must have been expenses you paid as part of setting up and running the business. These could include:
• Business name fees
• Stock and materials
• Accounting fees
• Motor vehicle expenses
You should have claimed the GST included in these costs on the BAS returns you have lodged. With only having earned $41 in income it is highly likely that will have made a loss from your business activities.
If this is the case you will not have done anything wrong by not declaring the loss on the tax return you lodged. This is because you could not claim the loss against your other taxable income due to the non-commercial loss rules.
There are a series of tests that must be passed before a person can claim business losses against their other income. The tests are having:
• Business income of greater than $20,000 a year, or
• Made a profit in the three of the preceding five years, or
• Business assets of more than $100,000 in value, or
• Land used by the business with a value of more than $500,000
From what you have said you will not have passed any of these tests. This means any loss you made must be carried forward to a year when you pass the tests. This means by not including the loss you have not really done anything wrong.
If you had no costs at all in producing your business income then by not declaring the income you would theoretically be in breach of tax regulations. In a practical sense the ATO would not be too concerned by this oversight.
If you are still worried about not declaring the income you can lodge an amended tax return that shows the business income on the section that deals with business items. Most taxpayers have the ability to amend their tax returns for up to two years from the date of the original notice of assessment.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org
Tax for small business, a survival guide, by Max Newnham is available in bookstores and as an ebook.