Resident tax expert Adrian Raftery, aka ‘Mr Taxman’, answers readers’ most pressing trading tax questions.

Q: I have recently given up working, so trading is my only form of income. Is it possible to offset trading losses over the past eight years against any future profits before paying tax? Also, would it be advisable to set up a Hybrid Trust to distribute funds to beneficiaries?

A: Assuming that they haven’t been used previously, your prior year’s trading losses could be offset against your current year’s trading profit. However, sometimes it is possible to offset your losses against other assessable income in the year that the losses were incurred. For individuals and partnerships that incur a net loss from a business activity the non-commercial loss rules apply. These rules determine whether you can use your business loss to offset income from other sources such as salary and wages, interest and dividends.
Each year a business makes a net loss, the owner must consider whether he or she can claim the loss in the current tax return or whether they must defer the loss until future profits are made. The non-commercial losses limit the ability of taxpayers to offset business losses against other assessable income unless assessable income generated by the business is at least $20,000 (assessable income test), or the business shows a profit for at least three out of the last five years (profits test)...

Excerpted from an article originally published in the Nov/Dec 2011 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2011, Your Media Edge Pty Ltd.
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