Thursday, September 11, 2008

Moom's Taxable Income 2007-08

I've used the same format as I used for Snork Maiden's income statement. The main twist here is that I started off trying to treat my derivative trading (options, futures, and CFDs) as a business, which of course made a loss. But it turned out that I would have to defer the loss until my business made an income.


Only if your business passes any of the following criteria, can you deduct a loss for the current year:

1. The business is a primary production or professional arts business and our assessable income for 2007-08 except any net capital gain from other sources us less than $40,000. So poor artists and farmers - go ahead and take a risk - at least your losses will be deductible.

2. There was at least $20,000 of assessable income from the business activity for this income year. I don't get this one. If you made $20k there isn't a loss to deduct?!

3. The business has produced a profit for tax purposes in three out of the past five years including this year.

4. The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000. Make sure you rent a big enough store or office!

5. The value of certain other assets (except various vehicles) used is at least $100,000. Don't worry about over-capitalizing your restaurant :)

6. The taxation commissioner gives you special permission in writing.

These rules are very unfriendly to small start-up businesses. Especially, home-based ones. If your business fails, you may never be able to deduct the losses from income. These rules are intended to stop people claiming tax losses for hobbies. But I feel they go too far in an anti-entrepreneurial direction. Please let me know if you understand how to interpret #2.


So I, instead, attributed the costs I was going to attribute to business to "Australian Interest and Dividend Deductions", which also includes my Australian margin interest. I attributed my net derivative loss to "Other deductions" along with my foreign margin interest. The downside is that as an investor you can't deduct home office occupancy costs, which are deductible to a home-based "business". But I don't when, if ever, I'll make a relevant business profit and so I preferred to be able to deduct the other losses immediately.

As you can see, adding back in the CGT discount for long-term capital gains almost doubles my net income. After subtracting out franking credits which aren't actually received as cash income my income was $16,184 vs a taxable income of $10,662.

It looks like my income is too high for Snork Maiden to be able to claim much of a "Spouse Offset". In retrospect, I should have sold my Croesus Mining shares and claimed a massive capital gains loss that would have wiped out my income for the year.

BTW, I estimate Snork Maiden's tax at 20.6% of net income. She should get a $1,234 refund. Moom's tax rate is negative (-18.7% of the bottom line income number above due to franking credits). He should get a $3,520 refund. After tax cash income was for Moom $19,704 and Snork Maiden $38,658.

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