Non Commercial Losses: other assets test - assets that have been pooled under the Simplified Tax System (STS)

Can an STS taxpayer who has depreciating assets allocated to their STS pools under Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997) include the value of these assets when determining whether the 'Other assets test' in section 35-45 of the ITAA 1997 is satisfied?

No. Assets allocated to STS pools under Subdivision 328-D of the ITAA 1997 cannot be included in the value of assets for the purposes of the Other assets test, because item 1 of the table in subsection 35-45(2) of the ITAA 1997 only allows for assets whose decline in values can be deducted under Division 40 of the ITAA 1997.

For the 2001-02 income year an individual taxpayer chose to become an STS taxpayer. Their depreciating assets were all allocated to a general STS pool. The closing pool balance for this pool was greater than $100,000 at the end of the income year. The assets were used on a continuing basis in carrying on a business activity.

In the 2001-02 income year the taxpayer incurred a business 'loss', that is, the otherwise allowable deductions attributable to their business activity exceeded the assessable income from this activity.

None of the taxpayer's deductions for their depreciating assets were calculated under Division 40 of the ITAA 1997.

Where an individual taxpayer has incurred a non-commercial business loss from a business activity, Division 35 of the ITAA 1997 will apply to defer the loss, unless: • their business activity satisfies one of the four tests in Division 35 • the Commissioner has exercised the discretion in section 35-55 for the activity, or • the individual comes within the Exception to Division 35, contained in subsection 35-10(4).

(refer to subsection 35-10(1))

One of the four tests is the 'Other assets test' in section 35-45 of the ITAA 1997, which provides that the loss deferral rule in section 35-10 will not apply for an income year where the individual uses certain other assets, on a continuing basis in their business activity, with a total value of at least $100,000.

The specific assets and values to be attributed to these assets for inclusion in this test are described in subsection 35-45(2) of the ITAA 1997. One of the class of assets that can be taken into account for the Other assets test is an asset whose decline in value can be deducted under Division 40 of the ITAA 1997 (item 1, subsection 35-45(2)).

For the STS taxpayer in this case, there are no assets for which deductions are calculated under Division 40 of the ITAA 1997.

All their assets were allocated to an STS pool under Subdivision 328-D of the ITAA 1997. Hence, the taxpayer cannot include the value of these assets in determining whether the 'Other assets test' in section 35-45 of the ITAA 1997 is satisfied, even though the closing pool balance for the 2001-02 income year is greater than $100,000.