In the 2009-10 Budget, the Government announced a measure to alter the application of non-commercial loss rules in relation to high-income earners. The then Prime Minister granted an exceptional circumstance exemption from preparing a Regulation Impact Statement for the measure. Consequently, a Post‑implementation Review was required to commence within one to two years of the implementation of changes to the rules. Non-commercial loss rules were first introduced in 2000. These rules require that losses from a business be quarantined to the business activity and not be offset against other income. That is, the losses must be carried over and offset against future income from the business activity. However, there are exemptions that allow a taxpayer to apply the losses to their other income if they satisfy at least one of four objective tests (or if the Commissioner of Taxation exercises discretion). The changes introduced in the 2009-10 Budget tightened the exemptions for taxpayers earning over $250,000. Since the changes, taxpayers earning over $250,000 are no longer able to offset deductions from non-commercial activities against their salary or other income, but instead have excess deductions quarantined to the loss-making business activity. However, taxpayers may apply to the Commissioner of Taxation for relief from the rules if they have their business independently assessed as genuinely commercial or there are exceptional circumstances. The PIR found that the measure has little impact on businesses as it does not affect the business activities or the regulation of those activities; it only relates to how any losses occurring are treated for tax purposes when distributed to individuals. The PIR found that there may be some compliance costs impacts for taxpayers, as part of their normal tax return process, as they undertake a review of their tax arrangements as a result of the closing of the tax concession. The PIR also found that there may be a low compliance cost impact for tax agents in learning the new rules, little impact on taxpayers who operate commercial businesses, and a small impact in some industries as a result of high-income taxpayers changing their investment choices as a result of the removal of the tax concession. The PIR concludes that it is considered that the measure is meeting its objectives and having only a minor impact on business or community organisations. The Post-implementation Review prepared by the Department of the Treasury was assessed as adequate by the Office of Best Practice Regulation.
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