| 1. |
Many investments have fallen in value over the past year as a result of the global financial crisis. It is expected that many taxpayers will report significant losses in their 2008/09 income tax returns.
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| 2. |
The Tax Office has released a guide as a result of concerns that during the current economic downturn, many taxpayers may be inclined to reduce their tax bills by classifying losses as being revenue losses rather than capital losses.
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| 3. |
Normally, revenue losses can be used to offset other assessable income. Capital losses however, can only be used to offset capital gains made in the same year otherwise they are carried forward to offset capital gains from future periods.
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| 4. |
A revenue loss is a loss arising from carrying on a business for the purpose of earning income. Generally, taxpayers who carry on a business of share trading can recognise revenue losses.
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| 5. |
In contrast, a capital loss is a loss made by someone who holds shares for the purpose of earning income from dividends and similar receipts (i.e. an investor).
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| 6. |
The Tax Office has warned that it will consider the tax treatment of a taxpayers investments in prior years when working out the treatment of the loss in the current year.
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| 7. |
Taxpayers who have sold shares and disclosed the income as capital gains in prior years would be expected to realise a capital loss during the current year.
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| 8. |
Taxpayers who seek to reclassify their activities may be asked to provide evidence that demonstrates a change in the nature of their activities or that they have declared their income incorrectly in the past.
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| 9. |
Click here for a copy of the guide or visit the ATO website at www.ato.gov.au
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