Home – New Forums Money matters How does Sole Trader draw money? Reply To: How does Sole Trader draw money?

Trevor Monaghan
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Nitro, I think the Hobby/Business distinction you are referring to is the non-commercial losses tests. If you don’t pass one of the 4 tests for a business then you can’t use the business loss against your taxable income (and hence your FTB) for that year. However that loss carries forward to future years to be offset against future profits from that business.

That is where the $20,000 amount comes from that you originally alluded to. You need to pass any of the following tests to effectively use the loss in the current year:

1) Assessable income less than $20,000 for that tax year;
2) You have made a profit in 3 of the past 5 years;
3) You use real property worth greater than $500,000 in the business; or
4) You use other assets or equipment worth greater than $100,000.

If you can’t pass one of the above tests you have to carry forward the loss unless you apply to the commissioner to use his discretion to let you use the loss. Another thing to note is that if you have income from your other job or investments of greater than $250,000 you generally cannot claim the loss. This stops ‘rich’ people getting deductions for hobbies.

As has been previously stated, none of this has anything to do with drawings you pull from the business as you can never pay yourself a wage as a sole trader.

Trevor Monaghan
Chartered Accountant
Climax Business Strategies