Your business incurs a tax loss when the total deductions claimed for a financial year are greater than your assessable income and net exempt income for that same year.
If this happens, you may be able to carry forward the loss and claim it as a deduction in future years, as long as you meet the necessary requirements.
It’s important to note that your business structure impacts how you handle these losses. Depending on the structure, you may be able to either claim the loss in the current year or carry it forward for future use.
- Sole Traders and Partnerships: If you’re a sole trader or an individual partner, you might be able to offset your business losses against other types of assessable income in the same financial year. Alternatively, you could defer the loss and carry it forward to offset future profits.
- Companies: If you operate a company, you can generally carry forward the tax loss indefinitely and choose which income year to claim the deduction.
Non-Commercial Losses
A non-commercial business loss occurs when a business activity, either as a sole trader or in a partnership, generates a loss, and that activity is not your primary source of income.
The business activity must have business-like characteristics and a genuine commercial purpose. Losses from such activities typically can’t be used to offset other assessable income in the year the loss occurs, unless specific exceptions apply or you’ve made a profit.
For more guidance, explore the Essentials to strengthen your small business platform, which offers a self-paced course on non-commercial losses. If you need additional assistance, you can always consult with a registered tax professional like MT Corporate Advisory.