Income requirement and business tests
To be able to offset a business loss against other income, you and your business need to meet a number of requirements.
Income requirement
Your income for non-commercial loss purposes must be less than $250,000. It includes your:
- taxable income (ignoring any business losses)
- total reportable fringe benefits amount
- reportable superannuation contributions
- total net investment loss.
If you pass the income requirement, you must also meet one of the business activity tests, unless you are covered by an exception to the rules or we exercise our discretion to allow you to offset your loss against other income.
Business tests
If you meet the income requirement, you can offset a loss from a business against your income from other sources if the business passes one of these tests:
- The assessable income test - the business has assessable income of at least $20,000.
- The profits test - the business had a profit for tax purposes in three out of the past five years (including the current year).
- The real property test - the value of real property, or of an interest in real property, that you used in the business on a continuing basis was at least $500,000.
- The other assets test - the value of assets (excluding real property, cars, motor cycles and similar vehicles) you used on a continuing basis in carrying on the business was at least $100,000.
Foreign-source income and expenses
If you have a business loss that includes income and expenses from a foreign source, the non-commercial loss rules will apply to determine whether you can use your business loss to offset income you earn from other sources. If you are able to claim your business loss, there is no restriction on whether you can claim it against foreign or Australian components of your other income.
Before 1 July 2008, if your business expenses from foreign sources exceeded the foreign business income the loss was quarantined from all other income including any Australian income earned from the same or similar business activity. These rules have now been removed.
Partnerships
If your losses arise from a business in which you are a partner, there are further rules to determine whether you can claim those losses against other income.
Similar business activities
If you conduct a number of similar business activities, you may be able to group them when considering whether you meet the requirements that allow you to deduct a loss against other income. This includes income and expenses from both foreign and Australian sources.
Last Modified: Tuesday, 12 July 2011