If you have a net loss from a business activity you carry on as an individual, either as a sole trader or as a partner in a partnership, the non-commercial loss rules will apply. These rules determine whether you can use your business loss to offset income from other sources.
If you are undertaking a business activity with others, with a view to making a profit, you are likely to be involved in a general law partnership. If you are in this type of partnership, you may be able to claim your loss from the business activity against other income.
If you are merely receiving joint income with another person, you may be considered to be a member of a partnership for tax law purposes, but that does not mean you are carrying on a business.
The non-commercial loss rules apply to individuals carrying on a business activity, either as a sole trader or as a partner in a partnership with other individuals or entities.
If you are a partner in a partnership, you (as an individual) may offset your share of a partnership loss against other income, subject to the non-commercial loss rules.
How the non-commercial losses income requirement and the four tests are applied to an individual partner is outlined below.
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For more information, see Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' partnerships) outlines the different kinds of partnerships.
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For the 2009-10 and later income years, you first need to meet the non-commercial losses income requirement.
The income requirement applies to you as an individual, and considers various sources of income you may have received in the income year.
You meet the income requirement if your income for non-commercial loss purposes is less than $250,000.
Income for non-commercial loss purposes is the sum of your:
- taxable income (ignoring any business losses)
- total reportable fringe benefits
- reportable superannuation contributions
- total net investment losses - including financial investment losses and rental property losses.
If you meet the income requirement, you can use the four tests to work out if you can offset your loss from a partnership against your other income.
Last Modified: Friday, 19 October 2012