Tax basics for small business

How non-commercial loss rules affect you

You can claim a business loss by offsetting it against your other income only if one of the following applies:

• your business is a primary production business or a professional arts business and you make less than $40,000 (excluding any net capital gains) in an income year from other sources
• your loss was solely due to a deduction claimed under the small business and general business tax break
• we allow you to offset the loss against other income
• you meet the income requirement and pass one of the four tests.

Income requirement

You meet the income requirement if the total of the following amounts is less than $250,000:

• taxable income (ignoring any business losses)
• total reportable fringe benefits
• reportable super contributions
• total net investment losses - including financial investment losses and rental property losses.

Tests

You will be able to offset your loss against other income if your business meets one of the following tests:

• it has assessable income of at least $20,000 in the income year
   
• it has made a profit in three out of the past five years (including the current year)
   
• it uses or has an interest in real property worth at least $500,000, on a continuing basis (this excludes a dwelling and adjacent land)
   
• it uses certain other assets (excluding motor vehicles), worth at least $100,000, on a continuing basis
   
• we allow you to offset the loss because of special or unusual circumstances.

If you do not meet any of these requirements, you cannot offset your business loss against any of your other assessable income for that income year. However, you can defer the loss or carry it forward to future years. If your business makes a profit in a following year, you can offset the deferred loss against the amount of this profit.

For more information, refer to: Guide to non-commercial losses (NAT 73768) Non-commercial losses: Commissioner's discretion (NAT 3386).

Sections within Offsetting your business losses

• Non-commercial loss rules
• How non-commercial loss rules affect you