Claiming tax losses from previous years
If your business made tax losses in previous years, you can carry forward those losses and claim a deduction for those losses in a later year. If you are a sole trader or individual partner in a partnership, you may also be able to offset the business losses carried forward against other income under the non-commercial business loss rules.
How to claim losses
- If you have tax losses from several previous years, you must claim the entire loss you incurred from the earliest year before you can claim all or part of a tax loss from a later year.
- You can use your tax losses from earlier income years to reduce your Australian income to zero only.
- If your tax losses from earlier income years are more than your Australian income, you must keep a record of the tax losses to claim the extra tax loss amount in a later year.
- You can carry forward most tax losses indefinitely.
Your business structure
Companies can generally choose the year in which they claim a deduction for a carried forward tax loss.
However, if you operate as a sole trader, partnership or trust, you cannot choose the year or years in which you claim a deduction for your prior-year tax losses. Rather, your tax losses are simply carried forward from year to year and applied until they are exhausted.
If you operate your business as a trust and you incur a tax loss, you cannot distribute the loss to the trust’s beneficiaries.
There are special rules that restrict when you can claim a deduction for a tax loss as a trust. We recommend that you seek further advice if you wish to claim this deduction.
End of danger
If you operate your business as a company, you cannot distribute any loss to your shareholders. The company must carry the tax loss forward and offset it against assessable income in a later year.
As a company, you cannot deduct a tax loss unless either of the following applies:
- It has the same owners and the same control throughout the period from the start of the loss year to the end of the income year.
- It carried on the same business throughout a specified period.
As a company, under certain conditions you may be able to:
- choose the amount of a previous year’s tax loss you want to claim
- carry forward to a later year a tax loss you would have incurred in a particular year had you not received income from franked dividends.
Unclaimed foreign losses
Special deduction rules apply to unclaimed foreign losses relating to the income years 1998–99 through to 2007–08.
If your business makes a loss in an income year, you can carry forward that loss and may be able to claim a deduction for it in a future year. The rules differ for different business structures.
- Companies: continuity of ownership, control and same business tests