• Non-commercial losses: deferral of losses

    If you are not able to deduct your business activity loss in the current year because of the non-commercial loss rules, you will need to defer your loss for use in a later year.


    Changes to the operation of the non-commercial loss rules apply from 2009-10 onwards.

    The key changes include:

    • the introduction of an income requirement to limit the circumstances when a business loss can offset other income - to meet the income requirement, your income for non-commercial loss purposes must be less than $250,000
    • a new exception for business losses caused solely by deductions claimed for the small business and general business tax break
    • a new Commissioner's discretion for individuals who do not meet the income requirement but whose business activity is subject to a lead time
    • ensuring existing Commissioner's discretions continue to apply.
    End of attention
    Further Information

    For more information see Guide to non-commercial losses.

    End of further information

    Deferring losses indefinitely

    There is no time limit on how long your losses can be deferred.

    Your loss can be deferred indefinitely, until one of the following applies:

    • there is a profit from your business activity, in which case the deferred loss can be offset to the extent of the profit from the business activity
    • from 2009-10 onwards you meet the income requirement and you satisfy one of the following tests
      • the assessable income test
      • the profits test
      • the real property test
      • the other assets test
    • you are eligible for one of the following exceptions
      • you have a primary production or professional arts business and your income from other sources (excluding capital gains) is less than $40,000
      • the Commissioner exercises his discretion to offset the loss
      • the loss is solely due to a deduction claimed under the small business and general business tax break (for the 2009-10 and 2010-11 income years only).

    If your business activity meets any of the above exceptions, the deferred loss can be offset against income from other sources.

    Offsetting losses

    If you are eligible to offset your loss in the current year, the current year losses plus the deferred losses from earlier years can be offset against other income in the current year (as per subsection 35-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

    For example, assume the following figures are for the Christmas tree farming business run by Iain:




    (1) - (2)

    Deferred deduction from previous year

    Deferred deduction for current year

























    In the first three years, none of the tests are satisfied and Iain does not meet the primary production exception. The losses cannot be deducted in those income years. The losses will continue to be deferred for consideration in the next income year that the activity is carried on.

    The losses will continue to be deferred until either:

    • Iain satisfies one of the tests (and from 2009-10 also meets the income requirement)
    • Iain has income from other sources (excluding capital gains) of less than $40,000 (primary production business exception)
    • the Commissioner exercises his discretion to allow the loss.

    In year four, Iain receives investment income of $45,000, so he does not qualify for the primary producer's exception. As Iain will meet the income requirement and he has assessable income of $20,000, he will be able to use the assessable income test to offset his business losses. The $1,500 deferred deduction and the $2,000 loss for year four are deductible against Iain's other income in that year.

    Exempt income

    If you have exempt income, you generally must reduce a non-commercial loss by that amount.

    If you have other normal tax losses, any net exempt income must first be applied against these losses. You then reduce your non-commercial loss by any net exempt income remaining after this.

    A similar treatment applies to non-commercial losses being deferred. The loss is reduced by your net exempt income. It is this reduced amount that is deferred to a future income year.


    The accounts of Michael's plumbing business show the following amounts for an income year:

    • assessable income $15,000
    • deductions $20,000.

    Michael also has $3,000 in net exempt income from other sources.

    His deferred loss is $5,000 ($15,000 - $20,000).

    The amount deferred to future years is reduced (by the net exempt income amount) to $2,000 ($5,000 - $3,000). Therefore, the amount that can be offset in future years against Michael's income from business activities is $2,000.


    In every future year, the balance of the deferred loss is further offset by any current year exempt income, where this exempt income has not already been applied against other 'normal' tax losses.

    End of attention

    Offset order of non-commercial losses

    Non-commercial losses do not have to be offset in any particular order. Each deferred loss is effectively included in the calculation of any loss from the activity for the next year that the activity is carried on, so the order is not relevant.

    More information

    Further Information

    Guide to non-commercial losses

    End of further information
      Last modified: 14 Sep 2016QC 16388