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  • Business losses

    Watch:

    Media: Did you know you can claim a business loss as a deduction?
    http://tv.ato.gov.au/ato-tv/media?v=bi9or7onhipf3pExternal Link (Duration: 01:04)

    If your business makes a tax loss in a current year, you can generally carry forward that loss and claim a deduction for your business in a future year. However, you may be able to offset current year losses if you're a sole trader or an individual partner in a partnership and meet certain conditions.

    You can’t claim a deduction if:

    • it is not a tax loss – for example, there are some deductions you can't use to create or increase a tax loss, such as donations or gifts and personal super contributions
    • the loss is related to illegal business activities.

    Your business structure affects whether you:

    • can offset and claim the loss in the current year
    • need to carry forward the loss and claim a deduction for it in a later year.

    For example, if you are a:

    • sole trader or an individual partner in a partnership – you may be able to either  
      • offset your business losses against other types of assessable income for the same income year
      • defer the loss or carry it forward and offset it when you next make a profit
       
    • company – you may be able to carry forward a tax loss for as long as you want and choose the year you want to claim the deduction.

    If your business has made more than one tax loss in a year you will need to consider each tax loss separately.

    The rules for record keeping still apply for business losses. You need to keep records for five years for most transactions. However, if you fully deduct a tax loss in a single income year, you only need to keep records for four years from that income year.

    See our definitions for explanations of tax and super terms.

    Loss carry back tax offset

    If you are an eligible corporate entity and made a tax loss in the 2019–20, 2020–21 or 2021–22 income years, you may be able to carry back your tax loss and claim a refundable tax offset in your 2020–21 and 2021–22 company tax returns. This is an alternative to carrying the tax loss forward to a future year.

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    Last modified: 14 Dec 2020QC 33708