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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.

    When and how you can claim the loss, that is, whether you can offset and claim the loss in the current year or need to carry forward the loss and claim a deduction for it in a later year, is affected by your business structure. For example:

    • if you're a sole trader or an individual partner in a partnership, and depending on whether you meet the criteria, 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.
       
    • if you’re a 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 when it’s related to 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.

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    Last modified: 11 Aug 2020QC 33708