• Non-commercial losses

    You can't claim a loss for a business that is little more than a hobby or lifestyle choice. Even if it has business-like characteristics, if it is unlikely to ever make a profit and doesn't have a significant commercial purpose or character, you can't offset the loss against your other income. In this case, you can defer the loss until you make a profit from the business. This applies whether your business loss from an Australian or a foreign source.

    You can only claim losses from genuine business activities. You can't offset losses from hobbies or investments.

    See also:

    Who offsets losses and who defers losses

    To assess whether you can offset your business loss from your other income, or you have a non-commercial loss that you defer, complete the steps in the following table. If you are a partner in a partnership, the income and tests are slightly different – see Partnerships.

    Table: Non-commercial losses

    Steps

    Details

    Step 1:Look at your assessable income and other income

    If your loss making business is in primary production or the professional arts this is an 'excepted activity'.

    If your assessable income from other sources is less than $40,000, you can offset your losses from your other income.

    You don't have to go any further.

    If your loss-making business is in something else and the income year is:

    • 2009–10 or later and your other income is    
      • less than $250,000, go to step 2
      • more than $250,000, go to step 3
    • before 2009–10, go to step 2.

     

    Step 2: Check the four tests

    You can offset your losses in the current year if you pass any of the four tests:

    • assessable income test
    • profits test
    • real property test
    • other assets test

    If you don't pass any of the four tests, go to step 3

    Step 3: Commissioner's discretion

    Check if you should apply for a Commissioner's discretion

    Other income

    Your other income is the income you receive, other than from your loss-making business and includes:

    • taxable income (ignoring any business losses)
    • reportable fringe benefits
    • reportable superannuation contributions
    • total net investment loss.

    Next steps:

    See also:

    Last modified: 21 Apr 2017QC 33774