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If you're in business as an individual, either alone or in a partnership, and your business makes a loss you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages.
Passing some or all of the tests does not mean that your activity will constitute a business for tax purposes.
The non-commercial loss rules don't apply to:
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Information about whether your activity is a business, refer to Am I in business?
Income requirement and business tests
You can offset a loss from your business against your other income if you meet the income requirement (broadly, that your income for non-commercial loss purposes is less than $250,000) and your business passes one of these tests: it produces assessable income of at least $20,000, it has produced a profit in three of the past five years (including the current year), it uses real property or an interest in real property worth at least $500,000 on a continuing basis, or it uses other assets worth at least $100,000 on a continuing basis. When you calculate your business income or loss, combine all income and deductions from foreign and Australian sources that are attributable to the same or similar business activity.
Exceptions for artists, primary producers and tax break deductions
You can offset a loss from your business against your other income, and don't need to meet the business tests, if: your business is a primary production or arts business and your other assessable income is less than $40,000, or the loss is solely due to deductions claimed as allowed by the small business and general business tax break in the 2009-10 and 2010-11 income years.
Commissioner's discretion to allow a loss
If you don't meet the income requirement or any of the four business tests, you may apply for a Commissioner's discretion to allow you to claim the loss.
Deferring a non-commercial loss
If you are not able to offset your loss in the current year, you must defer the loss and may be able to offset it in a future year, either by passing one of the tests or making a profit in the business.
Example of deferring and claiming losses
In order to understand the non-commercial loss rules, deferring losses and claiming losses, it is useful to consider an example. This example shows how losses can be claimed and deferred and how they affect taxable income.
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