Deferring losses

If you are not able to deduct your business activity loss in the current year because you don't pass any of the non-commercial loss rules, you can defer your loss for use in a later year.

If your business makes a profit in a following year, you can offset some or all of the deferred loss against this profit, up to the amount of your profit.

You can also claim the deferred loss against other income in a following year if during that year:

  • you meet the income requirement and the business passes one of the four tests
  • the Commissioner has exercised the discretion to allow you to claim the loss.

Deferring losses indefinitely

There is no time limit on how long you can defer your losses.

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
  • 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

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

Offsetting deferred 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.

Example: Offsetting deferred losses

Martin has a full time job but also runs a mobile pie van at various sporting grounds on the weekend. His net figures are below.




(1) - (2)

Deferred deduction from previous year

Deferred deduction for current year

























In the first year Martin makes a loss of $1,000 but cannot offset this against his other income because he doesn't meet any of the 4 tests.

In the second year Martin makes a loss of $1,500. He cannot offset this loss because none of the four tests are satisfied. He now has a $2,500 deferred loss to carry forward ($1,500 is added to the $1,000 loss from the first year)

In the third year Martin makes a profit of $1,000. He can offset $1,000 against the deferred loss. Martin now has a deferred loss of $1,500 ($2,500 less $1,000).

The losses will continue to be deferred until either:

  • Martin satisfies one of the four (4) tests and meets the income requirement
  • the Commissioner exercises his discretion to allow the loss.

In year four, Martin meets the income requirement as he has assessable income of $20,000. Martin can deduct the $1,500 deferred loss and the $2,000 loss for year four against his other income for that year.

End of example

Offset order of losses

You do not have to use non-commercial losses in any particular order. Each deferred loss is included in the calculation of any loss from the business activity for the next year so the order is not relevant.

Last modified: 05 May 2015QC 33768