The exceptions
If you operated or proposed to operate a primary production business or a professional arts business and your unrelated assessable income for 2017–18 (except any net capital gain) from other sources is less than $40,000, you may claim your business loss for 2017–18.
A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
GST excluded
Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.
The income requirement
You must meet the income requirement to continue to access the four tests to offset your loss from a business activity against other assessable income.
If you do not meet the income requirement, you may request the Commissioner to exercise his discretion to allow your loss, see The Commissioner’s discretion.
You will meet the income requirement and have access to the four tests if the total of the following amounts is less than $250,000:
- Taxable income is shown on the Prepare your return screen. Any business losses you are claiming at this section will be ignored when working out taxable income. If you had a taxable loss, use zero for this calculation.
- Total reportable fringe benefits amounts shown on your payment summary and totalled on the Prepare your return screen.
- Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your payment summary and totalled on the Prepare your return screen), plus any deductible personal superannuation contributions shown at Personal super contributions.
- Net investment losses are the total of your financial investment losses and rental properties losses (shown on the Prepare your return screen).
If you do not meet the income requirement, you will have to defer your loss unless the Commissioner has exercised his discretion or ruled that it will be exercised, or you satisfy another exception.
The four tests
You will not have to defer your loss from your business activity if you meet the income requirement and the activity satisfies at least one of the following four tests:
- There is at least $20,000 of assessable income from the business activity for this income year.
- The business activity has produced a profit for tax purposes in three out of the past five years, including the current year.
- The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
- The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.
See also
- Non-commercial losses
- Taxation Ruling TR 2001/14 Income tax: Division 35 – non-commercial business losses
- Partnerships
You can phone 13 28 66.
The Commissioner’s discretion
If you meet the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises. This can occur even if none of the four tests are satisfied, provided either:
- the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not satisfy any of the four tests. However, there is an objective expectation that within a period that is commercially viable for the industry either
- it will satisfy one of the four tests, or
- produce assessable income for an income year greater than the tax deduction attributable to the income for that year. ‘Commercial viability’ is measured against independent industry standards.
If you exceed the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity in more limited circumstances. The Commissioner can exercise his discretion in this instance if:
- the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity was unable to produce a tax profit and would have satisfied one of the four tests but for these special circumstances, or
- the business activity, because of its nature, has a lead time and, for this reason, does not or will not produce assessable income greater than the tax deduction attributable to that income. However, there is an objective expectation that it will do so within a period that is commercially viable for the industry concerned. ‘Commercial viability’ is measured against independent industry standards.
Applying for the Commissioner’s discretion
You must apply in writing for advice on whether the Commissioner will exercise discretion. To do this, complete the Application for a private ruling on the Commissioner’s discretion for non-commercial business losses.
See also
- Commissioner's discretion or phone 13 28 66.