More information on non-commercial business losses

The exceptions

If you operated or proposed to operate a primary production business or a professional arts business and your unrelated assessable income for 2018–19 (except any net capital gain) from other sources is less than $40,000, you may claim your business loss for 2018–19.

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 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:

1. There is at least $20,000 of assessable income from the business activity for this income year.
2. The business activity has produced a profit for tax purposes in three out of the past five years, including the current year.
3. 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.
4. 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 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 (shown on the Prepare your return screen) if the loss from this activity is claimed and not added back at this section less any assessable first home super saver (FHSS) amount. If your taxable income is zero or a loss, and the loss from this activity is $250,000 or more, you will need to complete Worksheet 1b. You will need to complete Worksheet 1b for each activity with a loss of $250,000 or more.
• Total reportable fringe benefits amounts (shown on your income statement/payment summary and totalled on the Prepare your return screen).
• Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your income statement/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.

To help you work out if your deductible non-commercial losses are $250,000 or more and your taxable income is zero or a loss, use this worksheet. If you use it, keep the completed worksheet with your records.

Worksheet 1b - Your deductible Non-commercial losses are $250,000 or more and your taxable income is zero or a loss

Row	Calculation element	$
a	Your taxable income or loss – excluding any assessable First home super saver released amount (show a loss as a negative) Including your non-commercial losses that would be deductible if the income requirement test was satisfied.
b	Your total deductible non-commercial losses (show as a positive figure)
c	Add a and b
d	Your losses carried forward from earlier income years shown at Primary production losses carried forward from earlier years and Non-primary production losses carried forward from earlier years in the Deductions, or tax losses of earlier income years section, but not claimed at Losses claimed this income year in the Deductions, or tax losses of earlier income years section.
e	Your gifts or donations shown at Gifts or donations in the Deductions section, that were not allowed as a deduction because they added to or created a tax loss
f	Your personal superannuation contributions shown at Personal super contributions in the Deductions section that were not allowed as a deduction because they added to or created a tax loss
g	Add d, e and f. If the result exceeds the amount at c, write the amount from c.
h	Subtract g from c. The result is your taxable income excluding your non-commercial loss
i	Your total reportable fringe benefits amounts shown on the Prepare return screen
j	Your reportable superannuation contributions shown on the Prepare return screen
k	The sum of your total net investment losses and rental properties losses shown on the Prepare return screen
l	Add h, i, j and k The result is your income for non-commercial loss purposes.

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.

For more information, see Commissioner's discretion or phone 13 28 66.

These myTax 2019 instructions are about deferred non-commercial business losses.