Exempt income

If you have exempt income, you generally must reduce any other tax losses and non-commercial losses by that amount.

If you have other tax losses (excluding non-commercial losses) these must be reduced by any net exempt income you received during the year first. Any net exempt income remaining after this is then used to reduce your non-commercial loss balance.

If you do not have other tax losses then your exempt income is used to reduce your non-commercial losses. The reduced amount is then deferred to a future income year if it cannot be completely offset against other income.


The accounts of Michael's plumbing business show the following amounts for an income year:

  • assessable income $15,000
  • deductions $20,000.

Michael also has $3,000 in net exempt income from other sources.

His deferred loss is $5,000 ($15,000 - $20,000).

The amount deferred to future years is reduced by the net exempt income amount to $2,000 ($5,000 - $3,000). Therefore, the amount that can be offset in future years against Michael's income from business activities is $2,000.

End of example

In every future year, the balance of the deferred loss is further offset by that year's exempt income, where this exempt income has not already been applied against other 'normal' tax losses.

See also:

Last modified: 05 May 2015QC 45038