If your business has made tax losses in previous years but you haven't offset all those losses in a current year, you can still carry forward these losses and claim a deduction for them in a later year as long as you meet all the requirements.
Your business structure will affect how you can claim business tax losses from the current year or previous years. If you are:
- a sole trader or an individual partner in a partnership, check if you can offset your current business losses against other income in the same income year under the non-commercial business loss rules (you may also be able to offset business losses carried forward from previous years in the current income year).
- operating your business through a trust, losses must be carried forward by the trust indefinitely until they are offset against future net income (they cannot be distributed to the trust’s beneficiaries)
- operating through a company, you can generally choose the year in which you would like to claim a deduction for a carried forward tax loss.
Remember to consider each tax loss separately if you are looking at more than one tax loss across multiple years.
If you carry forward a prior year business loss to the current year or a future year, make sure you have correctly applied your past business losses before you lodge your tax return. Check that:
- you have accurately reconciled carried forward losses from a prior year to a later year (errors can occur when poor record keeping of losses accumulate)
- you haven't mis-characterised expenses such as capital expenditure and CGT losses as normal business expenses
- if your business is a specific entity, such as a private company, that you have considered the relevant tests linked to same or similar business tests when applying prior year losses to a current year, where the business activity has sufficiently changed.
Find out more:Your business structure will affect how you can claim business tax losses.