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How to defer your losses

How deferring deduct your business activity loss in the current year because of the non-commercial loss rules works.

Last updated 1 May 2018

If you can't deduct your business activity loss in the current year, 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 requirements set out for Non-commercial losses
  • the Commissioner has exercised the discretion to allow you to claim the loss.

Defer 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 requirements set out for Non-commercial losses
  • the Commissioner exercises his discretion to offset the loss.

Reducing for any net exempt income

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.

Start of example


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.

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