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How to offset your losses

If you have exempt income, you generally must reduce your losses by that amount.

Last updated 1 May 2018

If you are eligible to offset your loss in the current year, the current year losses plus the deferred losses from earlier years can be offset against other income in the current year.

With your business loss, you will need to combine all income and deductions from both foreign and Australian sources that are attributable to the same or similar business activity.

There is no restriction on whether you can claim your loss against foreign or Australian components of your income.

Offset order of losses

You do not have to use non-commercial losses in any particular order. Each deferred loss is included in the calculation of any loss from the business activity for the next year so the order is not relevant.

Start of example

Example: Offsetting deferred losses

Martin has a full time job but also runs a mobile pie van at various sporting grounds on the weekend. His net figures are below.




(1) − (2)

Deferred deduction from previous year

Deferred deduction for current year

























In the first year, Martin makes a loss of $1,000 but cannot offset this against his other income because he doesn't meet any of the four tests.

In the second year, Martin makes a loss of $1,500. He cannot offset this loss because none of the four tests are satisfied. He now has a $2,500 deferred loss to carry forward ($1,500 is added to the $1,000 loss from the first year)

In the third year, Martin makes a profit of $1,000. He can offset $1,000 against the deferred loss. Martin now has a deferred loss of $1,500 ($2,500 less $1,000).

The losses will continue to be deferred until either:

  • Martin satisfies one of the four tests and meets the income requirement
  • the Commissioner exercises his discretion to allow the loss.

In year four, Martin meets the income requirement as he has assessable income of $20,000. Martin can deduct the $1,500 deferred loss and the $2,000 loss for year four against his other income for that year.

End of example

Exempt income

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

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