If your business runs at a loss, you may be able to claim your primary production losses immediately against other income if either:
- the exception for primary producers applies, or
- you meet any of the general exemptions that apply under the non-commercial business loss measures.
If your business loss is greater than your other income, you make an overall tax loss.
Exception for primary producers
You can claim your primary production losses immediately against other income if you meet both the following conditions:
- you are a sole trader or a partner in a partnership
- your assessable income from other sources is less than $40,000, excluding any net capital gains.
This is an exception to the non-commercial business loss measures, which generally don't allow businesses to claim deductions for losses incurred in activities that are unrelated to your primary source of income.
Non-commercial losses
Under the non-commercial loss measures you may be able to claim your losses immediately if both:
- you meet the income requirement. Where the sum of your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses is less than $250,000
- your business activity satisfies one of 4 tests.
The 4 tests are:
- Your business produced assessable income of at least $20,000.
- Your business has produced a profit in 3 of the past 5 years (including the current year).
- Your business uses real property or an interest in real property worth at least $500,000 on a continuing basis.
- Your business uses other assets worth at least $100,000 on a continuing basis.
If you don't satisfy the above requirements the Commissioner may exercise his discretion, in certain circumstances, to still allow you to claim your losses immediately.
If the non-commercial loss measures apply, you can't claim your loss in the year it arises. Instead, you must defer it to the next year in which you carry on the business activity or one of a similar kind. You then offset the deferred loss against any profit from the activity in that future year. Whether any remaining loss can be offset against other income for that future year will depend on the operation of the non-commercial loss measures in that year.
Overall tax loss
If your business loss is greater than your net taxable and exempt income from other sources, you make a tax loss.
You can generally carry a tax loss forward and deduct it against your income in future years.