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  • P9 Business loss activity details



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Did you have a loss from a business activity you carried on either as a sole trader or in partnership?

    No, If you are an STS taxpayer, Go to P10 STS depreciating assets.Otherwise, Go to Other business and professional items.

    Yes, Read on.


    You must read all the information in this question and complete Activity 1 and (if necessary) Activity 2 and Activity 3, before you complete item 15 on your tax return (supplementary section).

    You need to know

    Rules relating to non-commercial business losses have applied since 1 July 2000. Under the rules, you can use a 2005-06 loss from a business activity you conduct either as a sole trader or in partnership in calculating your 2005-06 taxable income only if it meets one of these conditions:

    • the exception applies
    • one of the four tests is satisfied
    • if none of the four tests is satisfied, the Commissioner has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.

    You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby if there is no likelihood of profit.


    Keep records of each of the net losses deferred for your separate business activities.

    The exception

    If you operate a primary production business or a professional arts business and your assessable income for 2005-06 (except any net capital gain) from other sources that do not relate to that activity is less than $40,000, you may claim your business loss this year.

    A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work as a performing artist, or as a production associate.

    Note: Your assessable income excludes any GST on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.

    The four tests

    You will not have to defer your loss from your business activity if the activity satisfies at least one of the following four tests:

    • There is at least $20,000 of assessable income from the business activity for this income year.
    • The business activity has produced a profit for tax purposes in three out of the past five years, (including the current year).
    • The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
    • The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.

    Note: Special rules apply for these four tests if you are undertaking a business activity in partnership. See the publication Non-commercial losses: partnerships (NAT 3385-5.2003) or phone the Business Infoline on 13 28 66.

    The Commissioner's discretion

    In limited circumstances, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises, even though none of the four tests is satisfied, provided that either the:

    • business activity has been affected by special circumstances outside the control of the operators of the business - for example, natural disasters - where the activity would have satisfied one of the four tests but for these special circumstances, or
    • business activity, because of its nature, has a lead time and, for this reason, does not satisfy any of the four tests, but there is an objective expectation that it will eventually do so within a period that is commercially viable for the industry concerned. 'Commercial viability' is measured against independent industry standards.

    You must apply in writing for advice on whether the Commissioner will exercise this discretion. To do this, complete the Private ruling form (non-commercial losses).

    For more details about these rules, phone the Business Infoline on 13 28 66.

    Deferring your loss

    If you are unable to claim your loss this year because of these rules, you must defer the loss.

    This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity, or one of a similar kind.

    The deferred loss is a deduction when calculating any net profit or loss from the activity in that future year.

    Whether any overall loss can be taken into account in your calculation of taxable income for that future year will depend on the application of the non-commercial business loss deferral rules in that year.

    If you are unable to claim your loss against other income this year because of these rules, you must defer your loss by showing the amount at item 15 on your tax return (supplementary section). The amount shown at item 15 cannot be used to reduce your 2005-06 taxable income.

    Make sure you complete Activity 1 and Activity 2 and Activity 3 before you complete item 15 on your tax return (supplementary section).

    What you may need

    If you are a partner in a partnership, you will need the following details for each business activity that you, as a partner, were involved in:

    • the amount of assessable income earned by the partnership for the activity
    • the share of partnership assessable income, real property and certain other assets, attributable to partners who are not individuals
    • your share of income or loss from the partnership of the activity.
    Last modified: 01 Sep 2006QC 18499