Any business can make a loss. You generally make a tax loss when the total deductions you can claim for an income year exceed the total of your income for the year. Your income includes both assessable and net exempt income.
There are a few options when claiming a tax loss. You may be able to claim the loss in the current year, carry it forward and claim it in a future year, or carry it back.
If you’re a sole trader or in a partnership, you may also make a non-commercial business loss, which is a loss you incur from a business activity that’s not related to your primary source of income (such as a hobby or lifestyle benefit). It’s unlikely to make a profit and doesn’t have a significant commercial purpose. Similar to tax loss, a non-commercial business loss is made when your business activity deductions exceed the total of your income from that business activity.
Generally, you can’t offset a non-commercial business loss against your other income – you usually need to defer the loss until the activity that generated the loss makes a profit.
A loss from using temporary full expensing means you need to defer a non-commercial loss. Using temporary full expensing is not a special circumstance to request the Commissioner’s discretion that would let you offset the loss against other income in the same income year.
If you’ve been affected by flood, bushfire, or COVID-19 and made a non-commercial loss in the past few years, you may be able to offset it without applying for a private ruling to seek the Commissioner’s discretion. You can find out more in our recently finalised practical compliance guideline.
Remember, registered tax and BAS agents can help you with your tax.
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