Straight to content

Non-commercial business losses

Back to front page

If you have written off business losses against other income in recent years, you would have had to meet the four ‘deductibility’ tests. However, from July 1, you must first meet an income test.

For the 2010 and later income years, you can only claim your losses against other income if:

1.     One of the exceptions for primary production or professional arts businesses applies.

You are considered to be operating a professional arts business if you are the author of a literary, dramatic, musical or artistic work, or you are a performing artist or a production associate. To meet this requirement your assessable income from sources other than primary production or arts business must be less than $40,000 (excluding net capital gains).


2.     You meet the income requirements.

This means that your total income must be less than $250,000. Your total income is the sum of: your taxable income before deducting business losses; reportable fringe benefits; reportable superannuation contributions above what is required under Superannuation Guarantee provisions; and net investment losses (including financial investment losses and rental property losses).


You meet one of the four deductibility tests.

If your total income other than the loss-making business is less than $250,000 you must meet one of the following four tests.

1.     You had assessable income from the activity of at least $20,000.

2.     You have produced a profit in three out of the last five years, including the current year.

3.     You use real property or an interest in real property worth at least $500,000 in the business on a continuing basis.

4.     You use other assets such as plant and equipment worth at least $100,000 in the business on a continuing basis.


The Commissioner of Taxation has exercised his/her discretion to allow you to claim the loss.


The loss is solely due to a deduction claimed under the small business and general business tax break, discussed further below.

Please note that if you are not involved in a primary production or professional arts business and you did not meet one of the four tests, you cannot claim the loss generated by the business against your other income. Instead, you must carry the loss forward to be claimed against the business when it does become profitable.

It is possible that you might meet the income requirement, but not meet one of the four tests as a result of special circumstances outside of your control. Or perhaps the nature of the activity requires a lead time before the business will meet one of the tests, but there is an objective expectation that it will do so within a commercially viable timeframe. In either of these circumstances the Commissioner of Taxation may exercise his/her discretion to allow you to claim the loss. You must apply to the commissioner for this to be done.

If you are unable to claim a loss in a given year because you have not met the criteria, it must be carried forward and claimed against future profits from that business, but only to the extent of the profit. Note that you are unable to vary your Pay As You Go income tax withholding in anticipation of being able to claim the losses in a future period.

If you have any doubts about how these rules may affect you, please contact your Bongiorno adviser.

Back to front page