Private ruling: Business losses
Published: August 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you choose to defer your business losses to a later financial year where they can be utilised in the current year? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - section 35-10 Income Tax Assessment Act 1997 - Division 36

Reasons for decision: Summary: Individuals, both those in business (sole traders and partners) and those not in business, can generally carry forward a tax loss indefinitely, but must utilise a tax loss at the first opportunity. That is, if your income in the current income year exceeds your current year's deductions, you must offset any losses against your current year's income. You cannot choose to hold onto losses to offset them against future income if they can be offset against the current year's income. In some circumstances, individuals must treat losses from business activities separately from income and deductions from non-business activities (such as salary and wages and investments). For the 2009-10 and later income years, you can only offset a loss from a business activity you carry on as an individual (either as a sole trader or in partnership) against assessable income from other sources if at least one of the following conditions apply: · your business is a primary production or professional arts business and your income from other sources is less than $40,000 for the income year (excluding any net capital gains) · your income for non-commercial loss purposes is less than $250,000 and your business activity passes at least one of four tests - profits test, assessable income test, other assets test, real property test · the Commissioner of Taxation has exercised his discretion to allow you to claim the loss, or · the loss is solely due to a deduction claimed under the small business or general business tax break. In your case, you have losses from a business carried on as a sole trader. Your business activities have passed at least one of the four non-commercial loss tests. Therefore, your business losses for the 2010-11 financial year are not deferred under the non-commercial loss provisions in Division 35 of the ITAA and must be offset, where possible, against any other income received in that financial year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | During the 2010-11 financial year, you were ill for a period of time and received Centrelink payments and a superannuation lump sum. | You returned to work after approximately three months. | As a result of your illness, your business activity produced a loss for the 2010-11 financial year but did satisfy at least one of the non-commercial tests in section 35-10 of the Income Tax Assessment Act 1997 (ITAA 1997). | You do not wish to utilise the loss in the 2010-11 financial year, but instead want to carry it forward to a later income year.