Offsetting Business Losses In The Current Year – Sole Trader

Offsetting Business Losses In The Current Year | Accountants Bayswater | TAS

Sole Trader Taxes: Offseting Business Losses In Current Financial Year

A non-commercial business loss is a loss you incur, either as a sole trader or in partnership, from a business activity unrelated to your primary source of income. This type of business activity could be a hobby or lifestyle benefit.

For sole traders, you need to consider the following non-commercial loss rules to determine if your loss can be deferred or offset:

Are You In Business?

Your activity must be ‘in business to claim a loss, determined by if it has commenced business activity.

Similar Business Activities

If you carry on multiple business activities and are similar, you may group them when considering the non-commercial loss rules. If you are running multiple business activities that are not similar, you must apply the non-commercial loss rules separately to each activity.

Excepted Activity

Suppose your loss-making business is in primary production or professional arts (the ATO calls these ‘excepted business activities’). Your assessable income from other sources is less than $40,000 (excluding any net capital gain). In that case, you can offset your losses from your other income.

Less Than $250,000 Income Requirement

The total of your taxable income, reportable fringe benefits, reportable super contributions and total net investment losses must be less than $250,000 for you to be eligible to offset your losses in the current year.

Pass The Four Tests

If you meet the income requirement and pass any of the four tests, you can offset your business losses against your other income in the relevant year. The four tests are.

Offsetting Business Losses In The Current Year | Accountants Bayswater | TAS

Commissioners Discretion

If you do not meet the income requirement or any of the four tests, you can apply for the Commissioner’s discretion to allow the claim. The Commissioner will only exercise the discretion in limited circumstances if:

  • there are special circumstances outside your control that have prevented you from passing one of the four tests, or
  • because of the nature of the business, there is a lead time before your business can pass one of the four tests or make a profit.

Thank you for reading!
Should you have any queries in regards to the above please contact our office on (03) 9728 1448

The TAS Team
3/653 Mountain Highway, Bayswater VIC 3153

Dorothea Farmakis (CPA)


Dorothea, our CPA Qualified Accountant (Registered Tax Agent), has over 25 years experience within international corporate firms in Accountancy, Funds Management and Asset Management for firms such as HSBC, P&O, Lend Lease and more.




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