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Non-commercial losses

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Members-only
Log-in at right to access more information and value-added content, such as:
  • standards to meet to be able to claim
  • changes to non-commercial loss rules
  • article from The Taxpayer journal 'Adjusted taxable income'.
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We all have our off days, and although we'd like our business to stay on the 'black ink' side of the ledger, sometimes making a loss is just the way the cookie crumbles. But help is at hand that could throw a little positive light on making a loss.

A small business person can have more than one source of income; one from a business and another in the form of a salary, for example. If you make a loss from your business activities, you may be able to offset this loss against other income – if you meet certain conditions.

Made a loss? Don't worry ... it could be your next deduction
Under the 'non-commercial loss' rules, sole traders and people in a partnership can deduct business losses from other income if the 'business activity' meets certain criteria (details in the member section).

There is also an income level requirement, which is met if a total of $250,000 is reached by combining the following:
  • taxable income (ignoring any business losses)
  • total reportable fringe benefits
  • reportable superannuation contributions
  • total net investment losses – including financial investment losses and rental property losses.

But if you meet the income requirement and one of the criteria and make a loss from your business efforts, you should have those losses available to offset against another income source.

Losses arising from activities that do not involve the carrying on of a business (perhaps buying and selling shares) are not affected by these provisions.

See also: How the loss carry-back refund works

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