In this blog post, you will come to know how you could offset your business loss against other income in case you are a sole trader or in a partnership. Now, let’s start with non-commercial losses.

What are Non-Commercial Losses?

A non-commercial business loss is a loss you face, either as a sole trader or in a partnership, from a business activity that is not associated with your main source of income. The business activity must have business-like features and a commercial purpose. The losses from a non-commercial business activity can’t be offset against other assessable income in the year in which you incurred the loss unless an exception applies or the profit is made.

If in a current year, you can’t deduct your business activity loss, you can defer the loss until you gain a profit from the business activity. It applies whether your business loss is incurred from an Australian or a foreign source.

Offset or Defer the Loss

If you are an individual in business, either as in a partnership or a sole trader, and your business activity results in a loss, check out if you need to:

  • claim and offset the loss against your other income, such as wages and salary
  • defer the loss and claim it later if you don’t pass the non-commercial loss rules.

Deferred Non Commercial Losses

If you are not allowed to deduct your business activity loss in the current year, you may be able to defer your loss for use in a later year. If your business gets profit in the following year you may be able to offset some or all of the deferred non-commercial losses against this profit, and it will be up to the amount of your profit. You may also be able to claim the deferred loss against other income in the following year if during that year:

  • you satisfy the conditions set out for non-commercial losses
  • the Commissioner has decided to allow you to claim the loss.

Defer Losses Indefinitely

There is no exact time limit on how long you can defer your losses. Your losses can be deferred indefinitely until one of the following conditions applies:

  • there is a profit from your business activity in which case the deferred loss can be offset by the amount of the profit from the business activity
  • you meet certain conditions set out for non-commercial losses
  • the Commissioner decides to offset the loss.

Minimising for Any Net Exempt Income

If you have other tax losses, then they must be minimised by any net exempt income you obtained during the year first. Any net exempt income left after this is used to minimise your non-commercial loss balance.

If you have no tax losses, then your exempt income is used to minimise your non-commercial losses. The minimised amount is deferred to a future income year if it can’t be offset against other income.

In every future year, the remaining deferred non-commercial business losses are further offset by that year’s exempt income, where this exempt income has not already been used against other ‘normal’ tax losses.

How to Offset Your Losses?

If you qualify to offset your loss in the current year, the current year’s losses added to the deferred losses from previous years can be offset against other income in the current year. With your business loss, you will have to merge all income and deductions from both Australian and foreign sources that are attributable to the similar or same business activity. There is no limitation on whether you can claim your business losses against Australian or foreign sources of your income.

Offset Order of Losses

You are not required to use non-commercial losses in any specific order. Each deferred loss is added to the calculation of any loss from the business activity for the future year so the order is not appropriate.

Exempt Income

If you have exempt income, basically you must subtract any other tax losses and non-commercial losses by that amount.


Now that you have complete information regarding non-commercial losses, and how you can defer or offset your losses. You can reach Reliable Bookkeeping Services provider for more information.

Other Useful Links:

Bookkeeping for Small Business
Bank Reconciliation Statement