Every business would like to make a profit every financial year but sometimes some businesses, unfortunately, end up making a loss. Tax-loss occurs your taxable deductions are greater than assessable and exempt income. Therefore, they may end up paying no income tax. The good thing is that if you made a loss in the last financial year then you can offset with profit next year or generally carry forward tax losses to the next financial year.
Tax-loss rules differ from a business structure such as if you are operating as a partner then you can offset the loss against other income you have earned in the financial year. Tax-loss can be forwarded to the next financial year indefinitely until completely offset with assessable and exempt income.
The company cannot distribute tax loss to shareholders and also if the business is as a trust then you cannot distribute tax loss to the trust beneficiaries. The company must carry the tax loss to the next financial year to offset income.
As a company, the company must have the same owners and same control throughout the period from the start of the loss year till the income year. Also, the business needs to be the same through a specific period.
Tax-loss is different than a capital loss. Capital loss arises when there is a disposal of assets held from investment purposes. A capital loss is different than other sources and cannot be offset with each other.
Capital loss incurs when a capital base is greater than the capital proceeds. To know more about tax loss and capital loss, connect with us @ 03 9310 7871