You may have heard of deferred non-commercial losses. If you are not familiar with this concept, it would be worth reading this blog. Here is detailed information regarding non-commercial business losses.

What is deferred non-commercial business loss?

A non-commercial business loss is a loss incurred from a business activity that is not related to your primary source of income, whether as a sole trader or in partnership. The business activity needs to have business-like features and a commercial purpose. The losses from a non-commercial business activity cannot be deducted from other assessable income in the year the loss is incurred unless an exception applies or there is a profit made.

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

Offset or defer the loss

If you are in business as either a sole trader or in a partnership, and loss from the business activity is made, check if you need to:

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

 How to defer your non-commercial losses?

If you are not liable to offset your business activity loss in the current year, you can defer your loss so you can use it in a later year. You can offset some or all of the deferred loss against this profit if your business makes a profit in the following year. You are liable to claim the postponed loss against other income in the following year if:

  • you satisfy the requirements for non commercial losses
  • the Commissioner decides to allow you to claim the loss.

There are no time restrictions on how long you are allowed to defer your losses. You can defer your losses indefinitely until one of the following conditions applies:

  • The profit has been made from your business activity, in which case the deferred loss can be deducted according to the profit from the business activity.
  • You meet the conditions for non-commercial losses.
  • The Commissioner decides to offset the loss.

Minimising for any net exempt income

If you incur other tax losses, these should be minimised by any received net exempt income during the year first. Any remaining net exempt income after this is then used to minimise your non-commercial loss balance. If you don’t have other tax losses, your exempt income is used to minimise your non commercial losses. The minimised amount is then delayed to a future income year if it is not subject to be deducted against other income.

How to offset your losses?

If you are liable to deduct your loss in the current year, the current year’s losses and the deferred losses from earlier years can be deducted against other income in the current year. Due to your business loss, you must consolidate all deductions and income from both Australian and foreign sources that relate to the same or similar business activity. There is no time limit on whether you can offset your loss against Australian or foreign sources of your income.

  • Offset order of losses

You don’t need to use non commercial losses in a specific order. Each deferred loss is factored into the calculation of any loss from the business activity for the following year, so the sequence is not significant.

  • Exempt income

You need to reduce non-commercial losses and other tax losses by that amount if you have exempt income.


Now that you know whether you should offset non-commercial business losses or defer non-commercial business losses. For more information, you can speak to us and get our Reliable Bookkeeping Services.

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