Navigating Business and Non-Commercial Losses

In the business world, it’s crucial to differentiate between business losses and non-commercial losses.

Business Losses

Business losses happen when your business expenses exceed your income in a given year. If your business faces a loss, you can save it for later and use it to reduce taxes in a profitable year.

The rules for handling these losses vary based on your business structure.

If you’re a sole trader or a partner in a partnership, you can either offset your losses against other income in the same year or keep the loss for a future year when your business makes a profit.

Companies have the flexibility to carry forward a loss indefinitely and use it when they choose.

Non-Commercial Losses:

Non-commercial losses stem from business activities unrelated to your main source of income, and they often need a clear business purpose.

Generally, you can’t use these losses immediately to reduce your taxes. Instead, you must wait until your non-commercial business becomes profitable.

There’s an exception if you’ve faced challenges like floods, bushfires, or the impact of COVID-19 in recent years. You might be able to use the current year’s non-commercial loss without needing special permission.

If you have questions or need personalised advice, don’t hesitate to contact your Simmons Livingstone advisor at 1800 618 800 or via email at admin@simmonslivingstone.com.au. 

We’re here to simplify the complexities of business and tax for you.