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Australia Business Losses Guide

the Australian business tax losses. The guide covers: the carry forward of the tax losses (the "unused loss carry forward") — the taxpayer who incurs the "tax loss" (the "total deductions exceed the total assessable income" in the income year) can carry forward the loss to the "future income years" and deduct the loss against the future assessable income; the loss can be carried forward indefinitely (the "no time limit" for the loss carry forward) for the majority of the taxpayers; the carried forward loss can be deducted at the "first available income year" (the "loss recoupment year") when the taxpayer has the assessable income; the loss recoupment tests for the companies (the "ownership test and the business continuity test") — the company must pass one of the following tests to recoup the carried forward losses: (a) the "continuity of ownership test (the COT)" — the "same individuals must hold the majority of the voting power, the dividend rights and the capital rights" (the "more than 50%") from the loss year to the recoupment year, (b) the "same business test (the SBT)" — the company must carry on the "same business" as before the change of the ownership (the "no new business, the no new transactions, the no new assets"), (c) the "similar business test (the SBT2)" — the company who fails the COT can use the "similar business test" (the "business carried on with the similar assets, the similar activities and the similar sources of the revenue"); the losses for the individuals and the sole traders (the "non-commercial loss rules") — the individual who incurs the "non-commercial business loss" (the "loss from the business activity that is not the primary production or the professional arts") must apply the "non-commercial loss rules" — the loss can be deducted against the other income (the "salary, the investment income") only if the business passes one of the four tests: the "assessable income test" ($20,000 or more), the "profits test" (the profitable in 3 of the last 5 years), the "real property test" ($500,000 or more in the assets), the "other assets test" ($100,000 or more in the assets).

Loss Recoupment for the Trusts and the Partnerships

  • Trust losses: The trust can carry forward the losses to the future income years. The beneficiary cannot deduct the trust loss until the trust has the "net income" and the beneficiary is the "presently entitled" to the income. The "trust loss provisions" (the "Schedule 2F to the ITAA 1936") restrict the deduction of the trust losses in the certain circumstances.
  • Partnership losses: The partnership loss is allocated to the partners in the "partnership profit sharing ratio". The partner can deduct the partnership loss against the other income (the "salary, the investment income") subject to the "non-commercial loss rules" for the individual partners. The corporate partner is subject to the "loss recoupment tests".
  • Primary producer losses: The primary producer (the "farmer, the grazier, the horticulturist") can carry forward the "primary production losses" and deduct them against the future primary production income without the time limit. The primary producer can also elect to "average the income" over the 5-year period (the "income averaging" under the "Division 392" of the ITAA 1997).

For the primary production tax concessions, see our Primary Production Guide →.

Loss Carry Back Provisions

  • Loss carry back (the "temporary loss carry back for the companies"): The company can carry back the "tax loss" to the "previous income year" and receive the "refund of the tax paid" in the prior year. The loss carry back is the "temporary measure" introduced during the COVID-19 period (the "2020-21 and the 2021-22 income years"). The loss carry back is not available for the 2023-24 and the later income years.
  • Franking credit impact: The company that carries forward the losses may not need to pay the "franking credits" (the "dividend imputation" — the company can pay the "franked dividends" from the profits even if the losses reduce the current year tax). The company cannot pay the "fully franked dividends" if the losses reduce the "franking account balance".
  • Record keeping for the losses: The taxpayer must keep the records of the losses for the "entire carry forward period" (the "no time limit" — the losses can be carried forward indefinitely). The records must include: (a) the "tax return" showing the loss for the loss year, (b) the "notice of assessment" for the loss year, (c) the "calculation of the loss recoupment" for each recoupment year.

For the company tax rates and the dividend imputation, see our Corporate Tax Guide →.