Many Australians run side businesses alongside their main jobs to boost their income. When these ventures generate losses, it might seem beneficial from a small business tax perspective, since the losses could reduce taxable income, lower tax payments, and increase tax refunds. This approach worked many years ago, but the government later restricted it through the Non-Commercial Loss provisions.
Let’s illustrate this with Jane’s example:
Jane works full-time as an office clerk and also performs as a musician for a bank outside her regular office hours. In the 2017 fiscal year, she spent heavily on musical instruments and ended up recording a $2,000 loss in her side business.
Let’s illustrate this with Jane’s example:
Jane works full-time as an office clerk and also performs as a musician for a bank outside her regular office hours. In the 2017 fiscal year, she spent heavily on musical instruments and ended up recording a $2,000 loss in her side business.
Small business owner
Situations to Consider:
Firstly, if Jane earned less than $40,000 from other income sources (such as her full-time job) in FY2017, she could offset the loss against the other income.
Secondly, if Jane earned more than $40,000 but less than $250,000, she needs to consider four tests: the assessable income test, profits test, real property test, and other assets test. Typically, the first two tests are employed to determine whether the loss can be offset.
For the assessable income test, Jane can offset her loss against her other income if her business income is at least $20,000 in FY2017.
Regarding the profits test, Jane can offset the $2000 loss against her other income if her business has had a profit for tax purposes in three out of the past five years, including the current FY2017. This indicates that her small business is generating income through tax losses.
Therefore, it is crucial to consider your income threshold and whether you meet the test before claiming or deferring your loss. If you are uncertain about your situation or have forgotten to claim eligible business losses, feel free to contact us. Reach out to us at 0410 829 900 or jc@endurego.com. We are here to assist you in maximizing your tax return.
