Maximize tax refund through effective small business loss management

Many Australians engage in side businesses alongside their primary employment to supplement their income. If these ventures incur losses, one might assume it would be advantageous for tax purposes, as the losses could potentially reduce taxable income, resulting in lower tax payments and increased tax refunds. This possibility existed many years ago but was subsequently restricted to the provision of Non-Commercial Loss.

Let’s illustrate with the example of Jane:

Jane, a full-time office clerk, runs a side business as a musician, performing for a bank occasionally outside her office work hours. In the fiscal year 2017, Jane incurred a loss of $2000 in her business due to substantial purchases of musical instruments.

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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.

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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 We are here to assist you in maximizing your tax return.