Maximize tax refund through effective small business loss management

A lot of people in Australia would ran a side business besides their job to supplement some income, however, if those activities are making a loss, would it be a tax advantage to maximize your tax refund as one would assume you can use the loss to reduce the taxable income, hence paying lesser tax and getting more tax refund. Many years ago, it was possible. However, it was then restricted to the provision of Non-Commercial Loss.

Let’s use an example of Jane.

Jane work full time as an office clerk, and she also has a side business as a musician playing for a bank occasionally outside her officer work hours. In fy2017 Jane made a loss of $2000 from her business due to the massive purchases of musical instruments.

Small business owner

There are two situations to consider. Firstly, if Jane earns less than $40000 from other income sources (for example, from her full-time job) in fy2017 she would be able to offset the loss against the other income.

Secondly, if Jane earns more than $40,000 and less than $250,000; then there are four tests she needs to consider, which are assessable income test; profits test, real property test and other assets test. The first two tests are usually used to determine whether we can offset the loss.

For the assessable income test, if her business income is at least $20,000 in this fy2017 then Jane can offset her loss against her other income.

For the profits test, if her business had a profit for tax purposes in three out of the past five years (including the current fy2017), then she can offset that $2000 loss against her other income. That would means her small business is making the money for her through the tax losses.

Therefore it is crucial to consider your income threshold and whether you meet the test before you can claim or defer your loss. If you feel confused about your situation, and forgot to claim those business losses where you are eligible to do so, do not hesitate to give us a call or drop us a message on 0410 829 900 or We are here to help you make the best out of your tax return.