If your business made tax losses in previous years, you can carry forward those losses. You can also claim a deduction for those losses in a later year. However, sole traders and individual partners in a partnership are subject to the non-commercial loss rules.
When you carry forward tax losses, all of the following apply:
If you have tax losses from several previous years, you must claim the entire loss you incurred from the earliest year before you can claim all or part of a tax loss from a later year.
You can use your tax losses from earlier income years to reduce your Australian income to zero only. If your tax losses from earlier income years are more than your Australian income, you must keep a record of the tax losses to claim the extra tax loss amount in a later year.
You can carry forward most tax losses indefinitely.
If you have unclaimed foreign losses relating to the income years 1998-99 through to 2007-08, then special deduction rules apply.
If you operate your business as a sole trader, partnership or trust, you cannot choose the year or years in which to claim a deduction for your tax losses from previous years. You must carry the tax loss forward from one year to the next until they are all claimed.
If you operate your business as a trust and you incur a tax loss, you cannot distribute the loss to the trust’s beneficiaries.
There are special rules that restrict when you can claim a deduction for a tax loss as a trust. We recommend you seek further advice if you wish to claim such a deduction.
If you operate your business as a company, you cannot distribute any loss you incur to your shareholders. The company must carry the tax loss forward and offset it against assessable income in a later year.
As a company, you cannot deduct a tax loss unless either of the following applies:
• you have the same owners and the same control throughout the period from the start of the loss year to the end of the income year
• you carried on the same business throughout a specified period.
If you operate your business as a company, under certain conditions you may be able to:
• choose the amount of a previous year’s tax loss you want to claim
• carry forward to a later year a tax loss you would have incurred in a particular year had you not received income from franked dividends.