What is the difference between a business loss and a non-commercial loss?

What are business losses?

Business losses are losses incurred by a legitimate business or commercial venture.

The losses could have occurred for many reasons, such as a decrease in revenue, increased expenses, or investments that have not yet generated profits.

Businesses in the early stages of setting up will commonly make business losses.

Tax consequences of a business loss

Your business will be deemed to have made a business tax loss, when the total deductions you claim in an income year exceed the total of the assessable and net exempt income in the same year.

If you're a sole trader or an individual partner in a partnership, business losses can be deducted from the business’s income for tax purposes which will reduce the overall taxable income. In some situations, if your business makes a tax loss, you can carry forward the loss to offset future profits and claim a deduction in a later year when you next make a profit.

If you operate a company, you may be able to carry forward the tax loss for as long as you want and choose the income year you want to claim the deduction.

What is a non-commercial loss?

A non-commercial loss is a loss you incur, either as a sole trader or in a partnership, from a business activity which is unrelated to your primary source of income.

These losses typically result from hobbies or other activities pursued for personal satisfaction rather than profit.

Tax consequences of a non-commercial loss

Non-commercial losses are subject to much stricter tax regulations to ensure individuals are not using personal activities as a way to reduce their overall tax liabilities.

In general, non-commercial losses are not deductible against other income for tax purposes. However, it is possible for on-commercial losses to be carried forward to offset future income generated from the same activity, but only if this activity becomes genuinely profitable in subsequent years.

How we can help 

Whether you have suffered a business loss or a non-commercial loss, it is essential for taxpayers and businesses to ensure they are compliant with the correct tax regulations.

Your accountant can help you to accurately classify your activities and losses to avoid any potential tax issues. They can also ensure you take advantage of any available tax benefits.

You may still have questions on business losses and non-commercial losses. If you’d like to find out more, make an appointment with your local TaxAssist Accountant. Call us on 1300 513 332 or make an enquiry here.

Date published 19 Sep 2024 | Last updated 20 Sep 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.