This article explains sole trader business losses. If your business makes a loss, you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages. And we've made checking super easy!
Adding prior year losses
The first step is to ensure you've added any prior year losses, this information can be found in your prior year tax return and can be added either when you add your sole trader business, or at any time from the Sole Tank Business tab.
To do this just select the 'Business Losses' section, and the edit icon. Then enter the prior year loss amount in the 'Opening balance' field.
How do losses work?
Throughout the year any prior year losses will be used to offset any current year profits. In other words, prior year losses are first used to reduce your current year taxable income.
However, if your business profit is less than the prior year loss, or your business makes a loss in the current year, the rules say that the total loss amount must roll forward to offset future year sole trader business profits, unless you pass the non-commercial loss rules!
How to test the non-commercial loss rules?
To check if you pass the non-commercial loss rules we've made a little test. To take the test go to the Sole Tank Business tab, select the 'Business Losses' section, and then the edit icon. Select the 'Start the test' button to commence.
The test is broken up into 3 section, if you pass any of the section your losses will be used to offset your other taxable incomes in your tax summary. If not, your losses will be rolled forward to the next financial year where it can be tested again. I note, there is no expiry date on losses.
