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A tax loss occurs when an entity’s total expenses are greater than total revenues. Businesses and individuals constantly strive to reduce their reportable revenues or increase their reportable expenses for tax purposes as a tax loss reduces an entity's/individual’s tax liability in proportion to its tax bracket. 

Claiming tax losses from previous years
If your business made tax losses in previous years, you can carry forward those losses and claim a deduction for those losses up to seven years after the loss occurred. The logic behind this is to reduce tax liability. If you are a sole trader or individual partner in a partnership, you may also be able to offset the business losses carried forward against other income as it reduces the overall tax liability during the high-earning year by incorporating the earlier loss as a reduction to taxable income.

How to claim losses
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. For example, if you have tax loss in 2013, 2014, 2015, then you must claim 2013 tax loss first until balance becomes zero then go for 2014 and 2015 accordingly.
  • You can use your tax losses from earlier income years to reduce your tax liability 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.
  • If you operate your business as a sole trader, partnership or trust, you cannot choose the year 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. Companies can generally choose the year in which they claim a deduction for a carried forward tax loss. That means Companies can generally choose the year in which they claim a deduction for a carried forward tax loss.
  • In case of company, trust, partnership or sole trader if the business/entity acquire a tax loss, you cannot distribute the loss to the trust’s beneficiaries/shareholders. The company or business entity must carry the tax loss forward and offset it against assessable income in a later year.


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