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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: