• New Wave Accountants

Is Your Small Business Eligible for Tax Deductions?

It is not out of the ordinary that many small businesses will have losses for the first few months or even years of its operations. That is because the company is still being established and a lot of money is spent training staff, looking for customers, and more. However, there is one question that you might have if you are in a similar situation, and that is whether or not your losses are still tax-deductible.

Well, they are, but they will differ depending on your business structure. Here’s what you need to know:


Are the losses in small businesses and companies tax-deductible or are they gone forever? Well, that will depend on whether they satisfy any of the two tests.

The first test would be known as the "same business test." The test will see whether or not your business has been mostly the same as what you have been doing in the previous year where the loss happened. If it is, then you are eligible for a tax deduction.

The second test is known as the "same ownership and control" test. Here, your business will be tested to see whether or not it has been under the same control and ownership as when the company incurred a loss. If it passes this test, you are eligible for a tax deduction.

Note that for the second test we mentioned, the "control" aspect can be shared, meaning that a group with 50 per cent or more control is counted. However, the test for this is slightly different.

Sole Trader

If you're the sole owner of your business, whether or not you can claim tax deductions against other income will depend on a few factors which can be summed up quite simply like this: If your "business" is more of a hobby, you can't claim from it. Even if your hobby has all the characteristics of a business, it is assumed that no profit will ever be made, making it possibly ineligible for tax deductions against any other income.

However, how can you tell if your business is a hobby or something serious? There will be specific criteria to figure this out, and this is known as the non-commercial loss rules. If you satisfy the rules, you will be able to offset the loss with other incomes. Otherwise, you will have to defer them. The rules are as follows:

  • Are you in business?

  • Similar business activities

  • Excepted activities

  • Less than $250,000 income requirement

In the first point, you have to answer whether or not you are a business. The second point will figure out all the other activities you might be participating in and seeing whether or not they are all similar. If they are, they will be grouped into one. Otherwise, each will have to undergo the rules separately. The third point talks about whether or not your primary business is making an income. If it does not, and any other income is less than $40,000, then the main loss can be offset from these other sources. Finally, the last point would be that your income should be less than $250,000. If not, then you will have to go for a commissioner's discretion.


So, are your losses still eligible for tax deduction? Again, that depends. If you satisfy these requirements according to your business structure, you will most likely be able to opt for the deductions. Otherwise, you will just have to defer the losses until you make an income.

On that note, if you are having trouble figuring all of these things out, we highly recommend that you work with professional tax accountants. With their help, you will be able to identify whether or not you are eligible for tax deductions and make the most out of them if so.

Are you looking for tax accountants in the Gold Coast to help with your tax-deduction needs? Reach out to us! New Wave offers you professional accounting and bookkeeping services to maximize your business! Reach out to us today.

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