P9 Business loss activity details

Loss activities

Did you have:

• a loss from a business activity you carried on either as a sole trader or in partnership (including a loss after deducting your partner expenses)
• a loss at
  • question 13 Partnerships and trusts – label N or O
  • question 14 Personal services income – label A
  • question 15 Net income or loss from business – label B or C, or
• a foreign business loss at question 20 Other net foreign source income – label M?

No	If you are a small business entity using the simplified depreciation rules, go to question P10 Small business entity simplified depreciation. Otherwise, go to Other business and professional items.
Yes	Read on.

You must complete Activity 1. If you have more than one loss, then each loss must be considered separately.

Before you complete question 16 in your supplementary tax return, include foreign business losses shown question 20 – label M here. If you carry on an activity that is partly in Australia and partly overseas, you must consider if you have an overall loss from the activity before completing this question. Combine the results of the activity that is carried on partly in Australia and overseas to determine if you have an overall loss for the activity.

While this question is about business losses, you may have to report an investment loss or a business profit if you answered Yes.

For more information, see:

• Non-commercial losses
• TR 2001/14Opens in a new window Income tax: Division 35 – non-commercial business losses.

What you need

If you are a partner in a partnership, you will need the following details for each business activity that you, as a partner, were involved in:

• the amount of assessable income earned by the partnership for the activity
• the share of the partnership's assessable income, real property and certain other assets, attributable to partners who are not individuals
• your share of income or loss of the partnership from the activity.

Investment losses

If you have a partnership non-primary production loss from a passive investment at question 13 – label O – for example, from a rental property – then you are not required to report that loss. If, however, that is your only loss, you need to complete Activity 1 at question P9 and show:

• the description of the activity at label D as 'Investment'
• the industry code '67110' at label E
• P for partnership at label F
• 0 for type of loss at label G
• 0 for net loss at label I.

If you have completed Activity 1 as directed above:

• and are a small business using the simplified depreciation rules, go to question P10 Small business entity simplified depreciation
• otherwise, go to Other business and professional items.

If you have not completed Activity 1 as directed above, read on.

Work out whether you have a loss for the business activity

Complete Worksheet 1a for each business activity to determine whether you have an overall loss for that activity when both of the following apply:

• you have a loss from a business activity at any of  
  • question 13 – label N or O
  • question 14 – label A
  • question 15 – label B or C
  • question 20 – label M

and

• you have any of the following from the same business activity  
  • gross interest at question 10 – label L (interest on a farm management deposit (FMD) is not business income)
  • dividends at question 11 – labels S, T or U
  • farm management repayments at question 17 – labels N or R
  • net capital gain at question 18 – label A
  • net foreign source income or loss at question 20 – label M
  • partner deductions attributable to that business activity at question 13 – labels I, J, X or Y.

Complete Worksheet 1a

To complete worksheet 1a:

• Add up the income from the activity shown at questions 10, 11, 17, 18 and 20 and write the result at a.
• Write at b the loss from this activity reported at questions 13, 14 or 15.
• If the activity is carried on in partnership, write at c any partner deductions that relate to this activity which you showed at question 13 – label I, J, X or Y.
• Write at d any net foreign loss from this activity you showed at question 20 – label M.
• Add up b, c and d and write the result at e.
• Subtract the amount at e from a and write the result at f.
• If the result at f is negative this activity has an overall loss, see You need to know.
• If the result at f is zero or positive this activity does not have a loss, see Profitable activities.

Worksheet 1a – Working out whether you have a loss for the business activity

To help you work out whether you have a loss for the business activity, you can use this worksheet. If you use it, keep the completed worksheet with your other records.

Worksheet 1a – Working out if you have a loss for the business activity.

Row	Calculation element	Amount
a	Income from the activity shown at other questions: gross interest question 10 – label L dividends question 11 – label S, T, U farm management repayments question 17 – label N, R net capital gain question 18 – label A other net foreign source income question 20 – label M	$
b	Loss from the activity shown at: distribution from partnerships question 13 – labels N, O net personal services income question 14 – label A net income or loss from business question 15 – labels C, B Show the loss here as a positive amount.	$
c	Partner deductions attributable to the activity shown at question 13 – labels I, J, X, Y	$
d	Loss from the activity at question 20 – label M Show the loss here as a positive amount.	$
e	Add b, c and d.	$
f	Subtract e from a. The result at f is your business activity's overall profit or loss.	$

Profitable activities

If the amount at f in Worksheet 1a is zero or positive and:

• you have more than one business activity net loss to report at question P9, then you need to report all of them (there is space for the 3 largest losses on the paper return), or
• you do not have a net loss from another business activity then you need to complete Activity 1 as follows in respect of one profitable business activity. Write
  • the description of activity at label D
  • the industry code at label E
  • P for partnership or S for sole trader at label F
  • 5 for type of loss at label G
  • AN as reference for code 5 at label C
  • 200926 for number at label A
  • 0 for net loss at label I.

If you have completed Activity 1 as directed above:

• and are a small business using the simplified depreciation rules, go to question P10 Small business entity simplified depreciation
• otherwise, go to Other business and professional items.

If you have not completed Activity 1 as directed above, note the activity loss amount at row f in worksheet 1a and read on.

You need to know

Under the rules for non-commercial business losses, you can use a 2022–23 loss from a business activity you conduct either as a sole trader or in partnership to calculate your 2022–23 taxable income if it meets one of these conditions:

• An exception applies.
• You meet the income requirement and one of the 4 tests is satisfied.
• You meet the income requirement and none of the 4 tests is satisfied, but the Commissioner of Taxation has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.
• You do not meet the income requirement, but the Commissioner has exercised his discretion, or ruled that it will be exercised, to allow you to claim the loss.

You cannot claim losses arising from activities you conduct that are a private recreational pursuit or hobby or if there is no likelihood of profit.

The rules for non-commercial business losses apply to both foreign and Australian business activities.

Safe harbour

If you have made a non-commercial loss from a business activity because your business was affected by bushfire, flood or a government-imposed lockdown, business closure or restrictions due to COVID-19, you can consider using the safe harbour.

You qualify for the safe harbour if you satisfy all of the criteria of the PCG 2022/1Opens in a new window Non-commercial business losses – Commissioner's discretion regarding flood, bushfire or COVID-19 as a sole trader, or as a partner in a partnership.

If the safe harbour applies, you can offset the loss (but not a past year's deferred loss) against other income in the relevant income year. You also won't need to seek a private ruling on whether the Commissioner would exercise his discretion to allow that loss to be offset.

Keep records of each of the net losses deferred for your separate business activities.

The exceptions

If you operated or proposed to operate a primary production business or a professional arts business and your unrelated assessable income for 2022–23 (except any net capital gain) from other sources is less than $40,000, you may claim your business loss for 2022–23.

A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.

GST excluded

Your assessable income excludes any goods and services tax (GST) on a taxable supply you make. You must be registered or required to be registered for GST to make a taxable supply.

The 4 tests

You will not have to defer your loss from your business activity if you meet the income requirement and the activity satisfies at least one of the following 4 tests:

• There is at least $20,000 of assessable income from the business activity for 2022–23.
• The business activity has produced a profit for tax purposes in 3 out of the past 5 years, including 2022–23.
• The value of real property assets (excluding any private dwelling) used on a continuing basis in carrying on the business activity is at least $500,000.
• The value of certain other assets (except cars, motorcycles and similar vehicles) used on a continuing basis in carrying on the business activity is at least $100,000.

For more information, see TR 2001/14Opens in a new window Income tax: Division 35 – non-commercial business losses.

The income requirement

You must meet the income requirement to continue to access the 4 tests to offset your loss from a business activity against other assessable income.

If you do not meet the income requirement, you may ask the Commissioner to exercise his discretion to allow your loss, see The Commissioner’s discretion.

You will meet the income requirement and have access to the 4 tests if the total of the following amounts is less than $250,000:

• Taxable income is the amount shown, or that would be shown, on page 4 of your tax return if the loss from this activity at f in Worksheet 1a is claimed and not added back at question 16 less any assessable first home super saver (FHSS) amount. If you have an FMD repayment in relation to the loss activity, include it in calculating the loss from the activity. If your taxable income is zero or a loss, and the loss from this activity is $250,000 or more, you need to complete Worksheet 1b. You need to complete Worksheet 1b for each activity with a loss of $250,000 or more.
• Total reportable fringe benefits amounts shown on your payment summary and totalled at question IT1 – label N and W in your tax return.
• Reportable superannuation contributions are your reportable employer superannuation contributions (shown on your payment summary and totalled at question IT2 – label T in your tax return), plus any deductible personal superannuation contributions shown at question D12 in your supplementary tax return.
• Net investment losses are the total of your financial investment losses (shown at question IT5 – label X in your tax return) and rental properties losses (shown at question IT6 – label Y in your tax return).

If you do not meet the income requirement, you will have to defer your loss unless the Commissioner has exercised his discretion or ruled that it will be exercised, or you satisfy another exception.

Complete Worksheet 1b

To complete worksheet 1b:

• Write your taxable income or loss at a. Include your non-commercial losses that would be deductible if the income requirement was satisfied. Show a loss as a negative.
• Write the total of your deductible non-commercial losses at b.
• Add up a and b and write the result at c.
• Write any losses carried forward from earlier income years (shown at question L1 – label Q and R in your tax return) but not claimed (claimed losses shown at question L1 F and Z in your tax return) at d.
• Write any gifts or donations (shown at question D9 – label J in your tax return) that were not allowed as a deduction because they added to or created a tax loss at e.
• Write any personal superannuation contributions (shown at question D12 – label H in your supplementary tax return) that were not allowed as a deduction because they added to or created a tax loss at f.
• Add up d, e and f and write the result at g. This cannot exceed the amount at c.
• Subtract g from c and write the result at h. This is your taxable income excluding your non-commercial losses.
• Write at i your total reportable fringe benefits amounts shown on your payment summary and totalled at question IT1 – label N and W in your tax return.
• Write at j your reportable superannuation contributions (shown on your payment summary and totalled at question IT2 – label T in your tax return).
• Write at k your total net investment losses being the sum of your financial investment losses (shown at question IT5 – label X in your tax return) and rental properties losses (shown at question IT6 – label Y in your tax return).
• Add up h, i, j and k and show the result at label l.

Worksheet 1b: Your deductible non-commercial losses are $250,000 or more and your taxable income is zero or a loss

To help you work out if your deductible non-commercial losses are $250,000 or more and your taxable income is zero or a loss, use this worksheet. Then, keep the completed worksheet with your records.

Worksheet 1b: working out your deductible non-commercial losses

Row	Calculation element	Amount
a	Your taxable income or loss – excluding any assessable First home super saver released amount (show a loss as a negative) Include your non-commercial losses that would be deductible if the income requirement test was satisfied.	$
b	Your total deductible non-commercial losses (show as a positive figure)	$
c	Add a and b.	$
d	Your losses carried forward from earlier income years shown at question L1 – label Q and R, but not claimed at question L1 – label F and Z	$
e	Your gifts or donations shown at question D9 – label J, that were not allowed as a deduction because they added to or created a tax loss	$
f	Your personal superannuation contributions shown at question D12 – label H that were not allowed as a deduction because they added to or created a tax loss	$
g	Add d, e and f. If the result exceeds the amount at c, write the amount from c.	$
h	Subtract g from c. The result is your taxable income excluding your non-commercial loss.	$
i	Your total reportable fringe benefits amounts shown at question IT1 – label N and W	$
j	Your reportable superannuation contributions shown at question IT2 – label T	$
k	The sum of your total net investment losses shown at question IT5 – label X and rental properties losses shown at question IT6 – label Y	$
l	Add h, i, j, and k. The result is your income for non-commercial loss purposes.	$

The Commissioner’s discretion

If you meet the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity to be claimed in the year it arises. This can occur even if none of the 4 tests are satisfied, provided either:

• the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity would have satisfied one of the 4 tests but for these special circumstances, or
• the business activity, because of its nature, has a lead time and for this reason, does not or will not satisfy any of the 4 tests. However, there is an objective expectation that within a period that is commercially viable for the industry either
  • it will satisfy one of the 4 tests, or
  • produce assessable income for an income year greater than the tax deduction attributable to that income for that year. ‘Commercial viability’ is measured against independent industry standards.

If you exceed the income requirement for the most recent income year ending before you request that the discretion be exercised, the Commissioner can exercise his discretion to allow a loss from a business activity in more limited circumstances. The Commissioner can exercise his discretion in this instance if:

• the business activity was affected by special circumstances outside the control of the business operators (for example, natural disasters) where the activity was unable to produce a tax profit and would have satisfied one of the 4 tests but for these special circumstances, or
• the business activity, because of its nature, has a lead time and, for this reason, does not or will not produce assessable income greater than the tax deduction attributable to that income. However, there is an objective expectation that it will do so within a period that is commercially viable for the industry concerned. ‘Commercial viability’ is measured against independent industry standards.

If your business activity has been affected by bushfire, flood or a government-imposed lockdown, business closure or restrictions due to COVID-19, you can consider using the safe harbour.

If your circumstances don't fall within the terms of the safe harbour, you can still apply for an exercise of the Commissioner's discretion in the usual way.

Applying for the Commissioner’s discretion

You must apply in writing for advice on whether the Commissioner will exercise discretion. To do this, complete the Application for a private ruling on the Commissioner’s discretion for non-commercial business losses. However, if you qualify for the safe harbour, there is no need to apply for the Commissioner's discretion.

Deferring your loss

If you are unable to claim your loss in 2022–23 because of these rules, you must defer the loss.

This deferred loss is not disallowed. Instead, you take it into account for the next income year in which you carry on this business activity, or one of a similar kind.

The deferred loss is a deduction when calculating any net profit or loss from the activity in that future income year. Your deferred loss deduction may be reduced if:

• you earn net exempt income in the future income year, or
• you become bankrupt or are released from any debts by the operation of an Act relating to bankruptcy.

Whether any overall loss can be taken into account when you calculate taxable income for that future income year depends on the application of the deferral rules for non-commercial business losses in that income year.

If you are unable to claim your loss against other income in 2022–23 because of these rules, you must defer your loss by showing the amount at question 16 in your supplementary tax return. The amount shown at question 16 cannot be used to reduce your 2022–23 taxable income.

Make sure you complete Activity 1, and if necessary, Activity 2 and Activity 3 at question P9 on page 4 of your schedule before you complete question 16 in your supplementary tax return.

Completing the activities

If you have more than one loss activity to report, list your activities from the largest loss to the smallest loss and complete the activities in that order. Only the first 3 activities are to be reported.

If you were not required to complete Worksheet 1b, go to Activity 1. Otherwise, each activity needs to be completed as follows:

• the description of activity at label D
• the industry code at label E
• P for partnership or S for sole trader at label F
• 5 for type of loss at label G
• AN as reference for code 5 at label C
• 200926 for number at label A
• your net loss amount at label I.

Activity 1

Description of activity – Completing this question

Describe the business activity from which you made the largest loss and enter this at question P9 – label D on page 4 of your schedule. If your business activity is the result of an investment in a tax-effective arrangement, enter the name of the project at label D.

Industry code – Completing this question

Show the appropriate industry code for the business activity.

Code the business activity as accurately as possible. The industry code is made up of 5 digits. For example, if the industry is dairy cattle farming, the code you show in the tax return is 01600.

An incorrect code may result in you not receiving a necessary service or material from us, or could lead us to incorrectly target audits. Taxation statistics use the industry code you provide to publish industry benchmarks.

The industry codes we use are a modified version of the Australian and New Zealand Standard Industrial Classification (ANZSIC)Opens in a new window produced jointly by the Australian Bureau of Statistics (ABS) and Statistics New Zealand. Use our Business industry code (BIC) tool to help you find the correct BIC for your business activity.

Partnership or sole trader – Completing this question

At question P9 – label F, enter either P in the box at Partnership (loss from a business activity carried on in partnership with others) or S in the box at Sole trader (loss from a business activity carried on as a sole trader).

Type of loss – Completing this question

Select the most appropriate number code from the following list and enter it at question P9 – label G on page 4 of your schedule:

1. Your assessable income from the business activity for 2022–23 was at least $20,000 and you met the income requirement.
2. The business activity produced a profit for tax purposes in 3 out of the past 5 years (2018–19 to 2022–23) and you met the income requirement.
3. The value of real property assets or interests in real property (excluding any private dwelling) used on a continuing basis in carrying on the business activity was at least $500,000 and you met the income requirement.
4. The value of certain other assets (except cars, motorcycles or similar vehicles) used on a continuing basis in carrying on the business activity was at least $100,000 and you met the income requirement.
5. We have written to advise you that the Commissioner will exercise his discretion to allow you to claim a loss for that business activity for 2022–23. This is where the Commissioner has issued a product ruling or a private ruling allowing losses to be claimed from an activity you participated in
   • Some business activities may be covered by a product ruling or private ruling that does not relate to 2022–23. Use loss code 5 only if you have advice in writing that the Commissioner will exercise his discretion for 2022–23.
   • If you have applied for a private ruling for the Commissioner to exercise his discretion for 2022–23, but have not yet received the ruling, use loss code 8 unless another code applies.
   • Use loss code 5 if your business activity has been affected by bushfire, flood or a government-imposed lockdown, business closure or restrictions due to COVID-19 and you satisfy the conditions to apply the safe harbour in 2022–23 and choose to apply it.
6. The loss was from a business activity you operated that was a professional arts business and your assessable income (excluding any net capital gain) from unrelated sources was less than $40,000. A professional arts business is a business you carry on as an author of a literary, dramatic, musical or artistic work, as a performing artist, or as a production associate.
7. The loss is from a business activity you operated that is a primary production business, and your assessable income (excluding any net capital gain) from unrelated sources was less than $40,000.
8. The above loss codes don’t apply. You must defer your loss and complete question 16 in your supplementary tax return.

Did you use loss code 5 at question P9 – label G?

No	Go to Deferred non-commercial business losses from a prior year.
Yes	You must complete Reference for code 5 at question P9 – label C on page 4 of your schedule. Read on.

Reference for code 5 – Completing this question

If your business activity is covered by a product ruling that states that the Commissioner will exercise his discretion to allow a loss from that business activity:

• enter PR at C in the Code section of Reference for code 5 question P9 on page 4 of your schedule
• enter the year of the product ruling at Y in the Year section
• enter the product ruling number at A in the Number section (do not include the year of the product ruling nor the slash).

If your business activity is covered by a private ruling that states that the Commissioner will exercise his discretion to allow a loss from that business activity, write AN at C in the Code section of Reference for code 5 question P9 on page 4 of your schedule.

If your business activity is covered by the safe harbour and you choose to use it in 2022–23:

• write AN at C in the Code section of Reference for code 5 question P9 on page 4 of your schedule
• enter SH at A in the Number section.

Deferred non-commercial business loss from a prior year – Completing this question

Write the amount of your deferred non-commercial business loss from a prior year for the business activity at question P9 – label H on page 4 of your schedule. Do not show cents. Your prior year deferred non-commercial business loss for a business activity may be reduced if you earned net exempt income in 2022–23.

If you became bankrupt (or received a relief from debt) the deferred losses will no longer be available. The loss cannot be deducted in 2022–23 or any future year.

For more information about how exempt income and bankruptcy affect deferred non-commercial business losses, contact us.

Net loss – Completing this question

Write your net loss from the business activity for 2022–23 at question P9 – label I in your schedule. Do not show cents. If you completed Worksheet 1a for the activity and the result at f was negative, this is your net loss amount. The example below will help you work out what to include at question P9.

Activity 2 and Activity 3

Fill out details for the second and third-largest losses (if applicable) in the same way you have done for Activity 1.

If you made a loss from more than 3 business activities, determine whether you need to defer the loss for each additional business activity. You will need the total amount of your deferred non-commercial business losses to complete question 16 in your supplementary tax return.

The following example shows how to complete questions P8 and P9 in your schedule and how the amounts link to your supplementary tax return.

Continue to: P10 Small business entity simplified depreciation