What happens if my sole trader business makes a loss in Australia?

If your business expenses are higher than your income, you have a 'non-commercial loss'. You cannot always use this loss to reduce your other income (like salary from a job). To offset a business loss against your other income, you must meet **one** of these 'tests': 1. **The $20,000 Income Test:** Your business income is at least $20,000. 2. **The Profits Test:** Your business has made a profit in 3 out of the last 5 years. 3. **The Real Property Test:** You use real property (land/buildings) worth at least $500,000 in your business. 4. **The Other Assets Test:** You use other assets (e.g., equipment) worth at least $100,000 in your business. **Income Limit:** Even if you pass a test, you cannot offset the loss if your 'adjusted taxable income' is $250,000 or more. If you don't meet a test, you must **defer** the loss. You carry it forward to future years and use it when your business makes a profit.

• Losses can't always offset other income (e.g. salary)
• Must pass one of four 'non-commercial loss' tests
• Turnover must be >= $20k for the simplest test
• High earners (>$250k) generally must defer losses
• Deferred losses never expire and carry forward indefinitely