Assessment of Business Losses for Sole Traders and Partnerships

This topic provides information on the following:

•       assessment of business losses for sole traders and partnerships, and
•       losses which can be offset.

Assessment of business losses

If a business runs at a loss, a nil amount is included in the income tests. Only the pensioner's share of the net result from a partnership, trust or company is assessed.

Business losses from the current year, or from previous years, are not allowed as deductions from other profits or income derived from unrelated sources, such as:

• earnings,
• superannuation,
• profits from investments, or
• profits from unrelated businesses.

Although the Taxation Office allows losses to be deducted from other income, this is not the case for income testing of pensions..

Losses which can be offset

Losses within a partnership can be offset against the profits of other necessarily related activities if a pensioner is involved in:

• a business or partnership which operates in more than one field, or
• 2 businesses, each operating under a different business structure.

Necessarily related means that if the activity which made a loss had not occurred, then the income from the other activity would:

•       not have been earned, or
•       have been substantially less.

Example of losses which can and cannot be offset

If a pensioner has an interest in a partnership that consists of a farm operation and a quarrying operation.

The following table describes when the losses can and cannot be offset.