New guidance from the ATO may allow you to claim a business loss you would otherwise have had to defer. If your business has been directly affected by floods, bushfires or COVID-19 lockdowns, you may be eligible for a refund of tax paid.
A recent practical compliance guideline from the Australian Taxation Office (ATO) may allow you to claim the business loss that you deferred in an earlier income year.
Generally, the loss was deferred because your business did not satisfy the non-commercial business loss exceptions. The non-commercial business loss rules only apply to sole traders or partners in a partnership.
These include the income requirement, assessable income test, profits test, real property test or other assets tests. When none of these exceptions apply, the only recourse was to apply for the Commissioner’s discretion in a Private Binding Ruling (PBR) with the ATO.
The new safe harbour will allow you to apply the ATO discretion without applying for a PBR. This will be allowed if your business has been directly affected by a flood, bushfire or a government-imposed COVID-19 lockdown.
To apply the safe harbour, you will need to have sufficient evidence, such as previously being granted ATO relief, and you individually must have other assessable income that is less than $250,000. Also, to qualify for the safe harbour, you will need to have made a tax profit from the business activity in the income year immediately before the loss year.
The safe harbour applies for the 2019–20, 2020–21 and 2021–22 income years.
To get a refund of tax, you will need to apply for an amendment of the relevant income tax return. If you would like us to complete an amendment on your behalf, please do not hesitate to contact our office.