As the end of the financial year approaches, it’s time for you to assess your financial situation and plan for the next 12 months. One key part of EOFY planning is understanding how to use your business losses to your advantage. With the right strategy, you can turn business losses into opportunities for tax savings – all for the long-term benefit of your business.
Here’s how business owners can leverage their losses at tax time to maximise their financial outcomes.
What are business losses?
The ATO identifies ‘losses’ as being when a business’s total claimed deductions exceed the total income for the financial year.
Business losses can arise from various sources – operating expenses, depreciation, interest payments on business loans – and they can be carried forward and offset against future income. Some owners decide to do this in order to reduce their tax liability.
Carrying forward business losses
One of the easiest ways to leverage your business losses is by carrying them forward to offset against future income. In Australia, business losses can be carried forward indefinitely until the opportunity arises to fully utilise them, subject to certain limitations of course.
It’s important to remember that the ATO has specific rules and restrictions regarding how you use business losses, and it’s crucial that you comply with their rules to avoid any penalties or more serious legal fallout. Seeking advice from your accountant or tax agent can help you navigate the complex tax regulations and ensure you are making the most of your business losses.
Strategic loss-making
Another consideration during your EOFY planning is strategic loss-making. This means deliberately incurring business losses during the financial year to offset against other income and lower your overall tax liability.
This has proven to be a viable option for many business owners over the years, especially those that have incurred substantial one-time expenses – whether that’s investing in new equipment or machinery, or expanding operations. By timing your business expenses strategically, you can potentially reduce your taxable income and tax payable for the current financial year.
It’s important to note that strategic loss-making should be done with careful consideration and planning. It’s not advisable to incur losses solely for the purpose of avoiding tax, as it may attract scrutiny from the ATO, which is something the tax man is taking much more seriously this year. It’s essential to have a legitimate business reason for incurring losses and to keep proper records to support your decisions
Always seek professional advice
Because navigating the tax world can be complex – especially around how to manage business losses – it’s important to seek professional support from qualified accountants and commercial brokers. An experienced advisor can help you assess your business’s financial situation and develop the most appropriate strategy to optimise your tax outcomes.
“Proper planning and leveraging business losses can deliver major tax savings for your business over the long term,” says Gary Rawlings, Managing Director at Ezi Private Lending. “However, you will need to comply with all ATO regulations, so make sure you consult with an expert to maximise the advantages of your business losses at EOFY.”
Looking to expand your business or get fast lending support? Our team of expert brokers can help you find the lending solution for your needs. Contact Ezi Private Lending online or call 1300 854 033 to get started.