Deferred Commercial Losses & Capital Gains

James Murphy Tax


We have a new client they are a small family partnership. The previous accountant has deferred all the losses from the business activity. I believe this may have built up to approximately $200,000, for both partners.

I suspect this was to enable the client to receive the Age Pension.

Apart from a small holding of shares and age pension they have no other income.

The business activity was beef cattle farming. On 1 May 2019, they sold their property and made a capital gain.

Of the 4 non-commercial loss tests to pass, it shows that they easily passed the real assets test as the property was sold for $1,400,000.

Due to moving and being ill, they have not lodged their 2019 or 2020 Tax return yet.

Can the unused non-commercial losses (the ones that were deferred) be used to offset the capital gains?

The MTG points out at 16-020.

Paragraph 2

The loss may be carried forward and offset against assessable income from the business in the next year that the business is carried on (future year).

Is the capital gain, (on the sale of the business asset), business income, and therefore, the losses are applicable?

Are we best to get a private ruling or a commissioner’s discretion?


It is clear that some business activity was being undertaken.

There was no need to quarantine the losses as one of the four tests for a commercial business was met.

To claim the losses, against the capital gain, it is suggested you will need to meet the test for a primary production business – the Commissioner has published guidelines on this, and we would also refer you to page 39 of our annual publication.

If you are able to establish there was a genuine primary production business being carried on, then this opens up the possibility of the land being an “active asset” for the CGT Small Business Concessions.

this means it was an active asset for at least 7.5 of the last 15 years or half the time the land was owned if more than 15 years  – meaning it must have been used in the cattle farming business.

In such circumstances, the capital gain will be eliminated.