Who can claim
This deduction is available to individuals.
- An ordinary tax loss was validly incurred in an earlier income year and remains available after prior applications.
- The loss is applied in the statutory order after taking account of any net exempt income.
What you cannot claim
- Capital losses cannot be deducted from ordinary assessable income.
- A deferred non-commercial business loss is not entered as an ordinary prior-year tax loss until the non-commercial-loss rules permit it.
- Do not claim a loss already used, transferred or otherwise unavailable.
How the amount is worked out
Start with the remaining prior-year ordinary tax loss, reduce it as required for net exempt income and earlier applications, then deduct only the amount permitted against current assessable income. Carry forward any unapplied balance.
Records the ATO expects
- Prior-year tax returns and assessments
- Tax-loss register
- Net exempt income calculation
- Non-commercial-loss records where relevant
Before you rely on this rule
Keep ordinary tax losses, capital losses and deferred non-commercial business losses in separate balances.
Where this rule comes from
Primary source: Income Tax Assessment Act 1997 Division 36 (Compilation 266 in force 1 July 2026). Reviewed 30 July 2026. Covers the 2025-26 and 2026-27 income years.
Supporting sources:
- ATO business losses (Updated 6 May 2025)