Losses are sometimes unavoidable, particularly during volatile markets. Provided the non-commercial losses rules are satisfied, the Australian Taxation Office (ATO) allows traders to claim an immediate deduction for their trading losses and offset the losses against other taxable income, such as salary and wages, interest and dividends.

The ATO will allow you to offset your trading loss against assessable income from other sources only if:
• You earn less than $250,000 and satisfy one of the four noncommercial losses tests: the profits test, assessable income test, other assets test and real property test; or
• The Commissioner of Taxation uses his discretion to allow you to claim the loss (this rarely happens). The non-commercial losses rules limit the ability of taxpayers to offset business losses against other assessment income unless one or more of the following tests are met.
• Assessable income generated by the business is at least $20,000 (assessable income test);
• The business shows a profit for at least three out of the last five years (profits test);
• The business has property or an interest in real property with at least $500,000 on a continuing basis (real property test); or
• The business has at least $100,000 of other assets being used on a continuing basis (other assets test).

Assuming that you have satisfied those rules, you can qualify for claiming the loss in your tax return this year. If you have earned less than $10,000 in other income to offset these losses, show your taxable income as zero. The remainder of the unutilised losses are carried forward and can be offset against income in future years.

You must have been conducting your business activities for the sole purpose of earning income from buying and selling investments.

If an Australian Taxation Office (ATO) audit finds you have incorrectly claimed trading losses and you cannot satisfactorily show you are carrying on an investment business, your deduction will be disallowed and penalties might apply.

If you were an investor, rather than a trader, the losses would be classified as capital losses, which could be offset only against capital gains, not normal assessable income. If you do not have any capital gains to offset them against in this tax year, they can be carried forward indefinitely until used in full.

Better luck with your trading this financial year!