The non-commercial loss rules don’t apply to trusts.

If you operate your business through a trust and you have a tax loss, you cannot distribute the loss to the trust’s beneficiaries and it can only be used by the trust.

A tax loss of a trust can be carried forward and used to reduce the trust's net income in a later year, subject to certain tests. These tests restrict the use of tax losses and debt deductions.

The trust loss rules apply in different ways to:

• fixed trusts
• non-fixed trusts
• excepted trusts.

The trust loss provisions generally don't apply to trusts that have validly elected to be a family trust. This is except for the income injection test, which applies in certain circumstances.

If the trust terminates before the losses can be offset against income, they are permanently lost. The trust loss rules provisions don't apply to capital losses made by the trust.

The trust loss legislation is contained in Schedule 2F to the Income Tax Assessment Act 1936.

If you need to find out more about the trust loss rules, go to ato.gov.au or speak to your registered tax adviser.

How to claim a tax loss on your trust tax return is explained in Question 27 of the Trust tax return instructions.