I have a full time job employed with a large organisation, but I want to start a business with a friend on the side. It's going to take a while for us to start making a profit, and we are expecting losses in the first year or so.
Lawyer Answers (1): Answers from lawyers are general preliminary responses. They are not formal legal advice and cannot taken account of all your circumstances. They do not create a lawyer–client relationship.
Yes, this can be one of the advantages of a partnership, and similar benefits exist in a sole proprietorship. As you already earn an income from other sources, you can use the losses incurred as part of the partnership to offset your other income. This means that you may pay lower taxes overall.
However certain conditions must be met. You should seek legal advice on whether you fall into any of the categories allowing you to offset such losses against your personal income. For example, your business must be a primary production business or arts business, and the income from other sources should be less than $40,000 for the financial year, or, your income for non-commercial loss purposes is less than $250,000 and you pass one of the relevant income tests, or the Commissioner of Taxation has exercised discretion to allow you to claim the loss, or the loss is due to a deduction claimed under the small business tax incentives.
The Australian Taxation Office (ATO) will most likely seek evidence of this fact to verify you are claiming legitimate deductions and losses.