Whilst working from home in the 2021 income tax year, Mark frequents the caf at the end of his street every day for his morning coffee. Mark has gotten to know the owner, Cheryl, very well. The caf is run through Corner Caf Pty Ltd, and Cheryl is the sole director and shareholder.

In recent discussions, Cheryl has revealed that the caf is struggling; in the past 3 income tax years, Corner Caf Pty Ltd has generated tax loss of $10,000 per year. Mark has been contemplating a career change and is considering becoming a shareholder and director of Corner Caf Pty Ltd with Cheryl. This will allow Cheryl to spend more time at home with her grandchildren. Mark has some grand plans to turn the fortunes of the caf around; some ideas are a new menu to include a range of healthy takeaway meals, creating a social media presence and changing the name of the caf to something more modern.

Mark has been told that should he proceed with this plan, and make the caf profitable once more, that Corner Caf Pty Ltd will be able to claim a deduction for the prior year losses. Advise Mark as to whether this is the case, including any issues or conditions of which he should be aware.