Table of Subdivisions
Guide to Division 36
36-A Deductions for tax losses of earlier income years
36-B Effect of you becoming bankrupt
36-1 What this Division is about
If you have more deductions for an income year than you have income, the difference is a tax loss which you may be able to deduct in a later income year.
Subdivision 36-A—Deductions for tax losses of earlier income years
Table of sections
36-10 How to calculate a tax loss for an income year
36-15 How to deduct tax losses
36-20 Net exempt income
36-25 Special rules about tax losses
36-10 How to calculate a tax loss for an income year
(1) Add up the amounts you can deduct for an income year (except *tax losses for earlier income years).
(2) Subtract your total assessable income.
(3) If you *derived exempt income, also subtract your *net exempt income (worked out under section 36-20).
(4) Any amount remaining is your tax loss for the income year, which is called a loss year.
Note: Some deductions are limited so that they cannot contribute to a tax loss. See:
·
section 26-55 (Limit on certain deductions)·
section 79D of the Income Tax Assessment Act 1936 (Limit on deductions for foreign income).36-15 How to deduct tax losses
(1) A *tax loss for a *loss year is deducted in a later income year as follows.
If you have no net exempt income
(2) If your total assessable income for the later income year exceeds your total deductions (other than *tax losses), you deduct the tax loss from that excess.
If you have net exempt income
(3) If you have *net exempt income for the later income year and your total assessable income (if any) for the later income year exceeds your total deductions (except *tax losses), you deduct the tax loss:
(a) first, from your net exempt income; and
(b) secondly, from the part of your total assessable income that exceeds those deductions.
(4) However, if you have *net exempt income for the later income year and those deductions exceed your total assessable income, then:
(a) subtract that excess from your net exempt income; and
(b) deduct the tax loss from any net exempt income that remains.
To work out your net exempt income: see section 36-20.
General
(5) If you have 2 or more *tax losses, you deduct them in the order in which you incurred them.
(6) A *tax loss can be deducted only to the extent that it has not already been deducted.
(7) If you cannot deduct all or part of your *tax loss in an income year, you can carry forward to the next income year the undeducted amount. You then apply this Subdivision to work out if you can deduct the tax loss in that income year.
(1) If you are an Australian resident, your net exempt income is the amount by which your total exempt income from all sources (except *excluded exempt income) exceeds the total of:
(a) the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and
(b) any taxes payable outside Australia on that exempt income.
(2) If you are not an Australian resident, your net exempt income is the amount (if any) by which the total of:
(a) your exempt income *derived from sources in Australia (except *excluded exempt income and *exempt income subject to withholding tax); and
(b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies (except *exempt income subject to withholding tax);
exceeds the total of:
(c) the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and
(d) any taxes payable outside Australia on income covered by paragraph (b).
(3) Excluded exempt income is exempt income to which any of the following provisions of the Income Tax Assessment Act 1936 apply:
(a) section 23AH (Foreign branch profits of Australian companies);
(b) section 23AI (Attributed income of controlled foreign companies);
(c) section 23AJ (Certain non-portfolio dividends from foreign companies);
(d) section 23AK (Amounts paid out of attributed foreign investment fund income);
(e) paragraph 23L(1)(a) (Income derived by way of the provision of employment fringe benefits);
(f) paragraph 99B(2)(d) or (e) (Certain attributable income of non-resident trust estates).
(4) Exempt income subject to withholding tax is income that section 128D of the Income Tax Assessment Act 1936 makes exempt because withholding tax is payable on it, or would be payable but for certain exemptions.
36-25 Special rules about tax losses
Tax losses of individuals
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Item |
For the special rules about this situation ... |
See: |
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1. |
You go bankrupt, or you are released from debts under a bankruptcy law: your right to deduct tax losses of an earlier income year may be affected. |
Subdivision 36-B |
Tax losses of companies
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Item |
For the special rules about this situation ... |
See: |
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1. |
A company has had a change of ownership or control during the income year, and has not carried on the same business: it works out its taxable income and its tax loss in a special way. |
Subdivision 165-B |
|
2. |
A company wants to deduct a tax loss. It cannot do so unless: · the same people owned the company during both the loss year and the income year; and· no person controlled the company’s voting power at any time during the income year who did not also control it during the whole of the loss year;or the company has carried on the same business and commenced no additional business or new transactions. |
Subdivision 165-A |
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3. |
One or more of these things happen: · income is injected into a company;· a tax benefit is obtained from available losses or deductions;· a deduction is injected into a company;· a tax benefit is obtained because of available income.The Commissioner can disallow tax losses or current year deductions. |
Division 175 |
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4. |
A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. (Both companies must be members of the same wholly-owned group.) |
Subdivision 170-A |
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See also: Tax losses of pooled development funds (PDFs) below |
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Tax losses of entities generally
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Item |
For the special rules about this situation ... |
See: |
|
1. |
You *derived income with a foreign source: your tax loss is not deductible from your assessable foreign income unless you so choose. |
Section 79DA of the Income Tax Assessment Act 1936 |
|
2. |
You have deductions in relation to deriving income with a foreign source: the amount you can deduct is limited to your foreign income of the same class. |
Section 79D of the Income Tax Assessment Act 1936 |
|
3. |
You have deductions in relation to deriving income under section 26AG of the Income Tax Assessment Act 1936 from the proceeds of a film: your tax loss may have a film component, which is deductible from your film income only. |
Subdivision 375-G
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Tax losses of pooled development funds (PDFs)
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Item |
For the special rules about this situation ... |
See: |
|
1. |
A company is a pooled development fund (PDF) at the end of an income year for which it has a tax loss: it can only deduct the loss while it is a PDF. |
Section 195-5 |
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2. |
A company becomes a PDF during an income year: special rules affect how it works out a tax loss and how the loss is deducted in a later income year. |
Section 195-15 |
Subdivision 36-B—Effect of you becoming bankrupt
36-30 What this Subdivision is about
After you become bankrupt, you cannot deduct a tax loss that you incurred beforehand. However, you may be able to deduct repayments of debts you incurred in the loss year.
Table of sections
Operative provisions
36-35 No deduction for tax loss incurred before bankruptcy
36-40 Deduction for amounts paid for debts incurred before bankruptcy
36-45 Limit on deductions for amounts paid
36-35 No deduction for tax loss incurred before bankruptcy
(1) If:
(a) you became bankrupt; or
(b) you were released from a debt by the operation of an Act relating to bankruptcy;
before the income year, you cannot deduct a *tax loss that you incurred before the day on which you either became bankrupt or were released.
(2) If:
(a) you became bankrupt before the income year; and
(b) the bankruptcy is later annulled under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and
(c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy;
you cannot deduct a *tax loss that you incurred before the day on which you became bankrupt.
36-40 Deduction for amounts paid for debts incurred before bankruptcy
Tax losses generally
(1) If:
(a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and
(b) you have a *tax loss referred to in section 36-35 for that earlier income year;
you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax loss.
Film losses
(2) If:
(a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and
(b) you incurred the debt in the course of deriving or gaining *assessable film income or *exempt film income; and
(c) you also incurred a *film loss referred to in section 36-35 in that earlier income year;
you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the film loss.
36-45 Limit on deductions for amounts paid
Tax losses generally
(1) The total of your deductions under subsection 36-40(1) for amounts paid in the income year for debts incurred in the *loss year cannot exceed the amount of the *tax loss reduced by the sum of:
(a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and
(b) any amounts of the tax loss deducted in earlier income years; and
(c) any amounts of the tax loss that, apart from section 36-35, would have been deductible from your *net exempt income for the income year or earlier income years.
Film losses
(2) The total of your deductions under subsection 36-40(2) for amounts paid in the income year for debts incurred in the *loss year cannot exceed the amount of the *film loss reduced by the sum of:
(a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and
(b) any amounts of the film loss deducted in earlier income years; and
(c) any amounts of the film loss that, apart from section 36-35, would have been deductible from your *net exempt film income for the income year or earlier income years.
[The next Part is Part 2-10]
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