Private ruling: Tax losses of earlier years
Date of advice: 11 October 2016
Published: December 2016
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20ZZ

Ruling: Q1: Are you entitled to include a tax loss from earlier income years in the 20YY tax return? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 36-15 | Income Tax Assessment Act 1936 Schedule 2F

Reasons for decision: Summary: The rules for deducting an earlier year loss are set out in subdivision 36-A of the Income Tax assessment Act 1997 (ITAA 1997). A loss arising in one income year is carried forward and offset in calculating the net income of the trust estate in future years (section 36-15 ITAA 1997). The losses incurred within an income year are available for carry forward only when allowable deductions exceed the total of assessable income. However, the losses carried forward from a prior year are first offset against net exempt income in the year in which it is sought to deduct them, with the allowable deductions being limited to the excess. Where the net income of a trust results in a net loss, the trust loss provisions in Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936) apply and the trust may have to work out its net income in a special way. The trust loss provisions restrict the circumstances in which current and prior year losses can be claimed as a deduction in calculating the net income of a trust estate. These rules are designed to prevent the transfer of the tax benefit arising from the losses to persons who did not bear the economic loss at the time the losses or deductions were incurred by the trust. In this case, there has not been a change in the beneficiaries of the Trust and the relevant tests contained in Schedule 2F of the ITAA 1936 are satisfied. From the information provided, we are unable to determine if the original carry forward loss amount is correct. However, where the loss resulted from allowable deductions and the relevant rules have been followed, a carry forward loss can be included in the 20YY tax return.

Relevant facts: A Trust previously operated a business. | In recent years, no business activity has been carried on by the Trust. | The previous tax agent passed away and the Trust has very limited records. | The Trust has been able to obtain some copies of some tax returns. | In 20AA the Trust made a loss and had carry forward losses at that time. | Losses in the following years were incurred. | The Trust has calculated the carry forward loss as at 30 June 20XX. | The losses in the above years relate to annual fees and accountant's fees. | The Trust has had the same trustees and same beneficiaries since commencement. | The Trust satisfies the relevant tests contained in the trust loss provisions.