Private ruling: The carrying forward of business losses
Date of advice: 16 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Can you choose to defer your business losses to a later financial year where they can be utilised in the current year? | A1: No.

Relevant facts and circumstances: You are a partner in a partnership that operates a primary production business. The partnership made a loss during the 2014-15 financial year, of which your portion of the loss was $X. As your other assessable income that does not relate to the business activity was less than $40,000, you can include the loss from your business in your calculation of taxable income for the 2014-15 financial year. However as your assessable income is under $X, which is just above the tax free threshold of $18,200, you will not get the full tax benefit that you may get should you be able to elect to carry forward the loss to future years. As such you do not wish to utilise the loss in the 2014-15 financial year, but instead want to carry it forward to a later income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 35-10 | Income Tax Assessment Act 1997 subsection 35-10(4)

Reasons for decision: Summary: Individuals, who are both in business (sole traders and partners) and not in business, can generally carry forward a tax loss indefinitely, but must utilise a tax loss at the first opportunity. That is, if your income in the current income year exceeds your current year's deductions, you must offset any losses against your current year's income. You cannot choose to hold onto losses to offset them against future income if they can be offset against the current year's income. In Case W52 89 ATC 486, a taxpayer had made a loss in earning assessable income, but did not claim to offset the loss in the succeeding income year. The taxpayer argued that their taxable income in the succeeding year was below the tax-free threshold, and she would therefore lose the benefit of the loss if it was offset against income that was already tax-free. The Administrative Appeals Tribunal ruled that if the Commissioner knows of a deduction, such as an unrecouped tax loss, there was an obligation to take that deduction into account, whether the taxpayer claims it as a deduction or not. As such the taxpayer cannot elect the year(s) in which the loss was to be deducted. In your case, you have a loss from a partnership business for the 2014-15 financial year, and your income from other non-business related sources was less than $40,000. Therefore, your business losses for the 2014-15 financial year are not deferred under the non-commercial loss provisions in Division 35 of the Income Tax Assessment Act 1997 and must be offset against any other income received in that financial year.