Private ruling: Carried forward tax losses and capital gain
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to deduct from your assessable income, which includes a capital gain, your current and carried forward tax losses from previous income years? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have been a foreign resident for income tax purposes for approximately X years. Approximately Y years ago you acquired an investment property. During this income tax year you disposed of your investment property and made a capital gain. You have included the following income/expenses in your income tax return: · unfranked dividends · Australian Taxation Office general interest income · rental property loss , and · cost of managing tax affairs. You have carried forward tax losses from prior income tax years. These tax losses are mainly resulted from the rental property negative gearing.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 36-15

Reasons for decision: Summary: Capital gains tax (CGT) is the tax paid on any capital gain made. The amount of tax payable on a capital gain cannot be determined in isolation where other income exists. Once the net capital gain is calculated it forms part of your total assessable income. No differentiation is made on the taxation of a capital gain and other income, such as salary and wages. The final tax liability is calculated according to the margin rates that apply to your total taxable income for the relevant income tax year. Division 36 of the Income Tax Assessment Act 1997 sets out the method of calculating and deducting tax losses of earlier income tax years. Where a taxpayer has tax losses for more than one earlier income tax year, they must deduct them in the order it is incurred. Furthermore, a tax loss can be deducted only to the extent that is has not already been deducted. Where all or part of the tax loss cannot be deducted in an income year, the undeducted amount can be carried forward to the next income year. The undeducted amount is then applied to any excess in that income year or the balance carried forward to subsequent income tax years. In your case, your net capital gain forms part of your total assessable income. As your total assessable income exceeds the total deductions, you are able to deduct from this excess any carried forward tax losses to the extent that they have already not been deducted and in the order in which they have been incurred. If you cannot deduct all of your tax losses in this income tax year, the undeducted amount can be carried forward to be applied in future income tax years.