Private ruling: Carried forward losses and the income requirement
Date of advice: 20 July 2018
Published: September 2018
Ruling period: year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are carry forward losses taken into account when calculating your taxable income for the purposes of the income requirement under Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Section 36-15 of the ITAA 1997 states that a tax loss from a prior year is an available deduction in calculating your taxable income in the current year when certain criteria are met. In your case, after applying prior year carried forward losses to your taxable income in the 2016-17 financial year, your taxable income is nil. As you had no reportable fringe benefits, reportable superannuation contributions or net investment losses in the 2016-17 financial year, you passed the income requirement at subsection 35-10(2E) of the ITAA 1997. Given that your business earned more than $20,000 in assessable income in the 2016-17 financial year, the loss deferral rule in Division 35 of the ITAA 1997 will not apply to defer the business loss in that year.

Relevant facts and circumstances: You have ordinary prior year losses carried forward into the 2016-17 financial year. You had positive taxable income, before applying prior year losses, in the 2016-17 financial year. You had no reportable fringe benefits, reportable superannuation contributions or net investment losses in the 2016-17 financial year. Given that your business earned more than $20,000 in assessable income in the 2016-17 financial year, the loss deferral rule in Division 35 of the ITAA 1997 will not apply to defer the business loss in that year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 4-15 | Income Tax Assessment Act 1997 Section 8-5 | Income Tax Assessment Act 1997 Section 12-5 | Income Tax Assessment Act 1997 Section 35-10 | Income Tax Assessment Act 1997 Section 35-30 | Income Tax Assessment Act 1997 Section 36-15