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  • Revenue losses

    Some revenue loss issues we look out for are:

    Revenue losses incurred

    We focus on entities that inappropriately generate tax losses by over-claiming expenses and reconciliation items in a given year.

    Potential compliance risks include:

    • inflating expenses and creating artificial losses
    • understating, mischaracterising or omitting income
    • misclassifying capital losses as revenue losses.

    Entities with one or more of the following factors in their tax returns attract our attention:

    • high operating loss in a single year
    • significant revenue loss in a single year
    • high negative reconciliation items resulting in low or no taxable income
    • poor profitability over a sustained period.

    See also

    • TD 2007/2 Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?
    • Losses

    Revenue losses used

    We focus on entities that are using or carrying forward tax losses incorrectly.

    Tax losses that attract our attention include those:

    • being used where companies do not satisfy either the continuity of ownership or business continuity tests
    • deducted in the current year and exceeding the previous year’s carried forward tax losses
    • that cannot be reconciled with relevant labels on the tax return
    • being used by trusts that do not satisfy the relevant trust loss rules

    Rulings and determinations:

    • LCR 2019/1 The business continuity test - carrying on a similar business
    • TR 1999/9 Income tax: the operation of section 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132 (same business test)
    • TR 2007/2 Income tax: application of the same business test to consolidated and MEC groups – principally, the interaction between section 165-210 and section 701-1 of the Income Tax Assessment Act 1997
    • TD 2007/2 Income tax: should a taxpayer who has incurred a tax loss or made a net capital loss for an income year retain records relevant to the ascertainment of that loss only for the record retention period prescribed under income tax law?
    Last modified: 09 May 2022QC 69490