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  • Section 2 Foreign loss component of a tax loss

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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    How to deduct a converted foreign loss

    The sum of the convertible foreign losses (converted into a tax loss) for each earlier income year is the starting total for all of those losses taken together (the loss parcel).

    An entity that does not apply the $10,000 limit will be subject to special rules on deductibility. The special rules only apply to the component of a tax loss that comprises the convertible foreign loss (the foreign loss component).

    The entity divides the starting total for the loss parcel into five equal portions (see section 775-30External Link of the IT(TP)A). In the commencement year, the entity can use a maximum of one portion of the starting total (subject to the general loss recoupment tests). In each of the next three income years ending after the commencement year the entity can use (subject to general loss rules) a maximum of one portion plus any remaining portion that it was unable to deduct in a prior income year, for example because it had insufficient assessable income. In the fourth income year ending after the commencement year (and subsequent income years), the entity can deduct any remaining foreign loss component without restriction (subject to the general loss recoupment tests).

    Foreign loss component of tax losses deducted

    Show at K the foreign loss component of tax losses deducted in this income year.

    Include the amount at K, together with other tax losses deducted (if any), at the Tax losses deducted label on your tax return.

    Foreign loss component of tax losses carried forward

    Show at L the foreign loss component of tax losses carried forward to later income years.

    The amount shown at L should equal the amount at J less the amount at K.

    Include the amount at L, together with other tax losses carried forward (if any), at the Tax losses carried forward to later income years label on your tax return.

    Last modified: 27 Nov 2009QC 21731