Part E Foreign source losses
Foreign losses are no longer quarantined from domestic assessable income (or from assessable foreign income of a different class). Resident taxpayers also are no longer required to make an election to deduct domestic tax losses against assessable foreign income - therefore, in utilising deductions, no distinction is made in respect of the source of the assessable income, whether foreign or domestic. A taxpayer will now combine both foreign and domestic deductions. Where the deductions exceed assessable income and net exempt income from all sources, the excess will be a tax loss and can potentially be deducted from assessable income in a future income year.
These changes apply from a taxpayer's first income year starting on or after 1 July 2008 (the commencement year).
Prior year overall foreign losses that existed at the beginning of the commencement year are subject to transitional rules. Generally, overall foreign losses in respect of the four former classes of assessable foreign income for each earlier income year were grouped together and converted into a tax loss. The converted loss is known as the foreign loss component of a tax loss. Utilisation of the foreign loss component of a tax loss is restricted for the first four years (the commencement year and the three subsequent income years). After this transitional period, any remaining undeducted tax loss will be subject to the ordinary loss utilisation rules.
See Subdivision 770-A Transitional foreign losses (common rules) of the Income Tax (Transitional Provisions) Act 1997 [IT(TP)A].
1 Foreign loss component of a tax loss
Foreign loss component of tax losses deducted
Write 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 RTax losses deducted item 7 on your Company tax return 2012, or MTax losses deducted item 11 on either your Fund income tax return 2012, or Self-managed superannuation fund annual return.
Foreign loss component of tax losses carried forward
Write at L the foreign loss component of tax losses carried forward to later income years.
Include the amount at L, together with other tax losses carried forward (if any), at UTax losses carried forward to later income years item 13 on your Company tax return 2012, Fund income tax return 2012, Self-managed superannuation fund annual return.
2 Controlled foreign company losses
Controlled foreign companies no longer quarantine revenue losses into separate classes of notional assessable income. However, CFC losses continue to be quarantined in the CFC that incurred them.
The amounts at M, N and O are the totals of the entity's share of losses incurred by CFCs. The entity's share of a loss of a CFC is calculated by applying its attribution percentage in the CFC to the loss of the CFC.
Current year CFC losses
Write at M the total amount of the entity's share of CFC losses, if any, for the statutory accounting period that ends within the 2011-12income year.
CFC losses deducted
Write at N the total of the entity's share of CFC losses, if any, that have been claimed as notional allowable deductions in calculating the CFC's attributable income for the statutory accounting period that ends within the 2011-12 income year.
CFC losses carried forward
Write at O the total amount of the entity's share of undeducted CFC losses, if any, that are available to be carried forward to statutory accounting periods that end in later income years.