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  • PAYG instalments and prior year losses for companies

    Your corporate tax entity can choose when and how much of your prior year tax losses to deduct.

    If your entity chooses to apply a loss over subsequent years, your pay as you go (PAYG) instalment rate is consequentially affected.

    PAYG instalment rate

    Broadly, your entity's PAYG instalment rate is based on both:

    • your entity's notional tax, which is the tax for the most recent year that has been assessed (called the base year)
    • an adjusted taxable income amount.

    Your entity's adjusted taxable income is generally worked out by subtracting from the assessable income for the base year:

    • any net capital gain included in assessable income
    • all deductions other than tax losses
    • any tax losses carried forward to the next income year.

    If the amount of tax losses that were deducted in the base year is less than the amount of tax losses that could have been deducted, the calculation subtracts the lesser of:

    • any tax losses deducted in the base year
    • the amount of any tax loss carried forward to the next year.

    Carry forward loss pool greater than the tax losses deducted for the year

    If the amount of tax losses deducted in the base year is less than the amount of tax losses carried forward, the amount of loss deducted in the base year is the amount to subtract when calculating adjusted taxable income.

    Example: Remaining carried forward pool is greater than the amount of tax loss deducted in the base year

    Ajax Pty Ltd has assessable income of $100,000, deductions of $30,000 and carried forward losses of $10,000 of which Ajax chosen to deduct $4,000 in the base year.

    There is a tax loss of $6,000 to be carried forward to the next year ($10,000 -$4,000). The amount of the deductions for tax losses used in the base year is $4,000. Therefore the lesser amount is $4,000.

    The adjusted taxable income of the entity will be:

    Assessable income

    $100,000

    less deductions

    $30,000

    less amount of deduction for tax losses

    $4,000

    Adjusted taxable income

    $66,000

     

    End of example

    Carry forward loss pool less than the amount of losses deducted in the base year

    If the losses carried forward to the next year are less than the amount of losses deducted in the base year, the amount subtracted from assessable income for the base year to calculate adjusted taxable income amount is equal to the carried forward pool.

    This is because the maximum amount your entity can use up for the next income year is the amount of carry forward loss available. If your entity has a carried forward loss less than the amount which it used up this year, it is this lesser amount that is used when calculating the adjusted taxable income amount.

    Example: Remaining carried forward pool is less than the amount of loss deducted in the base year

    Ajax Pty Ltd has assessable income of $100,000, deductions of $30,000, a pool of carried forward losses transferred under Subdivision 707-A of the Income Tax Assessment Act 1997 of $10,000 of which Ajax deducts $7,000 in the base year.

    The amount of the tax loss carried forward is $10,000 less $7,000 (which was deducted in the base year), leaving a tax loss of $3,000 to be carried forward to the next year. The amount of the deductions for tax losses is $7,000. Therefore the lesser amount is the $3,000 carried forward to the next year.

    Ajax adjusted taxable income will be:

    Assessable income

    $100,000

    Less deductions

    $30,000

    Less amount of tax loss which is carried forward to the next year

    $3,000

    Adjusted taxable income

    $67,000

    This adjusted taxable income amount is used to calculate the PAYG instalment rate or the PAYG instalment amount.

    End of example

    More information

    For more information, refer to:

    You can also:

    • speak to your tax adviser
    • phone us on 13 24 78
    • write to us at

    Australian Taxation Office
    Locked Bag 9000
    ALBURY  NSW  2640

      Last modified: 14 Sep 2016QC 17718