From 1 July 2008
From 1 July 2008, if you have a business loss from a foreign source, the non-commercial loss rules will determine if you can use your business loss to offset income from other sources.
To calculate your business loss, you will need to combine all income and deductions from both foreign and Australian sources that are attributable to the same or similar business activity.
If you are able to claim your business loss because of the non-commercial loss rules, there is no restriction on whether you can claim it against foreign or Australian components of your income.
If you are not able to deduct your business loss because of the non-commercial loss rules, you will need to defer your loss for use in a later year.
If you have carried forward foreign business losses that have not been used and that were incurred before 1 July 2008, you may be able to convert them into an ordinary tax loss. For more information about the transitional rules, see below.
Before 1 July 2008
Before 1 July 2008, if you had a business loss that included income and deductions from a foreign source, the foreign loss rules took precedence over the application of the non-commercial loss rules. The foreign business loss was quarantined and could only be offset against foreign income of the same class. If there was no other income of the same class, the loss from the business activity was required to be carried forward and could only be offset against future foreign income of that same class.
If you have any foreign business losses that you have not been able to claim prior to 1 July 2008, you may be able to convert them into an ordinary tax loss and deduct them from your assessable income in a later year, subject to certain restrictions and limits. The non-commercial loss rules will not apply to these carried-forward losses.
For more information, refer to Summary of changes to foreign loss and foreign tax credit calculation rules from 1 July 2008 including transitional rules.
End of further information
New foreign income tax offset rules
From 2008-09, foreign income tax offset rules apply. For more information about whether these rules affect you, refer to Summary of changes to foreign loss and foreign tax credit calculation rules from 1 July 2008 including transitional rules.
For the 2007-08 and prior financial years, the foreign losses and foreign tax credits calculation rules will continue to be calculated under the former foreign tax credits and foreign losses regimes, according to TaxPack for each financial year.
To claim your foreign tax credit or foreign losses for prior year returns, refer to How to claim your foreign tax credit or foreign losses for 2007-08 and earlier income years.
For additional information, refer to Changes to foreign loss quarantining and foreign tax credit calculation rules - overview.
End of further information