Part A - Foreign losses from earlier years

From 1 July 2008, you can deduct foreign losses from all of your assessable income. However, unclaimed foreign losses from income years prior to 2008-09 must be claimed over five years from the 2008-09 to 2012-13 income years.

Your unclaimed foreign loss for an income year is the total of your overall foreign loss for each class of assessable foreign income for that income year, less any amount of that loss that you have used to reduce your assessable foreign income of that particular class in any income year before 2008-09.

You will need to work through the following steps to determine how these special rules apply to your circumstances.

Step 1	For each income year from 2001-02 to 2007-08, determine all of your unclaimed foreign losses
Step 2	For each income year from 1998-99 to 2000-01, determine all of your unclaimed foreign losses. Halve the amount of each unclaimed foreign loss
Step 3	Add all of the amounts from steps 1 and 2. This is your starting convertible foreign loss

Your starting convertible foreign loss can be used to reduce your assessable income for income years beginning on or after 1 July 2008. You will need to keep a record of your losses.

Example 1: Working out your starting convertible foreign loss

Peter has the following unclaimed foreign losses:

Peter's starting convertible foreign loss amount will be:

Is your starting convertible foreign loss more than $10,000?

No	Include this amount in your non-primary production losses total at (c) in worksheet 1.
Yes	Read on.

Starting convertible foreign losses over $10,000 have a deduction limit in the income years 2008-09 to 2011-12.

You can choose to reduce your starting convertible foreign loss to a total of $10,000. If you choose to do this, the excess over $10,000 will never be deductible.

Do you choose to reduce your starting convertible foreign loss to $10,000?

Yes	Include this amount in your non-primary production losses total at (c) in worksheet 1.
No	Read on.

Deducting a starting convertible foreign loss greater than $10,000

Your starting convertible foreign loss is deductible over the income years 2008-09 to 2012-13. You divide your starting convertible foreign loss into five equal portions.

In 2008-09, you could use a maximum of one portion of the starting total. In each of the next three income years ending after 2008-09, you can use a maximum of one portion plus any remaining portion that you were unable to deduct in a prior income year, for example because you had insufficient assessable income. In the fourth income year ending after 2008-09 (and subsequent income years), you can deduct any remaining foreign loss component without restriction.

For 2009-10, you are entitled to a deduction of up to 2/5 (40%) of your starting convertible foreign loss less any amount claimed in the 2008-09 income year.

For 2010-11, you are entitled to a deduction of 3/5 (60%) of your starting convertible foreign loss less any amount previously claimed.

For 2011-12, you are entitled to a deduction of 4/5 (80%) of your starting convertible foreign loss less any amount previously claimed.

Step 1	Multiply your starting convertible foreign loss by 0.8 to work out the maximum of your deduction limit for 2011-12.
Step 2	Reduce the amount in Step 1 by the amount of your starting convertible foreign loss deducted in the 2008-09, 2009-10 and 2010-11 income years.
Step 3	Include this amount in your non-primary production losses total at (c) in worksheet 1.

Example 2: Working out a deduction amount for 2011-12

In 2008-09 Josylin had a starting convertible foreign loss of $20,000 and chose not to reduce it to $10,000. She deducted only $4,000 (that is, 1/5 or 20% of $20,000) in 2008-09.

In 2009-10 Josylin had a tax loss of $2,000 and could not deduct any of her converted foreign losses.

In 2010-11, Josylin works out the maximum amount that she can claim as a deduction by multiplying her starting convertible foreign loss of $20,000 by 0.6 (that is, 60% or 3/5). This equals $12,000. She then reduces this amount by the $4,000 that she deducted in 2008-09. Therefore the maximum amount that Josylin could claim as a deduction was $8,000. As Josylin's net income was $7,000, she was only able to deduct $7,000 of her converted foreign losses.

In 2011-12 Josylin works out the maximum amount that she can claim as a deduction by multiplying her starting convertible foreign loss of $20,000 by 0.8 (that is, 80% or 4/5). This equals $16,000. She then reduces this amount by the $4,000 that she deducted in 2008-09 and the $7,000 she deducted in 2010-11. Josylin is therefore able to claim up to $5,000 of her converted foreign losses in 2011-12. She will also be able to claim her $2,000 tax loss from the 2009-10 year, if she has sufficient income.

If Josylin's net income in 2011-12 is $3,000 then she can claim only $3,000 of the $5,000 available converted foreign loss, reducing her taxable income to nil.

If Josylin has sufficient assessable income in 2012-13 she can claim the remaining $6,000 of converted foreign loss and then the 2009-10 tax loss of $2,000. Any loss remaining is carried forward to future years, until it can be deducted.