INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIA - CAPITAL GAINS AND CAPITAL LOSSES  

Division 17B - Disposal of small business assets: proceeds used for retirement  

Subdivision D - Previous years' net capital losses  

SECTION 160ZZPZL   EXEMPTION REDUCED IF NET CAPITAL LOSSES AVAILABLE FROM PREVIOUS YEARS  

160ZZPZL(1)   [When applies]  

This section applies if:

(a) a taxpayer makes one or more elections under paragraph 160ZZPZD(2)(a), 160ZZPZH(4)(a) or 160ZZPZI(4)(a) in respect of disposals of assets during a particular year of income (the current year ); and

(b) the taxpayer incurred one or more net capital losses in respect of years of income before the current year, but after the 1994-95 year of income, that have not been fully applied under section 160ZC in respect of years of income before the current year; and

(c) the losses would, apart from this Division, be fully or partly applied in determining whether a net capital gain accrues to the taxpayer in respect of the current year (if sufficient capital gains accrue in the current year). The extent to which a loss would be so applied is called the unapplied loss .

160ZZPZL(2)   Capital gains are reduced.  

The capital gain in respect of each of the disposals is reduced (but not below nil) by an amount (the reduction amount ) equal to so much of the total amount of the unapplied losses as has not already (see subsection (4)) been applied in reducing other capital gains under this subsection for the current year or an earlier year of income.

160ZZPZL(3)   Losses are also reduced, in the order in which they were incurred.  

The net capital losses are reduced (but not below nil) by the reduction amount, in the order in which the taxpayer incurred the losses.

160ZZPZL(4)   Order of reduction of capital gains is the order in which elections were made.  

Capital gains in respect of disposals are to be reduced under subsection (2) in the order in which the taxpayer made the elections as mentioned in paragraph (1)(a) in respect of the disposals.

160ZZPZL(5)   This section applies before other net capital loss provisions.  

For any given year of income, this section is to be applied in reduction of net capital losses before section 160ZC and Division 17A are to be applied in relation to those losses.

160ZZPZL(6)   Example.  

The following is an example of how this section works:

Example:

Assume that a taxpayer has net capital losses from previous years of income of $200 and $300 (incurred in that order). Assume that the taxpayer made elections in respect of the disposal of assets A, B and C (in that order) and that the amounts of the respective capital gains were $200, $400 and $700.

First, the capital gain in respect of asset A is reduced to nil by the $200 loss. (Note that the election for asset A must therefore specify nil as that asset's CGT exempt amount.) The $300 loss is then applied against the capital gain in respect of asset B, reducing it to $100.

Now that all of the total amount of the losses has been applied, the capital gain in respect of asset C is not reduced under this section.