ATO Interpretative Decision
ATO ID 2001/295
Income Tax
Pre 2000/2001 carried forward business losses and Division 35FOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can business losses incurred prior to the 2000/2001 income year be carried forward and written off against any other income in and after the 2000/2001 income year, even if none of the 4 tests from the new Division 35 legislation are satisfied?
Decision
Yes, business losses incurred prior to the 2000/2001 income year can be carried forward and written off against any other income in and after the 2000/2001 income year, even if none of the 4 tests from the new Division 35 legislation are satisfied.
Facts
An individual taxpayer had losses from the 1999/2000 and prior income years. In the 2000/2001 income year the taxpayer has net income from other sources and wants to offset the prior year losses against that income.
Reasons for Decision
Division 35 of the Income Tax Assessment Act 1997 (ITAA 1997) - Deferral of losses from non commercial business activities - will not affect the ability to carry forward pre 2000/2001 income year losses.
In terms of Division 35 of the ITAA 1997 the question is whether you have a deduction which, for the purposes of subsection 35-10(2) of the ITAA 1997, is "... attributable to the business activity for that income [i.e., 2001] year ... ."
If the answer is, no, then your deduction is attributable to carrying on the business prior to that year and will not be subject to Division 35 of the ITAA 1997. This is because the scheme of the Income Tax Assessment Acts is built around a system of annual tax accounting.
This was highlighted in the decision of the High Court in Ravenshoe Tin Dredging Ltd v. FCT (1966) 116 CLR 810, when Barwick C.J. stated, "... in my respectful opinion, losses resulting from operations in past years cannot be regarded as in any relevant sense "related" to the income of the current year. Once annual accounting to ascertain assessable income is undertaken, apart from special statutory provisions, the financial experience of the year is, as it were, isolated from earlier and from subsequent years: so to speak, it is self-contained."
Therefore, losses incurred prior to the 2000/2001 income year will not be related to any subsequent income years and will be able to be carried forward without having to satisfy the new tests under Division 35 of the ITAA 1997.
Division 35 of the ITAA 1997.- Deferral of losses from non-commercial business activities, applies to losses incurred in the 2000/2001 and later years.
Date of decision: 28 June 2001
Legislative References:
Income Tax Assessment Act 1997
Division 35
subsection 35-10(2)
Case References:
Ravenshoe Tin Dredging Ltd v. FCT
(1966) 116 CLR 81
Keywords
Tax Loss
Carry forward losses
Non commercial losses
NCL carrying on a business
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 28 June 2001 | Original statement |
| 4 July 2014 | Archived |