ATO Interpretative Decision
ATO ID 2006/284 (Withdrawn)
Income tax
Company tax losses: deducting losses from net exempt incomeFOI status: may be released
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The ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 5 March 2010
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where a company has tax losses that it incurred prior to deriving net exempt income, can it deduct those tax losses under Division 165 of the Income Tax Assessment Act 1997 (ITAA 1997) if it satisfies the same business test?
Decision
Yes. To the extent that the tax losses are not required to be deducted from the net exempt income in accordance with subsections 36-17(3) and (4) of the ITAA 1997.
Facts
The taxpayer, a company, incurs a tax loss (the tax loss) of $1000 in the year of income ended 30 June 2004. It has no earlier undeducted tax losses.
During the year of income ended 30 June 2005, the taxpayer underwent a complete change of ownership. The taxpayer derived $200 net exempt income and had a $300 excess of total assessable income over total deductions. The taxpayer, under paragraph 36-17(3)(b) of the ITAA 1997, chooses not to deduct any of the tax loss against that excess.
In the year of income ended 30 June 2006, the taxpayer's total assessable income exceeds its total deductions by $2000. The taxpayer, under subsection 36(17)(2) of the ITAA 1997, chooses to deduct the whole of the tax loss (that is, $1000) incurred in the year of income ended 30 June 2004 against that excess.
The taxpayer satisfies the same business test under section 165-13 in respect of the year of income ended 30 June 2006.
Reasons for Decision
In respect of the income year ended 30 June 2005, the taxpayer may, in accordance with paragraph 36-17(3)(b) of the ITAA 1997, choose to deduct a nil amount of the tax loss against its excess of total assessable income over its deductions.
However, the taxpayer, under paragraph 36-17(3)(a) of the ITAA 1997, is required to deduct $200 of the tax loss from its net exempt income.
Therefore in accordance with subsection 36-17(8) of the ITAA 1997, the taxpayer can only choose to deduct a maximum of $800 of the tax loss in the year of income ended 30 June 2006.
Date of decision: 3 October 2006Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
Division 165
section 165-13
subsection 36-17(2)
subsection 36-17(3)
paragraph 36-17(3)(a)
paragraph 36-17(3)(b)
subsection 36-17(4)
subsection 36-17(8)
Keywords
assessable income
deduction
net exempt income
tax loss
ISSN: 1445-2782
| Date: | Version: | |
| 3 October 2006 | Original statement | |
| You are here → | 5 March 2010 | Archived |