Consolidation Reference Manual
You can still refer to the Consolidation reference manual for consolidation information that has not been impacted by changes in the legislation.
C3 Losses
C3-4 Worked example - loss utilisation
Amount that can be utilised
C3-4-410 Amount of transferred losses that can be utilised
Description
This example shows how to determine, under the available fraction method, the limits for utilisation of losses transferred to the head company of a consolidated group. It also shows how these limits are applied in calculating a group's actual taxable income.
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- loss bundles and calculating the available fraction → 'Treatment of losses', C3-1 ; 'Consolidation loss provisions', C3-2-110 (high-level worked example)
Commentary
The available fraction for a loss bundle is applied to each category of group income or gains as reduced by any relevant deductions, including group losses (that is, losses generated by the consolidated group as opposed to transferred losses). The results are taken to be the head company's only income or gains of each type. Based on that assumption, the head company works out the maximum amount of losses of each sort it can use from the loss bundle.
In working out the group's actual taxable income, group losses of one sort are generally used ahead of transferred losses of the same sort.
Example
Facts
A consolidated group is working out the group's taxable income for the 2004 income year.
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- The group's capital gains for the income year are $1,200.
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- The group's capital losses for the income year are $200.
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- The group's only other assessable income is $4,000.
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- Its deductions relating to that income are $800.
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- There is a group net capital loss of $400 carried forward from the 2003 income year.
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- There is a group tax loss (not film) of $700 carried forward from the 2003 income year.
The group's transferred losses and their available fractions are shown in table 1.
| Table 1: Transferred losses and available fractions | ||
|---|---|---|
| Loss bundle | Available fraction | Unused transferred losses |
| Bundle A | 0.150 | $150 net capital losses |
| $900 tax losses (not film) | ||
| Bundle B | 0.275 | $2,000 tax losses (not film) |
The head company satisfies the recoupment tests for the utilisation of all the group losses and all the transferred losses.
Calculation
A. Determine limits for utilisation of transferred losses
Step 1: Work out the categories of group income or gains - subsection 707-310(3)
| Table 2: Categories of group income or gains (step 1) | ||||
|---|---|---|---|---|
| Column 1 Income or gains | Column 2 Gross amount ($) | Less: allowable deductions/ reductions ($) | Less: group/ concessional losses of that kind ($) | Column 2 Income/ gains available for bundle ($) |
| Capital gains | 1,200 | 200 | 400 | 600 |
| Other assessable income | 4,000 | 800 | 700 | 2,500 |
Step 2: Calculate the fraction of the income/gains that is attributable to each bundle - subsection 707-310(3)
| Table 3: Fraction of income/gains attributable to each bundle (step 2) | ||||
|---|---|---|---|---|
| Column 1 Income or gains | Loss bundle | Column 2 Income/ gains available for bundle | Multiplied by: available fraction (AF) | AF amount for the bundle |
| Capital gains | Bundle A | $600 | 0.150 | $90 |
| Bundle B | $600 | 0.275 | $165 | |
| Other assessable income | Bundle A | $2,500 | 0.150 | $375 |
| Bundle B | $2,500 | 0.275 | $688 | |
Step 3(a): Work out a notional taxable income for bundle A - subsection 707-310(2)
| Table 4: Net capital gain (step 3a) | |||
|---|---|---|---|
| Capital gains | $ | Losses applied | $ |
| Capital gain | 90 | Transferred net capital losses | 90 |
| Total | 90 | Total | 90 |
The (notional) net capital gain is $0 ($90 - $90).
| Table 5: Taxable income (step 3a) | |||
|---|---|---|---|
| Assessable income | $ | Deductions | $ |
| Net capital gain | 0 | Transferred tax losses (not film) | 375 |
| Other assessable income | 375 | ||
| Total | 375 | Total | 375 |
Transferred losses 'used' in working out notional taxable income for bundle A are:
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- transferred net capital losses $90
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- transferred tax losses (not film) $375
These are the limits for utilisation of these transferred losses when determining the actual taxable income for the group.
Step 3(b): Work out a notional taxable income for bundle B - subsection 707-310(2)
| Table 6: Net capital gain (step 3b) | |||
|---|---|---|---|
| Capital gain | $ | Losses applied | $ |
| Capital gain | 165 | Transferred net capital losses | 0 |
| Total | 165 | Total | 0 |
The (notional) net capital gain is $165 ($165 - $0).
| Table 7: Taxable income (step 3b) | |||
|---|---|---|---|
| Assessable income | $ | Deductions | $ |
| Net capital gain | 165 | ||
| Other assessable income | 688 | Transferred tax losses (not film) | 853 |
| Total | 853 | Total | 853 |
The amount of transferred losses 'used' in working out notional taxable income for bundle B is:
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- transferred tax losses (not film) $853
This is the limit for utilisation of transferred losses when determining the actual taxable income for the group.
B. Determine group's actual taxable income
| Table 8: Net capital gain | |||
|---|---|---|---|
| Capital gains | $ | Capital losses | $ |
| Capital gains | 1,200 | Current-year group capital losses | 200 |
| Group net capital losses | 400 | ||
| Transferred net capital losses (bundle A) | 90 | ||
| Total | 1,200 | Total | 690 |
Therefore, the group's net capital gain is $510 ($1,200 - $690).
| Table 9: Taxable income | |||
|---|---|---|---|
| Assessable income | $ | Deductions | $ |
| Net capital gain | 510 | Deductions | 800 |
| Group tax loss | 700 | ||
| Other assessable income | 4,000 | Transferred tax losses (bundle A) | 375 |
| Transferred tax losses (bundle B) | 853 | ||
| Total | 4,510 | Total | 2,728 |
The group's taxable income is $1,782 ($4,510 - $2,728).
References
Income Tax Assessment Act 1997, Subdivision 707-C; as amended by New Business Tax System (Consolidation) Act (No. 1) 2002 (No. 68 of 2002), Schedule 1
Explanatory Memorandum to the New Business Tax System (Consolidation) Bill (No. 1) 2002, Chapter 8
Current at 2 December 2002