ATO Interpretative Decision

ATO ID 2002/189 (Withdrawn)

Personal Tax

• This ATO ID 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.

Issue

Can a taxpayer claim all of a prior year loss against current year income under section 36-15 of the Income Tax Assessment Act 1997 (ITAA 1997) when the taxpayer had excess income over deductions but no tax payable in the years between the loss year and the current year of income?

Decision

No. The taxpayer must offset the prior year loss under section 36-15 of the ITAA 1997 against the excess of income over deductions sequentially in each of the years following the loss year even though tax may not have been payable in those years.

Facts

A resident individual taxpayer's 1994-95 income tax return comprised:

•

a business loss; and

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salary and wage income.

The business loss was greater than the assessable income from salary and wages resulting in nil taxable income and a tax loss for the 1994-95 income year (loss year).

In each of the 1995-96, 1996-97, 1997-98, 1998-99 and 1999-2000 income years, the taxpayer's assessable income from all sources was greater than total deductions (excluding claims for prior year losses) but the excess was not sufficient to attract a tax liability in the relevant income years. In other words, the taxpayer's income in each year of income was below the tax-free threshold (i.e. nil tax payable on taxable income for $5400 or less for the relevant years of income for resident individual taxpayers).

In the 2000-01 income year, the taxpayer's assessable income from all sources was greater than total deductions and the excess was sufficient to have a taxable income which attracted a tax liability.

The taxpayer requested that the tax loss of the 1994-95 year be offset against the total assessable income over total deductions for the 2000-01 income year.

The taxpayer did not derive net exempt income in the 1995-96 to 2000-01 income years inclusive.

Reasons for Decision

Division 36 of the ITAA 1997 sets out the method for calculating and deducting tax losses of earlier income years.

Subsection 36-15(2) of the ITAA 1997 provides that where a taxpayer does not have net exempt income, a tax loss is deductible against the excess of total assessable income and total deductions in a later income year.

Where all or part of the tax loss cannot be deducted in an income year, subsection 36-15(7) of the ITAA 1997 provides that the undeducted amount can be carried forward to the next income year. The undeducted amount is then applied to any excess in that next income year or the balance carried forward to subsequent income years.

The taxpayer has incurred a tax loss in the 1994-95 income year which can be carried forward to the next income year. The taxpayer had an excess of income over deductions in that next year of income, although no tax was payable as the excess did not exceed the tax-free threshold for that income year. Subsection 36-15(7) of the ITAA 1997 requires that the undeducted amount from the loss year be applied against that excess first. Any undeducted balance amount is then to be offset against the excess of each of the subsequent years of income until the undeducted balance amount is exhausted.

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   Division 36
   section 36-15
   subsection 36-15(2)
   subsection 36-15(7)

Keywords
Prior year losses
Losses
Losses carried forward
Carry forward losses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 February 2002

ISSN: 1445-2782