ATO Interpretative Decision

ATO ID 2003/695

Income Tax

Trust losses - scheme to take advantage of deductions (income injection test) - prior year losses
FOI status: may be released

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Issue

Can the income injection test, pursuant to Division 270 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936), apply to tax losses where the loss year is prior to the date the scheme commenced?

Decision

Yes. The income injection test pursuant to Division 270 of Schedule 2F to the ITAA 1936 can apply to tax losses where the loss year is prior to the date the scheme commenced.

Facts

The trust is a non-fixed trust. The trustee of the trust has not made a family trust election pursuant to section 272-80 of Schedule 2F to the ITAA 1936.

For the purposes of subsection 270-10(1) of Schedule 2F to the ITAA 1936, the relevant scheme was identified as commencing on 1 July 2001.

The trust has a prior year tax loss relating to the income year ended 30 June 1997.

The trust is not prevented, by the other tests prescribed in section 267-20 of Schedule 2F to the ITAA 1936, from deducting the prior year tax loss, nor is the trust an excepted trust. The other conditions prescribed in paragraphs 270-10(1)(b) and (c) of Schedule 2F to the ITAA 1936 are satisfied.

Reasons for Decision

The requirement of paragraph 270-10(1)(a) of Schedule 2F to the ITAA 1936 is that 'a deduction is allowable to a trust for the income year'.

Section 36-15 of the Income Tax Assessment Act 1997 (ITAA 1997) determines how tax losses of earlier income years are to be deducted. Subsection 36-15(2) states:

If your total assessable income for the later income year exceeds your total deductions (other than *tax losses), you deduct the tax loss from that excess.

* denotes a term defined in subsection 995-1(1) of the ITAA 1997.

For the income injection test to apply, there must be an allowable deduction to a trust for the income year pursuant to paragraph 270-10(1)(a) of Schedule 2F to the ITAA 1936. The prior year tax loss is an allowable deduction, pursuant to subsection 36-15(2) of the ITAA 1997, in the income year. Consequently the income injection test can apply to tax losses where the loss year is prior to the date the scheme commenced.

Date of decision: 25 June 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 267-20
   Division 270
   subsection 270-10(1)
   paragraph 270-10(1)(a)
   section 272-80

Income Tax Assessment Act 1997
section 36-15
subsection 36-15(2)

Keywords
Income injection test
Losses and Capital Gains Tax CoE
Non fixed trusts
Prior year losses
Trust loss tests
Trust losses
Trusts

Siebel/TDMS Reference Number: 3624272

Business Line: Public Groups and International

Date of publication: 8 August 2003

ISSN: 1445-2782

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