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Ruling
Subject: Offsetting capital gain with business loss
Question:
Can your carry forward business loss from the year ended 30 June 2010 be used to offset your assessable net capital gain for the year ended 30 June 2011?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2011
Relevant facts and circumstances
You carried on a business during the years ended 30 June 2000 to 2010 inclusive. At 30 June 2010, you had carry forward business losses (despite incorrectly lodging them as deferred losses). You had no commercial debts that were subject to debt forgiveness.
During the year ended 30 June 2011, you sold a block of land for a capital gain. During the year ended 30 June 2011, the only income you received was from Centrelink.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 36-15
Income Tax Assessment Act 1997 Section 11-15
Reasons for decision
Sections 6-5 and 6-10 of the ITAA 1997 states your assessable income includes both ordinary income and statutory income. Section 10-5 of the ITAA 1997 includes capital gains as statutory income.
Section 36-15 of the ITAA 1997 provides you can deduct tax losses of earlier income years from your total assessable income.
If you have net exempt income, section 36-15 of the ITAA 1997 provides you must first deduct tax losses of earlier income years from your net exempt income and secondly from your total assessable income.
Section 11-15 of the ITAA 1997 currently lists classes of exempt income, which include family assistance payments, social security or like payments (such as child disability assistance, disability services payment) and private health insurance incentive payments.
In your case, the capital gain you made from the sale of land will be included in your assessable income for the year ended 30 June 2011. It follows section 36-15 of the ITAA 1997 will allow you deduct your prior year tax losses from your assessable income (after you have deducted those prior year tax losses from any exempt income you may have received).