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Ruling

Subject: Prior year capital losses

Question:

For the year ended 30 June 2012, can you carry forward capital losses made in previous years but were not declared (despite lodging net capital gains in some of the interim years)?

Answer:

No.

This ruling applies for the following periods:

30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

During the years ended X Y and Z, CGT event G3 occurred in relation to various shareholdings in the listed companies, which were not declared in your tax returns for the relevant financial years.

You declared a net capital gain in numerous years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-15

Reasons for decision

Applying capital losses

Section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides your assessable income includes your net capital gain (if any) for the income year and you work out your net capital gain in this way:

Step 1. 

Reduce the capital gains you made during the income year by the capital losses (if any) you made during the income year.

Step 2. 

Apply any previously unapplied net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of capital gains under step 1 (including any capital gains not reduced under that step because the capital losses were less than the total of your capital gains).

Step 3. 

Reduce by the discount percentage each amount of a discount capital gain remaining after step 2 (if any).

Step 4. 

If any of your capital gains (whether or not they are discount capital gains) qualify for any of the small business concessions in Subdivisions 152-C, 152-D and 152-E, apply those concessions to each capital gain as provided for in those Subdivisions.

Step 5. 

Add up the amounts of capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year.

Section 102-15 of the ITAA 1997 explains how to apply net capital losses. It states:

· In working out if you have a net capital gain, your net capital losses are applied in the order in which you made them.

· A net capital loss can be applied only to the extent that it has not already been applied.

· To the extent that a net capital loss cannot be applied in an income year, it can be carried forward to a later income year.

Example:

You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400.

You have available net capital losses of $300 (for last year) and $200 (for the year before that).

The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200.

In your case, following the method in sections 102-5 and 102-15 of the ITAA 1997, your capital loss made for the year X must first be applied to your capital gain made in the year ended X. If your capital loss made for the year ended X is not used up in the year ended X, it must next be applied to your capital gain made in subsequent year.

Similarly, your capital losses made in the years ended Y must first be applied to your capital gain made in the subsequent year. If your capital loss made for the year ended Y is not used up in the subsequent year, it must next be applied to your capital gain made in a later year.

Similarly, your capital losses made in the years ended Z must first be applied to your capital gain made in a later year. If your capital loss made for the year ended Z is not used up in a later year, it must next be applied to your capital gain made in the later year.