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Edited version of your written advice
Authorisation Number: 1013105545469
Date of advice: 11 October 2016
Ruling
Subject: Trust losses
Question
Where the deductions claimed in previous years are allowable, can a tax loss from earlier income years be included in the 20YY tax return?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 20YY
Year ended 30 June 20ZZ
Relevant facts
The previous tax agent of the Trust passed away. The Trust has limited records.
The Trust has been able to obtain copies of some tax returns.
In 20AA the Trust recorded a loss and carry forward losses.
The Trust has calculated the carry forward loss as at 30 June 20XX.
The Trust is a discretionary trust.
The Trust has had the same trustees and same beneficiaries since commencement.
The Trust satisfies the relevant tests contained in the trust loss provisions.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 36-15
Income Tax Assessment Act 1936 Schedule 2F
Reasons for decision
The rules for deducting an earlier year loss are set out in subdivision 36-A of the Income Tax assessment Act 1997 (ITAA 1997).
A loss arising in one income year is carried forward and offset in calculating the net income of the trust estate in future years (section 36-15 ITAA 1997). The losses incurred within an income year are available for carry forward only when allowable deductions exceed the total of assessable income. However, the losses carried forward from a prior year are first offset against net exempt income in the year in which it is sought to deduct them, with the allowable deductions being limited to the excess.
Where the net income of a trust results in a net loss, the trust loss provisions in Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936) apply and the trust may have to work out its net income in a special way.
The trust loss provisions restrict the circumstances in which current and prior year losses can be claimed as a deduction in calculating the net income of a trust estate. These rules are designed to prevent the transfer of the tax benefit arising from the losses to persons who did not bear the economic loss at the time the losses or deductions were incurred by the trust.
In this case, there has not been a change in the beneficiaries of the Trust and the relevant tests contained in Schedule 2F of the ITAA 1936 are satisfied.
From the information provided we are unable to determine if the carry forward loss amounts showing are correct. However, where there is a loss resulting from allowable deductions and the relevant rules have been followed, a carry forward loss can be included in the 20YY tax return.