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Edited version of private advice
Authorisation Number: 1052034693488
Date of advice: 26 September 2022
Ruling
Subject: Income - carried forward losses
Question
Am I able to use my carried forward tax losses to offset my Australian interest withholding tax obligation?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a foreign resident for tax purposes.
You have carried forward losses from Australia sources.
You hold investments in an Australian financial institution that did not deduct interest withholding tax.
During the 20XX income year you derived interest income.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(3)
Income Tax Assessment Act 1936 subsection 128B(2)
Income Tax Assessment Act 1936 section 128D
Income Tax Assessment Act 1997 section 36-15
Reasons for decision
Subsection 6-5(3) provides that the assessable income of foreign residents includes ordinary income from Australian sources.
Interest income
A foreign resident is liable for withholding tax on interest from a financial institution in Australia under subsection 128B(2).
Under section 128D, interest upon which withholding tax is payable, or upon which withholding tax would be payable, is not assessable income and is not exempt income of a person.
If withholding tax has not been deducted, you are required to lodge an income tax return for the relevant income years and declare the interest income in the tax return.
Therefore, you are required to lodge a tax return for the 20XX income year as withholding tax had not been deducted from the interest income at source. A tax rate of 10% will apply on this interest income.
Carried forward prior year losses
Section 36-15 allows a tax loss for a loss year to be deducted in a later income year. That is, if all of the tax loss cannot be deducted, then the undeducted amount is carried forward to the next income year.
Carried-forward losses are offset first against any net exempt income and then against assessable income. Losses must be utilised in the order in which they were incurred.
In your situation you have carried forward losses from the 20XX income year. As the interest received from the financial institution is considered not assessable income (under subsection 128D), this interest income cannot be offset against any previous carried forward losses.