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Taxation Ruling

IT 2422

Income tax : application of Section 79C

  • Please note that the PDF version is the authorised version of this ruling.

FOI status:

May be releasedFOI number: I 1206375

PREAMBLE

This Office had occasion recently to advise on the operation of section 79C of the Income Tax Assessment Act in circumstances where a self-employed taxpayer had an entitlement under section 82AAT to an income tax deduction of $1,500 for contributions to a superannuation fund and was also entitled to an income tax deduction under section 80 for prior year losses.

2. Section 79C operates to limit the amount of deductions allowable under sections 77B, 77C, 78, 78B and 82AAT to the amount of income remaining after deducting from the assessable income all other allowable deductions except those allowable under sections 80, 80AAA, 80AA and Divisions 10, 10AA, 16B and 16C.

RULING

3. The short question involved in the enquiry was which of the two deductions was to be taken into account firstly, i.e. the superannuation contributions or the prior year losses. In terms of section 79C the advice given was that the superannuation contributions was to be taken into account before the prior year losses.

4. The effect of the advice given is illustrated in the following example:-

1986 Year
  $
Assessable Income 10,000
Section 82AAT Contributions 1,500
Prior year losses (20,000)
Bearing in mind that section 79C limits the income tax deduction allowable under section 82AAT it is apparent that section 79C will apply only if the prior year losses are taken into account first. As has been stated, however, the section 82AAT deduction must be taken into account first. In the result there is not any limitation under section 79C and the taxable income for the year is nil, calculated as follows:-
Assessable Income $10,000
Less
   Section 82AAT deduction 1,500
   Prior year losses 8,500 10,000
TAXABLE INCOME NIL

5. If, in the above example, expenditure of $9,500 deductible under section 51 had been incurred, section 79C would limit to $500 the income tax deduction allowable under section 82AAT, i.e. to the amount of income remaining after deducting from assessable income ($10,000) all other allowable deductions ($9,500) but without deducting the prior year losses. The amount of loss to be carried forward to the following year under section 80 would remain at $20,000.

COMMISSIONER OF TAXATION
2 July 1987

References

ATO references:
NO 87/2387-7

Subject References:
CARRY FORWARD LOSSES

Legislative References:
79C


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