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Tax Losses


  • Tax losses of earlier income years must be reduced by any net exempt income e.g. child support

  • gifts or donations cannot be used either to create or increase a loss. s.26-55.

  • personal superannuation contributions cannot be used either to create or increase a loss.

  • If the superannuation paid is e.g. $8,000, the deduction will be 5,000 + (75% x 3,000)
Tax Losses

"A tax loss occurs when the total of your allowable deductions for an income year – excluding tax losses of earlier income years – is greater than the total of your assessable income and your net exempt income" [Sce: www.ato.gov.au - NAT   0976]

A tax loss can be carried forward indefinitely as a deduction against taxable income until it has been reduced to zero.

Restriction on carry forward losses

A loss can be deducted from other income only if at least one of the following exists:
  • the assessable income from the activity is at least $20,000 p.a.

  • the total reduced cost bases of real property used in carrying on the activity are at least $500,000

  • the total value of other assets (other than motor vehicles) used in the activity is at least $100,000

  • the particular activity resulted in taxable income in at least three out of the last five income years
Companies MTG 3-060

A company that fails to satisfy both the continuity of ownership and continuity of business tests is prohibited from carrying forward a loss

Calculation of Taxable Income and Carry forward Loss

Suppose the following:
PAYMENTS:
Loan (interest only) $58000.00
Personal super $5000.00
Gifts $1000.00

RECEIPTS:
Distribution of Trust income $60,000.00
Maintenance - ex spouse $8,000.00

Solution

Assessable IncomeDeductions $58,000.00
Trust distribution $60,000.00Less:
Less Deductions Exempt income $8,000.00
Interest on loan $58,000.00 Assess income $60,000.00
Super and Gifts $2,000.00

TAXABLE INCOME $ 0.00 TAX LOSS C/F $10,000.00