Section E: Losses (item 14)

Section E and the losses schedule

Section E deals with tax and capital losses for 2020–21. You do not need to complete section E if the SMSF has no tax losses or capital losses to carry forward to later income years.

In addition to recording losses in section E, complete a Losses schedule and attach it to the annual return if the SMSF has:

• a combined total for tax losses and net capital losses carried forward to later income years of greater than $100,000, or
• an interest in a controlled foreign company (CFC) that has      
  • 2020–21 losses greater than $100,000, or
  • deducted or carried forward to later income years a loss greater than $100,000.

Do not show cents for any amount you write in this section.

U Tax losses carried forward to later income years

Does the SMSF have tax losses to be carried forward to later income years?

Write at U the total tax losses incurred by the SMSF that are to be carried forward to later income years. The amount is the sum of:

• the SMSF’s tax loss for 2020–21, and
• the SMSF’s prior year tax losses to the extent that they have not previously been utilised

The SMSFs 2020–21 net exempt income, if any, is taken into account to calculate the amount of its tax loss for 2020–21.

If the SMSF's 2020–21 net exempt income is greater than the amount by which the SMSF's deductions (not including prior year tax losses) exceed its assessable income in 2020–21, the SMSF's 2020–21 tax loss will be nil and the surplus net exempt income will reduce prior year losses.

If you lodge a Losses schedule 2021, the amount at U Tax losses carried forward to later income years on that schedule (item 1 in part A) must be the same as the amount at U, section E on the annual return.

Do not include:

• a loss at U if you wrote a positive amount at O Taxable income or loss in section C
• net capital losses to be carried forward to later income years at U; include these at V Net capital losses carried forward to later income years and in the CGT schedule (if a schedule is required)
• losses that relate to non-arm's length income. Losses that relate to non-arm's length income cannot be applied against the SMSF's arm's length income. You should keep a record of losses that relate to non-arm's length income with the SMSF’s tax records.

For more information, see:

• Losses
• Sections 36-15 and 960-20 of the Income Tax Assessment Act 1997.

Tax losses and record keeping

If the SMSF incurred tax losses, it may need to keep records for longer than five years from the date it incurred the losses.

Generally you can carry forward tax losses indefinitely until they are applied by recoupment. When applied, the loss amount is a figure that is included in the calculation of the SMSF’s taxable income in that year.

It is in the SMSF’s interest to keep records substantiating this year’s losses until the amendment period for the assessment in which the losses are applied has lapsed (in most cases up to four years from the date of that assessment).

For more information, see:

• Record-keeping requirements
• Taxation Determination TD 2007/2.

V Net capital losses carried forward to later income years

Does the SMSF have net capital losses to carry forward to later income years?

Write at V the total of any unapplied net capital losses from collectables and unapplied net capital losses from all other CGT assets and events.

If this item applies to the SMSF you must refer to the Guide to capital gains tax 2021 to complete this item. It also explains the special CGT rules that apply to foreign residents and trustees of foreign trusts.

This information is calculated or transferred from:

• 3B in table 5 and 3A in Table 9 of the CGT summary worksheet, or
• A and B at item 3 of the CGT schedule, if one is required.

You cannot include a loss at V if you wrote an amount at A Net capital gain in section B.

If the SMSF must lodge a Losses schedule 2021, the amount on that schedule at V Net capital losses carried forward to later income years item 2 in part A must be the same as the amount at V here on this annual return.

For more information, see Guide to capital gains tax 2021.

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