INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 3 - Deductions  

Subdivision A - General  

SECTION 79E   GENERAL DOMESTIC LOSSES OF 1989-90 TO 1996-97 YEARS OF INCOME  

79E(1A)   [No operation from 1997/98 year onwards]  

This section does not apply to the 1997-98 year of income or a later year of income.

Note 1:

To work out the amount of a tax loss for the 1997-98 year of income or a later year of income: see Division 36 of the Income Tax Assessment Act 1997 .

Note 2:

To find out how much of a loss incurred in a post-1989 year of income you can deduct for the 1997-98 year of income or a later year of income: see section 36-105 of the Income Tax (Transitional Provisions) Act 1997 .

Note 3:

For the rules about deducting tax losses from assessable foreign income for the 1997-98 year of income or a later year of income: see section 79DA .

79E(1)   [Amount of loss]  

For the purposes of this section, a taxpayer incurs a loss in a post-1989 year of income equal to the amount (if any) by which the taxpayer's non-loss deductions for the year of income exceed the sum of the taxpayer's assessable income and net exempt income for that year.

79E(2)   [Where taxpayer subject to Subdiv B of Div 2A]  

In spite of subsection (1), if Subdivision B of Division 2A applies in relation to a taxpayer in relation to a post-1989 year of income, then, for the purposes of this section, the taxpayer incurs a loss in the year of income if, and only if, the taxpayer's current year loss amount for the year exceeds the taxpayer's net exempt income for the year, and the amount of the loss is equal to the excess.

79E(2A)   [Where Sch 2F applies]  

In spite of subsection (1), if Schedule 2F applies in relation to a taxpayer for a post-1989 year of income, then, for the purposes of this section, the loss incurred by the taxpayer in the year of income is worked out under section 268-50 of that Schedule.

79E(3)   [Deduction for losses]  

Subject to this section, so much of a taxpayer's losses incurred in any of the post-1989 years of income before a particular year of income as has not been allowed as a deduction from the taxpayer's income of any of those years is allowable as a deduction in accordance with the following provisions:

(a) where the taxpayer has not derived exempt income in the particular year of income, the deduction is to be made from the taxpayer's assessable income of that year;

(b) where the taxpayer has derived exempt income in that year, the deduction is to be made successively from the taxpayer's net exempt income and from the taxpayer's assessable income of that year;

(c) where a deduction is allowable under this section in respect of 2 or more losses, the losses are to be taken into account in the order in which they were incurred.

79E(3A)   [Reduced loss under commercial debt forgiveness provisions]  

If a loss referred to in subsection (3) is taken to be reduced under Subdivision 245-E of Schedule 2C in its application to the year of income or a previous year of income, any reference to that loss in this section is to be treated as a reference to that loss as so taken to be reduced.

79E(4)   [Film losses]  

Where a taxpayer has incurred a loss in a post-1989 year of income for the purposes of this section and has also incurred a loss in that year for the purposes of section 79F , only the excess (if any) of the former loss over the latter loss is to be taken into account for the purposes of subsection (3).

79E(5)   [Deduction from assessable foreign income]  

The losses referred to in subsection (3) are not allowable as a deduction from assessable foreign income of a taxpayer except to the extent provided in an election under subsection (6).

79E(6)   [Election re assessable foreign income]  

A taxpayer who has derived assessable foreign income in a year of income may elect that the whole or a part of the losses referred to in subsection (3) be allowable as a deduction from the taxpayer's assessable foreign income of that year.

79E(7)   [Time of election]  

An election under subsection (6) must be made on or before the date of lodgment of the return of income of the taxpayer for the year of income to which the election relates or within such further period as the Commissioner allows.

79E(8)   [Bankruptcy, etc]  

In spite of any other provision of this section, if, before a year of income, a taxpayer:

(a) has become a bankrupt; or

(b) not having become a bankrupt, has been released from any debts by the operation of an Act relating to bankruptcy;

then no loss incurred by the taxpayer before the day on which the taxpayer became a bankrupt or was so released is an allowable deduction in respect of the year of income under subsection (3).

79E(8A)   [Annulment of bankruptcy to be disregarded]  

If:

(a) a taxpayer becomes a bankrupt, but the bankruptcy is later annulled; and

(b) disregarding the annulment, subsection (8) applies to the bankruptcy; and

(c) the annulment occurred under section 74 of the Bankruptcy Act 1966 ; and

(d) under the composition or scheme of arrangement concerned, the taxpayer has been, will be or may be, released from any debts, from which he or she would have been released if he or she had been instead discharged from the bankruptcy;

then, for the purposes of subsection (8), the annulment is disregarded.

79E(9)   [Debt paid after bankruptcy, etc]  

Where:

(a) in a year of income (in this section called the ``payment year'' ), a taxpayer pays an amount in respect of a debt incurred by the taxpayer in a preceding year of income; and

(b) that preceding year of income (in this section called the ``loss year'' ) is a year in which the taxpayer incurred a loss to which subsection (8) applies;

then, subject to subsection (10), the amount paid by the taxpayer is an allowable deduction for the payment year, but only to the extent (if any) that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the loss.

79E(10)   [Maximum deduction allowable]  

The total deductions allowable to the taxpayer for the payment year under subsection (9) are not to exceed the amount of the loss reduced by the sum of:

(a) the deductions (if any) allowed under subsection (9) from the taxpayer's income of a year or years of income before the payment year in relation to the payment of other amounts in respect of debts incurred by the taxpayer in the loss year; and

(b) so much (if any) of the loss as has been allowed under subsection (3) as a deduction or deductions from the taxpayer's income (including the taxpayer's net exempt income) of a year or years of income before the payment year; and

(c) so much (if any) of the loss as, but for subsection (8), would have been allowed or allowable under subsection (3) as a deduction or deductions from the taxpayer's net exempt income of the payment year or of a year or years of income before the payment year.

79E(11)   [Effect of s 80(5), (6) and (7)]  

Subsections 80(5), (6) and (7) have the same effect in relation to deductions under subsection (3) of this section as they do in relation to deductions under subsection 80(2) .

79E(12)   [Definitions]  

In this section:

"assessable foreign income"
has the same meaning as in section 160AFD ;

"class of assessable foreign income"
has the same meaning as in section 160AFD ;

"class of income"

"current year loss amount"
, in relation to a taxpayer to whom Subdivision B of Division 2A applies in relation to a year of income, means the amount calculated using the formula:

Excess notional loss   +   Excess deductible amount

where:

``Excess notional loss'' means the amount (if any) by which the sum of the taxpayer's notional losses in respect of relevant periods (within the meaning of that Subdivision) in relation to the year of income exceeds the eligible notional loss (within the meaning of that Subdivision) of the taxpayer in relation to the year of income;

``Excess deductible amount'' means the amount (if any) by which the deductible amount referred to in the application of subsection 50C(2) in relation to the taxpayer in relation to the year of income exceeds the income amount referred to in that subsection;

"exempt income"
does not include income to which paragraph 23(jd) , section 23AH , 23AI , 23AJ or 23AK , subsection 59(2AAA) or paragraph 99B(2)(d) or (e) applies;

"foreign income deduction"
has the same meaning as in section 160AFD ;

"foreign source"

"net exempt income"
, in relation to a taxpayer, means:

(a) where the taxpayer is a resident - the amount by which the taxpayer's exempt income derived from all sources exceeds the sum of the expenses (not being expenses of a capital nature) incurred in deriving that income and any taxes payable in respect of that income in any country or place outside Australia; and

(b) where the taxpayer is a non-resident - the amount by which the taxpayer's exempt income derived from sources in Australia (other than income, if any, to which section 128D applies) exceeds the sum of the expenses (not being expenses of a capital nature) incurred in deriving that income;

"non-loss deduction"
means an allowable deduction other than one allowable under this section or section 79F , 80 , 80AAA or 80AA ;

"post-1989 year of income"
means the year of income commencing on 1 July 1989 or any later year of income.

79E(13)   [``net exempt income'']  

In applying the definition of net exempt income in subsection (12) in relation to a taxpayer:

(a) if the taxpayer is a resident, there is to be disregarded so much of any net exempt income from petroleum (within the meaning of Division 10AA ) derived by the taxpayer in a year of income as does not exceed the amount that would be the unrecouped capital expenditure of the taxpayer (within the meaning of that Division) as at the end of the year of income if the taxpayer had not derived that net exempt income from petroleum; and

(b) for the purposes of paragraph (b) of the definition, exempt income to which subsection 26AG(1) applies is to be taken to be derived from sources in Australia and any taxes payable in respect of that income in any country or place outside Australia are to be taken to be expenses incurred in deriving that income.

79E(14)   [``non-loss deduction'']  

For the purposes of the definition of non-loss deduction in subsection (12), where:

(a) there are one or more foreign income deductions of a taxpayer in relation to a class of assessable foreign income in relation to a year of income; and

(b) either:

(i) the taxpayer did not derive any assessable foreign income of that class in the year of income; or

(ii) the taxpayer derived assessable foreign income of that class in the year of income and its amount is exceeded by the sum of the foreign income deductions;

then:

(c) where subparagraph (b)(i) of this subsection applies - the foreign income deductions are to be disregarded; and

(d) where subparagraph (b)(ii) of this subsection applies - the foreign income deductions are to be disregarded to the extent of the excess referred to in that subparagraph.