Consolidation Reference Manual

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C3 Losses

C3-4 Worked example - loss utilisation

Amount that can be utilised

C3-4-410 Amount of transferred losses that can be utilised

Description

This example shows how to determine, under the available fraction method, the limits for utilisation of losses transferred to the head company of a consolidated group. It also shows how these limits are applied in calculating a group's actual taxable income.

Note
For more information about:

loss bundles and calculating the available fraction → 'Treatment of losses', C3-1 ; 'Consolidation loss provisions', C3-2-110 (high-level worked example)

Commentary

The available fraction for a loss bundle is applied to each category of group income or gains as reduced by any relevant deductions, including group losses (that is, losses generated by the consolidated group as opposed to transferred losses). The results are taken to be the head company's only income or gains of each type. Based on that assumption, the head company works out the maximum amount of losses of each sort it can use from the loss bundle.

In working out the group's actual taxable income, group losses of one sort are generally used ahead of transferred losses of the same sort.

Example

Facts

A consolidated group is working out the group's taxable income for the 2004 income year.

The group's capital gains for the income year are $1,200.
The group's capital losses for the income year are $200.
The group's only other assessable income is $4,000.
Its deductions relating to that income are $800.
There is a group net capital loss of $400 carried forward from the 2003 income year.
There is a group tax loss (not film) of $700 carried forward from the 2003 income year.

The group's transferred losses and their available fractions are shown in table 1.

Table 1: Transferred losses and available fractions
Loss bundle Available fraction Unused transferred losses
Bundle A 0.150 $150 net capital losses
$900 tax losses (not film)
Bundle B 0.275 $2,000 tax losses (not film)

The head company satisfies the recoupment tests for the utilisation of all the group losses and all the transferred losses.

Calculation

A. Determine limits for utilisation of transferred losses

Step 1: Work out the categories of group income or gains - subsection 707-310(3)

Table 2: Categories of group income or gains (step 1)
Column 1 Income or gains Column 2 Gross amount ($) Less: allowable deductions/ reductions ($) Less: group/ concessional losses of that kind ($) Column 2 Income/ gains available for bundle ($)
Capital gains 1,200 200 400 600
Other assessable income 4,000 800 700 2,500

Step 2: Calculate the fraction of the income/gains that is attributable to each bundle - subsection 707-310(3)

Table 3: Fraction of income/gains attributable to each bundle (step 2)
Column 1 Income or gains Loss bundle Column 2 Income/ gains available for bundle Multiplied by: available fraction (AF) AF amount for the bundle
Capital gains Bundle A $600 0.150 $90
Bundle B $600 0.275 $165
Other assessable income Bundle A $2,500 0.150 $375
Bundle B $2,500 0.275 $688

Step 3(a): Work out a notional taxable income for bundle A - subsection 707-310(2)

Table 4: Net capital gain (step 3a)
Capital gains $ Losses applied $
Capital gain 90 Transferred net capital losses 90
Total 90 Total 90

The (notional) net capital gain is $0 ($90 - $90).

Table 5: Taxable income (step 3a)
Assessable income $ Deductions $
Net capital gain 0 Transferred tax losses (not film) 375
Other assessable income 375
Total 375 Total 375

Transferred losses 'used' in working out notional taxable income for bundle A are:

transferred net capital losses $90
transferred tax losses (not film) $375

These are the limits for utilisation of these transferred losses when determining the actual taxable income for the group.

Step 3(b): Work out a notional taxable income for bundle B - subsection 707-310(2)

Table 6: Net capital gain (step 3b)
Capital gain $ Losses applied $
Capital gain 165 Transferred net capital losses 0
Total 165 Total 0

The (notional) net capital gain is $165 ($165 - $0).

Table 7: Taxable income (step 3b)
Assessable income $ Deductions $
Net capital gain 165
Other assessable income 688 Transferred tax losses (not film) 853
Total 853 Total 853

The amount of transferred losses 'used' in working out notional taxable income for bundle B is:

transferred tax losses (not film) $853

This is the limit for utilisation of transferred losses when determining the actual taxable income for the group.

B. Determine group's actual taxable income

Table 8: Net capital gain
Capital gains $ Capital losses $
Capital gains 1,200 Current-year group capital losses 200
Group net capital losses 400
Transferred net capital losses (bundle A) 90
Total 1,200 Total 690

Therefore, the group's net capital gain is $510 ($1,200 - $690).

Table 9: Taxable income
Assessable income $ Deductions $
Net capital gain 510 Deductions 800
Group tax loss 700
Other assessable income 4,000 Transferred tax losses (bundle A) 375
Transferred tax losses (bundle B) 853
Total 4,510 Total 2,728

The group's taxable income is $1,782 ($4,510 - $2,728).

References

Income Tax Assessment Act 1997, Subdivision 707-C; as amended by New Business Tax System (Consolidation) Act (No. 1) 2002 (No. 68 of 2002), Schedule 1

Explanatory Memorandum to the New Business Tax System (Consolidation) Bill (No. 1) 2002, Chapter 8

Current at 2 December 2002


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