Consolidation Reference Manual
You can still refer to the Consolidation reference manual for consolidation information that has not been impacted by changes in the legislation.
C3 Losses
C3-4 Worked example - loss utilisation
Utilisation - special circumstances
C3-4-540 Amount of CGT event L1 capital loss that can be utilised
Description
As shown in this example, a capital loss made under CGT event L1 is available to be claimed by the head company over five years.
Commentary
The reduction amount calculated under section 705-57 [F1] is treated as a capital loss, which is referred to as a 'CGT event L1 capital loss'. This capital loss is spread over five income years, starting in the income year in which the entity becomes a subsidiary member of the consolidated group. [F2]
Generally, net capital losses are applied in the order they are made ( → section 102-15). The CGT event L1 capital loss forms part of the net capital loss for the year in which the event happens. The ordering rule applies to this net capital loss even though the ability to use that part of the net capital loss attributable to the CGT event L1 capital loss is spread over five years.
Example
Facts
HCo is the head company of a consolidated group.
In the 2005-06 income year, HCo makes the following capital gains and losses:
- •
- capital gains $200,000
- •
- CGT event L1 capital loss $500,000
- •
- other current year capital losses $80,000
In the 2006-07 income year, HCo makes a net capital loss of $100,000.
In the 2007-08 income year, HCo makes capital gains of $240,000.
Calculation
Table 1 shows how HCo works out its net capital gain for the three income years.
| Table 1: HCo net capital gain | |||
|---|---|---|---|
| 2006 ($) | 2007 ($) | 2008 ($) | |
| (CGT event L1 capital loss: $500,000) | |||
| Capital gains | 200,000 | Nil | 240,000 |
| less Current year group capital loss | 80,000 | 100,000 | Nil |
| less CGT event L1 capital loss | 100,000* | - | - |
| less Prior year net capital losses | - | - | 240,000** |
| Net capital gain for the income year | 20,000 | - | Nil |
| Net capital loss for the income year | 400,000 † | 100,000 | - |
| Carried forward net capital losses | 400,000 | 100,000 | 60,000 |
| (2007) | (2007) | ||
| 400,000 | 200,000 | ||
| (2006) | (2006) | ||
- •
- This is calculated as: 1/5 x 500,000 = 100,000 (subsection 104-500(4)).
- • *
- This comprises:
- (a)
- $200,000 of the 2006 net capital loss, attributable to the CGT event L1 capital loss, calculated as: (3/5 x 500,000) - 100,000 = 200,000 (item 2, subsection 104-500(5)), and
- (b)
- $40,000 of the 2007 net capital loss.
- †
- The remaining $400,000 of the CGT event L1 capital loss forms part of the net capital loss for the 2006 income year. As the group capital loss for this year was fully applied, all of the 2006 net capital loss is attributable to the CGT event L1 capital loss. HC has both a net capital gain and a net capital loss for this income year.
References
Income Tax Assessment Act 1997, sections 104-500, 705-57; as amended by New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (No. 117 of 2002), Schedule 4
Current at 2 December 2002
Under section 705-57, there is a reduction in the tax cost setting amount for the head company of certain assets of an entity joining a consolidated group where the group's membership interests in the entity were previously pre-CGT membership interests.
There are transitional provisions whereby a CGT event L1 capital loss may be claimed in less than five years in certain circumstances.
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