Taxation Laws Amendment (Landcare and Water Facility Tax Offset) Act 1998 (91 of 1998)

Schedule 1  

Part 1   Income Tax Assessment Act 1997

8   After Division 61

Insert:

[The next Division is Division 65.]

Division 65 - Tax offset carry forward rules

Guide to Division 65

65-10 What this Division is about

This Division sets out the rules about carrying forward excess tax offsets to later years of income.

You can only carry forward certain tax offsets.

Before you can apply a tax offset to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income.

The same rules that prevent companies from using certain losses that are carried forward prevent companies from applying tax offsets that they have carried forward.

Table of sections

Operative provisions

65-20 Which tax offsets this Division applies to

65-25 When you can carry forward a tax offset

65-30 Amount carried forward

65-35 How to apply carried forward tax offsets

65-40 When a company cannot apply a tax offset

[This is the end of the Guide.]

Operative provisions

65-20 Which tax offsets this Division applies to

This Division only applies to a *tax offset if it is stated to be subject to the tax offset carry forward rules.

Note: The only tax offset that is subject to these rules is the landcare and water facility tax offset under Subdivision 388-A.

65-25 When you can carry forward a tax offset

(1) You can carry forward a *tax offset if the amount of the tax offset exceeds the amount of income tax that you would have to pay if:

(a) you had not got the tax offset; and

(b) you had not got any *tax offsets that are of a higher priority.

Note: Section 65-35 explains how to apply tax offsets that are carried forward.

(2) The following table sets out the order of priority for *tax offsets (with the highest priority shown first):

65-30 Amount carried forward

The amount of the *tax offset that is carried forward is the amount of the excess worked out under subsection 65-25(1). However, if you have a taxable income for the income year, reduce the tax offset by the following amount:

Net exempt income * 0.34

65-35 How to apply carried forward tax offsets

(1) A *tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 4-10 in a later income year.

(2) You must apply *tax offsets that are carried forward in the priority order, applying the lowest priority tax offset first, and you must apply tax offsets of a particular type in the order in which you became entitled to them.

(3) Before you apply a *tax offset to reduce the amount of income tax that you pay in a later income year in which you have a taxable income, you must apply it to reduce to nil any *exempt income for:

(a) that later income year; or

(b) any income year after the year in which the tax offset arose and before the later income year in which you had a taxable income but did not apply the tax offset to reduce the amount of income tax you had to pay.

In reducing exempt income, each 34 cents of tax offset reduces the exempt income by $1.

Note: Paragraph (b) would apply to cases such as where your taxable income was below your tax-free threshold or where you had other tax offsets that reduced your income tax to nil.

(4) You can only apply a *tax offset that you have carried forward to the extent that it has not already been applied.

Note: Section 65-40 contains special restrictions on applying carried forward tax offsets.

65-40 When a company cannot apply a tax offset

(1) In working out its *tax offset for the *current year, a company cannot apply a *tax offset it has carried forward if, assuming:

(a) the tax offset were a *tax loss of the company for the income year in which it became entitled to the tax offset; and

(b) section 165-20 (deducting part of a tax loss) were disregarded;

Subdivision 165-A would prevent the company from deducting it for the current year.

Note: Subdivision 165-A deals with the deductibility of a company's tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year.

(2) If subsection (1) prevents the company from applying the *tax offset, it can apply the part of the tax offset that it is reasonable to consider relates to a part of the income year in which it became entitled to the tax offset, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the tax offset.