Issue
For the purposes of calculating a member's adjusted taxable income (ATI) under the provisions of the Superannuation Contributions Tax (Assessment and Collection) Act 1997 (SCTA), can current year losses result in a negative taxable income for the financial year?
Decision
No. Current year losses cannot result in a negative taxable income for the financial year for the purposes of calculating ATI under the SCTA.
Facts
The member reported a loss in their income tax return for the relevant financial year.
The member's taxable income was nil, as per their non-taxable advice for the relevant financial year.
The member received a superannuation contributions surcharge assessment in respect of surchargeable contributions made to the member's superannuation provider.
In calculating the member's ATI, the business loss was not deducted from the member's nil taxable income.
Reasons for Decision
The calculation of ATI is determined with reference to section 7A or 7B of the SCTA, depending on the circumstances of each particular case. Both sections include a reference to 'taxable income'.
In determining what constitutes 'taxable income', section 43 of the SCTA refers to the member's taxable income of that year of income 'as assessed under the Income Tax Assessment Act'.
According to subsection 6(1) of the Income Tax Assessment Act 1936 , 'taxable income' has the same meaning as in the Income Tax Assessment Act 1997 (ITAA 1997).
'Taxable income' is discussed in section 4-15 of the ITAA 1997, which explains the three steps in its calculation, namely: Step 1 add up all your assessable income for the income year; Step 2 add up your deductions for the income year; and Step 3 subtract your deductions from your assessable income (unless they exceed it). The result is your taxable income. (If the deductions equal or exceed the assessable income, you don't have a taxable income).
As such, where a member's deductions for an income year equal or exceed their assessable income for that year, their taxable income for the financial year is assessed as $0. Current year business losses therefore cannot result in a negative taxable income.
Where taxable income is assessed as $0 then the member's adjusted taxable income is generally $0 plus the total member surchargeable contributions plus the member's reportable fringe benefits total.