Deduction: tax losses - deceased taxpayer

Can accumulated tax losses to the date of death of a deceased taxpayer be carried forward and deducted by the deceased estate under section 36-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The accumulated tax losses to the date of death of a deceased taxpayer cannot be carried forward and deducted by the deceased trust estate under section 36-15 of the ITAA 1997.

A deceased taxpayer has tax losses from prior income years.

The trustee of the deceased estate wants to carry forward and claim the tax losses of the deceased taxpayer.

Subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides the definition of 'net income' for a trust estate. The net income in relation to a trust estate is calculated in general by subtracting all the allowable deductions from the total assessable income of the trust estate calculated as if the trustee were a resident taxpayer.

An explanation of how to calculate a tax loss for an income year is provided in section 36-10 of the ITAA 1997.

Section 36-15 of the ITAA 1997 provides an explanation as to how a tax loss for a loss year is to be deducted in a later income year.

Subsection 36-15(5) of the ITAA 1997 provides: If you have 2 or more tax losses, you deduct them in the order in which you incurred them. [emphasis added]

Subsection 36-15(7) of the ITAA 1997 states: If you cannot deduct all or part of your tax loss in an income year, you can carry forward to the next income year the undeducted amount. You then apply this Subdivision to work out if you can deduct the tax loss in that income year. [emphasis added]

The definition of 'you' contained in subsection 995-1(1) of the ITAA 1997 has the meaning given by section 4-5 of the ITAA 1997.

Section 4-5 of the ITAA 1997 provides that if a provision of the ITAA 1997 uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

Therefore 'you' can refer to an entity other than an individual taxpayer. However, by common usage it must refer, within the context of a particular provision of the ITAA 1997, to the same entity rather than differing entities.

The use of the term 'you' in section 36-15 of the ITAA 1997 refers, in these circumstances, to the deceased taxpayer who has the tax losses and not any other taxpayer. At the date of the taxpayer's death, the deceased estate came into existence and is a different taxpayer entity to the deceased individual taxpayer. The deceased estate does not come within the meaning of 'you' for the purposes of section 36-15 of the ITAA 1997.

There are no other special rules about tax losses in the ITAA 1997 which would allow the tax losses of the deceased taxpayer to be deducted in calculating the net income of the deceased estate.

Accordingly, the deceased taxpayer's tax losses from the prior income years cannot be deducted as tax losses by the trustee of the deceased estate under section 36-15 of the ITAA 1997.