Issue
Where a net capital loss in a capital loss year preceding the application year is transferred under Subdivision 170-B of the Income Tax Assessment Act 1997 (ITAA 1997), can the loss be applied to an earlier year of income, which is not the application year, if the gain company has net capital gains in those years of income?
Decision
No. Pursuant to subsection 170-115(1) of the ITAA 1997 a transferred net capital loss can only be applied by the gain company in the application year.
Facts
The loss company incurred a net capital loss in the capital loss year ended 30 June 1999.
Pursuant to section 170-150 of the ITAA 1997, the loss company made a valid written agreement to transfer the net capital loss to the gain company for the application year ended 30 June 2002.
The gain company also derived net capital gains in the income years ended 30 June 2000 and 30 June 2001.
Reasons for Decision
Under subsection 170-120(1) of the ITAA 1997 the amount of net capital loss transferred to the gain company is taken to be a net capital loss of the gain company in the capital loss year, that is, the year ended 30 June 1999.
Subsection 170-115(1) of the ITAA 1997 provides that: If an amount of a *net capital loss is transferred, the gain company can apply the amount in working out its *net capital gain, but only for the income year of the gain company for which the amount is transferred. That income year is called the application year . *Denotes a term defined in section 995-1 of the ITAA 1997.
As the transferred net capital loss can only be applied in the application year, any net capital gains derived by the gain company in income years preceding the application year have no effect on the transferred net capital loss.