Transfer of losses - deductibility of prior year losses

Where a tax loss from a loss year preceding the deduction year is transferred under Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997) can the loss be deducted from an earlier year of income, which is not the deduction year, if the gain company has taxable income in those years of income?

No. Pursuant to subsection 170-20(1) of the ITAA 1997 a transferred tax loss is only deductible to the income company in the deduction year.

The loss company incurred a tax loss in the loss year ended 30 June 1999.

Pursuant to section 170-50 of the ITAA 1997 the loss company made a valid written agreement to transfer the tax loss to the income company for the deduction year ended 30 June 2002.

The income company had a taxable income in the income years ended 30 June 2000 and 30 June 2001.

Under subsection 170-15(1) of the ITAA 1997 the amount of tax loss transferred to the income company is taken to be a tax loss incurred by the income company in the loss year ended 30 June 1999.

Subsection 170-20(1) of the ITAA 1997 provides that: If an amount of a *tax loss is transferred, the *income company can deduct the amount in accordance with section 36-15 (which is about how to deduct a tax loss), but only for the income year of the income company for which the amount is transferred. That income year is called the deduction year . *Denotes a term defined in section 995-1 of the ITAA 1997.

As the transferred tax loss is only deductible in the deduction year, any taxable income of the income company in income years preceding the deduction year has no effect on the transferred tax loss.