Company tax losses: deduction choice and ordering rule

Can a corporate tax entity which has two or more tax losses choose, pursuant to section 36-17 of the Income Tax Assessment Act 1997 (ITAA 1997), to deduct an amount of a tax loss in respect of a loss year not being the earliest loss year, where an amount of the tax loss in respect of the earliest loss year remains undeducted?

No. Where a corporate tax entity has two or more tax losses, the entity must deduct the losses in the order in which the entity incurred them pursuant to subsection 36-17(7) of the ITAA 1997.

Corporate tax entity incurred tax losses in the 1999-2000, 2000-01 and 2001-02 income years.

For the 2002-03 income year, corporate tax entity's total assessable income exceeds its total deductions (except tax losses). Corporate tax entity satisfies all relevant conditions for the deduction of all earlier year tax losses. Corporate tax entity wishes to deduct an amount of tax loss in respect of the 2001-02 income year where an amount of tax loss in respect of the 1999-2000 income year and the tax loss for the 2000-01 income year remain undeducted.

Subsection 36-17(2) of the ITAA 1997 provides a corporate tax entity with a choice as to the amount of tax loss to be deducted. Subsection 36-17(3) of the ITAA 1997 provides a corporate tax entity with a choice as to the undeducted amount of tax loss (if any) to be deducted after firstly deducting the tax loss from net exempt income.

Subsections 36-17(2) and 36-17(3) are subject to the rule in subsection 36-17(7) of the ITAA 1997 which provides as follows: 'If the entity has 2 or more tax losses, the entity is to deduct them in the order in which the entity incurred them.'

The rule in subsection 36-17(7) is to apply in the same way to tax loss deductions as subsection 36-15(5) of the ITAA 1997 applies. This rule requires the tax loss in respect of the earliest year, being the 1999-2000 income year, to be deducted in full before any amount of the tax loss in respect of the 2000-01 income year can be deducted. The tax losses in respect of the 1999-2000 and 2000-01 income years must be deducted in full before any amount of the tax loss in respect of the 2001-02 income year can be deducted.