Group company loss transfers: choice to deduct tax losses - limitation on amount transferred

Can the amount of tax loss transferred by a loss company to an income company under Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997) exceed the amount that, apart from the transfer, the loss company would carry forward to the next income year after deducting in the deduction year the maximum amount of tax losses that can be deducted under section 36-17 of the ITAA 1997?

No. In accordance with subsection 170-45(1) of the ITAA 1997, the loss company can only transfer an amount of tax loss not exceeding what it could carry forward to the next income year after deducting in the deduction year the maximum amount of tax losses that can be deducted under section 36-17 of the ITAA 1997.

A loss company incurred a tax loss of $9,000 for the 2001-02 income year.

For the 2002-03 income year, the loss company's total assessable income exceeds total deductions (except tax losses) by an amount of $6,000. The loss company derives no net exempt income.

The loss company chooses to deduct a nil amount of tax loss for the 2002-03 income year (the deduction year) under subsection 36-17(2) of the ITAA 1997.

For the 2002-03 income year, the loss company wishes to transfer this tax loss of $9,000 to an income company under Subdivision 170-A of the ITAA 1997. Both the loss company and income company satisfy the conditions for transfer under Subdivision 170-A of the ITAA 1997 as then applied.

Subsection 170-45(1) of the ITAA 1997 provides that the amount of tax loss transferred cannot exceed the amount of the loss company's tax loss that, apart from the transfer, the loss company would carry forward to the next income year after deducting in the deduction year the maximum amount of tax losses that the loss company can deduct under section 36-17 of the ITAA 1997.

The maximum amount of tax loss that a loss company can deduct under subsection 36-17(2) of the ITAA 1997 for the 2002-03 income year is $6,000.

In accordance with subsection 170-45(1) of the ITAA 1997, the loss company may transfer an amount of tax loss not exceeding $3,000 (that is, $9,000 - $6,000) to an income company for the 2002-03 income year.