Company tax losses: deduction of tax loss from net exempt income where total deductions exceed total assessable income

Where a corporate tax entity that has a tax loss derives net exempt income, and total deductions (other than the tax loss) exceed total assessable income, does the corporate tax entity have a choice under section 36-17 of the Income Tax Assessment Act 1997 (ITAA 1997) not to deduct the tax loss from net exempt income remaining, after firstly subtracting that excess of total deductions over total assessable income?

No. Subsection 36-17(4) of the ITAA 1997 requires the tax loss to be deducted from the net exempt income remaining, after subtracting the amount by which total deductions exceed total assessable income.

Loss Company incurred a tax loss for the 2001-02 income year.

For the 2003-04 income year, Loss Company derives an amount of net exempt income and total deductions (other than the tax loss) exceed total assessable income.

After subtracting the excess of allowable deductions over total assessable income from net exempt income, Loss Company has an amount of net exempt income remaining.

Subsection 36-17(4) of the ITAA 1997 provides: 36-17(4) However, if the entity has *net exempt income for the later income year and those deductions exceed the entity's total assessable income, the entity is to: (a) subtract that excess from the net exempt income; and (b) deduct the *tax loss from any net exempt income that remains. Note: This means there is no choice available under this subsection. * denotes a term defined in subsection 995-1(1) of the ITAA 1997.

For the 2003-04 income year, Loss Company must firstly subtract the excess of total deductions over total assessable income from net exempt income.

It is then required to deduct the tax loss from the amount of net exempt income remaining.