Assessable foreign income - Australian source loss - whether election to offset tax losses against assessable foreign income applies

If an Australian resident company derives assessable foreign income and also makes a loss in the same income year from carrying on a business that has an Australian source, does section 79DA of the Income Tax Assessment Act 1936 (ITAA 1936) apply in respect of that loss?

No. Section 79DA of the ITAA 1936 applies only in respect of tax losses within section 36-10 of the ITAA 1997 that may be deducted in a later income year.

Company is a resident of Australia under subsection 6(1) of the ITAA 1936 at all relevant times.

Company derives assessable foreign income within subsection 160AFD(9) of the ITAA 1936 in the 2004-05 income year. No foreign income deductions are allowable from this assessable foreign income. Company satisfies the conditions of Division 18 of Part III of the ITAA 1936 and is therefore entitled to a foreign tax credit under subsection 160AF(1) of the ITAA 1936 for this foreign income.

In the 2004-05 income year Company also carries on a business that has an Australian source. Deductions incurred in carrying on this business exceed assessable income derived.

Company has no carried forward tax losses from earlier income years.

Company derives no other assessable income in the 2004-05 income year.

Subsection 79DA(1) of the ITAA 1936 provides that: A tax loss is not allowable as a deduction from a taxpayer's assessable foreign income (as defined in section 160AFD) of the year of income, except so far as the taxpayer so elects.

Section 36-10 of the ITAA 1997 states how a tax loss for an income year is to be calculated.

Section 36-17 of the ITAA 1997 provides that a tax loss of a corporate tax entity may only be deducted in a later income year.

Section 79DA of the ITAA 1936 cannot apply to Company for the 2004-05 income year as Company does not have any tax losses within section 36-10 of the ITAA 1997 from earlier income years.