Tax Loss Deduction Denials

These tax loss deduction denials are specifically targeted towards Business owners. Although they might love the idea of absorbing a business loss as a tax deduction, the ATO can disallow such deductions.

One of the criteria is if during the relevant income year the business attempting to make such a claim earned assessable income (or realised a capital gain) that would not have been derived had the loss been unavailable as a deduction. Another is that continuing shareholders will benefit from the income in a fair and reasonable manner with regard to their rights and interests.

There are different rules for different business structures:

Individuals- They can carry forward tax losses indefinitely. However, they cannot hold off some losses to offset them against future income, if they can be offset against current income.

Partnership- Each partner has a proportionate share of the loss and treats it like a loss from any business activity.

Trust- Losses will be quarantined in a trust to be carried forward by the trust indefinitely until offset against future net income.

Companies- They can carry forward a tax loss indefinitely, and use it when they choose, provided they satisfy the continuity and same-business tests.

Ref: Tax & Super Australia. Business Client Tax Loss Deduction Denials

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