ET: Applying Carried Forward Losses to current year Capital Gains

This support note applies to:

• AO Tax (AU)
• AE Tax Series 6 & 8 (AU)
• AE Tax (AU)

We are often asked whether in MYOB Tax a carried forward loss can be applied to a current year capital gain in a trust tax return.

This is usually where there is no Net Australian Income/Loss (Item 20) and Capital Gains (Item 21) present, making this the only available income left to distribute in the trust tax return.

Some tax agents believe that a Prior Year Loss can be applied against a Capital Gain (where no other Net Australian Income is present). This can be difficult where a Prior Year Losses Schedule (pyl) is present, because the Prior year losses to be applied to current year income field is greyed out.

As a software provider, MYOB is unable to advise Trustees or their Agents on Income Tax Law. The law applying to losses (capital and ordinary) is contained in ITAA 1936 Schedule 2F, sections 265-5 to 272-140 and we suggest you to read the relevant legislation before applying any losses.

MYOB advises that the trust return layout and its ELS instructions are provided to all software developers by the ATO and MYOB's trust return complies with those specifications in all respects.

In accordance with those specifications:

• Carried forward (prior year) capital loss may be applied to the current year capital gain remaining after current year capital losses have been applied in the relevant asset category to each such capital gain of the same category.
• Prior year tax loss may then be applied to the Net Australian Income, plus Net capital Gains, plus Attributed Foreign Income, plus Net Other Assessable Foreign Source Income.