Safe harbour for applying prior year deferred losses extended
As per practical compliance guideline PCG 2022/1, sole traders and partners in a partnership may be able to utilise a safe harbour to deduct non-commercial losses against other assessable income. This safe harbour has now been extended to apply for 2023–24 income year.
The PCG bypasses the Commissioner's discretion under the non-commercial loss rules (Div 35, ITAA 997), where a business has been directly affected by floods, bushfires or the COVID-19 pandemic.
Conditions for safe harbour
The safe harbour applies for various disasters, provided that the business satisfies the income requirement (s 35-10 (2e)), and the business has not applied for Commissioner’s discretion in a PBR. The applicable event meant that the business was not able to be carried on or had a significant reduction in trade or customers.
To qualify for the safe harbour in a relevant income year, the taxpayer must have made a tax profit from the business activity in the immediately preceding income year.
The safe harbour applies for the 2019–20, 2020–21, 2021–22, 2022–23 and 2023–2024 income years.
Next steps
The safe harbour applies to prior income tax years, and therefore it is prudent to review any deferred tax losses.
If a deferred tax loss is present, and the safe harbour can be applied, you should also review whether the deferred loss will actually be used in a future income year. If a deferred loss will be subsequently utilised, it may be efficient for the client to leave the lodgments as is and not resort to amendments.
Some taxpayers may be outside of their 2-year amendment window to apply the safe harbour. For example, they may have received their 2021–22 tax assessment on 31 August 2022. In this instance, the taxpayer is required to lodge an objection with the ATO.
Contact us
If you would like us to complete an amendment on your behalf, please do not hesitate to contact our office.
The PCG bypasses the Commissioner's discretion under the non-commercial loss rules (Div 35, ITAA 997), where a business has been directly affected by floods, bushfires or the COVID-19 pandemic.
Conditions for safe harbour
The safe harbour applies for various disasters, provided that the business satisfies the income requirement (s 35-10 (2e)), and the business has not applied for Commissioner’s discretion in a PBR. The applicable event meant that the business was not able to be carried on or had a significant reduction in trade or customers.
To qualify for the safe harbour in a relevant income year, the taxpayer must have made a tax profit from the business activity in the immediately preceding income year.
The safe harbour applies for the 2019–20, 2020–21, 2021–22, 2022–23 and 2023–2024 income years.
Next steps
The safe harbour applies to prior income tax years, and therefore it is prudent to review any deferred tax losses.
If a deferred tax loss is present, and the safe harbour can be applied, you should also review whether the deferred loss will actually be used in a future income year. If a deferred loss will be subsequently utilised, it may be efficient for the client to leave the lodgments as is and not resort to amendments.
Some taxpayers may be outside of their 2-year amendment window to apply the safe harbour. For example, they may have received their 2021–22 tax assessment on 31 August 2022. In this instance, the taxpayer is required to lodge an objection with the ATO.
Contact us
If you would like us to complete an amendment on your behalf, please do not hesitate to contact our office.
