Capital Losses Carried Forward

Q&A Tax

Question :

Key Summary of the situation of Mr K:

Mr K is a sole trader who disposed of business in October 2016 and incurred a $20,000 capital
loss on the disposal.

The taxpayer was declared bankrupt in Feb 2017.

As per sec 36-35, ITAA 1997 and TD 93/10 any income losses brought forward are lost to the
taxpayer in any subsequent income years after becoming a bankrupt. However, there is no reference to
capital losses in 36-35 or the other sections referenced in 36-35.

Does this mean that the taxpayer can carry his capital losses into future years?

 

Answer:

Under section 102-5 any net capital losses from earlier income years can be applied to reduce capital
gains in determining the net capital gain for an income year. However, if during the income year a
taxpayer became bankrupt or was released from debts under a law relating to bankruptcy, any net
capital losses they made for an earlier income year must be disregarded in working out whether they
made a net capital gain for the income year or a later one. Refer to ATO ID 2003/258.

Having said that, ATO ID 2003/259 states that this does not apply to capital losses made in the same
income year as the taxpayer became bankrupt or was released from debts under a law relating to
bankruptcy.

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