Commonwealth Consolidated Acts

INCOME TAX (TRANSITIONAL PROVISIONS) ACT 1997 - SECT 770.20

                   The sum of the convertible foreign losses for each earlier year for which an entity is taken by section 770-1 to have a tax loss is the starting total for all of those tax losses taken together (the loss parcel ).

Example:    On 1 July 2008, Loss Co determines that it has incurred the following overall foreign losses:

*       Year ended 30 June 2002: $5,000 (with no amount of convertible foreign loss due to the operation of 770-10);

*       Year ended 30 June 2004: $4,000 (with an amount of $2,000 being a convertible foreign loss);

*       Year ended 30 June 2005: $7,000 (with an amount of $3,000 being a convertible foreign loss);

*       Year ended 30 June 2007: $8,000 (with the entire amount being a convertible foreign loss).

                   Loss Co does not have any other domestic tax losses for those income years (that is, the 2002, 2004, 2005 and 2007 income years are not loss years).

                   Initially, Loss Co's starting total for the loss parcel is $13,000, which consists of the tax losses incurred in the year ended 30 June 2004, the year ended 30 June 2005 and the year ended 30 June 2007 (there is no convertible foreign loss incurred in the year ended 30 June 2002 because of section 770-1 and therefore there is no tax loss included in the loss parcel for that year). The 2004, 2005 and 2007 income years will then be a new loss year for Loss Co (under subsection 770-1(2)), because Loss Co did not otherwise incur a tax loss in those years.

                   To avoid the operation of the deduction limit (under section 770-30), Loss Co chooses under paragraph 770-15(b) to reduce the starting total for the loss parcel to $10,000 by not converting $3,000 of its convertible foreign losses (which consists of $2,000 of the 2004 tax loss and $1,000 of the 2005 tax loss). Consequently, only the 2005 and 2007 income years are the new loss years for Loss Co.