Section DV 21 — Income Tax Act 2007: Losses for QCs entering partnership regime

DV 21 Losses for QCs entering partnership regime When this section applies (1) This section applies to a person when,–– (a) for an income year, a person's partnership (the partnership ) has effectively replaced a qualifying company or companies under a QCP transitional process; and (b) ignoring the application of section HZ 4B(3) (Qualifying companies: transition into partnership), the company or companies would have had loss balances to carry forward to the first or second income year, as applicable, starting on or after 1 April 2011 (the relevant transitional income year ). Losses extinguished (2) Despite section HZ 4B(3) , for the relevant transitional income year and subsequent income years, a loss balance under Part I (Treatment of tax losses) is cancelled if the loss balance arose in relation to an income year before the relevant transitional income year. Deduction (3) The person is allowed a deduction for an amount equal to an amount given by the formula in subsection (4), to the extent to which it is equal to or less than the net income the person would have for the income year if they were treated as having only income and deductions arising from the application of subpart HG (Joint venturers, partners, and partnerships) for the partnership. Deduction formula (4) For the purposes of subsection (3), the amount is calculated using the formula— (loss balance extinguished − subsequent deductions) × partnership share. Definition of items in formula (5) In the formula,–– (a) loss balance extinguished is the loss balance cancelled under subsection (2): (b) subsequent deductions is the total amount of deductions allowed for previous income years under this section for all persons with a partnership share in the partnership: (c) partnership share is the person's average partnership share for the partnership for the income year. Exception (6) Despite subsection (3), a person is not allowed a deduction for an amount in subsection (4) to the extent to which–– (a) it arises from an amount carried forward under subparts IA and IQ (which relate to the treatment of foreign losses); and (b) it is greater than the maximum amount they may subtract from their net income under subpart IQ , treating the amount as an attributed CFC net loss or a FIF net loss carried forward under subpart IQ, and the person as having the net income they would have for the income year if they were treated as having only income and deductions arising from the application of subpart HG for the partnership. Link with subpart DA (7) This section overrides the general permission and the general limitations. Defined in this Act: amount , attributed CFC net loss , company , deduction , FIF net loss , general limitation , general permission , income , income year , loss balance , net income , partnership , partnership share , QCP transitional process , qualifying company Section DV 21: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 45(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).