CFM56040 - Derivative contracts: tax avoidance: allowance of accumulated net losses: examples

Examples of how CTA09/S692 operates

Example 1

In AP1 there are credits in respect of a derivative contract of 拢1,000, which are not disregarded under S690(2).

In AP2 there are

  • debits in respect of the derivative contract of 拢5,000, and
  • exchange gains of 拢200.

All of the debits and credits are referable to unallowable purposes. There is a net loss of 拢4,800 (拢5,000 - 拢200).

In AP2, 拢1,000 of the net loss is brought into account (as it matches the taxable credit in AP1). The remainder of the net loss (拢3,800) is disregarded.

Example 2

In AP1 there are

  • debits in respect of the derivative contract of 拢5,000, and
  • exchange gains of 拢200.

All of the debits and credits are referable to unallowable purposes. There is a net loss of 拢4,800 (拢5,000 - 拢200).

In AP2 there are credits in respect of a derivative contract of 拢1,000, which are not disregarded under S690(2).

拢1,000 of the net loss brought forward is brought into account in AP2 (as it matches the accumulated credit of 拢1,000 in that accounting period). The remainder of the net loss (拢3,800) is disregarded in both AP1 and AP2, but it may be matched with accumulated credits in AP3 or later.