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IQ 1B: Losses carried forward to tax year
or “How you can carry forward CFC and FIF net losses to future tax years”
You could also call this:

“Limits on using losses from foreign companies to reduce your income”

You can subtract losses from controlled foreign companies (CFCs) and foreign investment funds (FIFs) from your income, but there are limits. These limits depend on where the CFC or FIF is located and whether it’s an “elective attributing” entity.

For regular CFCs and FIFs, you can subtract the lesser of:

  1. The income you got from CFCs and FIFs in that country for the tax year, or
  2. The total losses you have from CFCs and FIFs in that country that you can use.

For elective attributing CFCs and FIFs, you can subtract the lesser of:

  1. The income you got from elective attributing CFCs and FIFs in that country that started on the same date, or
  2. The total losses you have from elective attributing CFCs and FIFs in that country that you can use.

There are special rules for losses from before certain tax changes. If you can’t use all your losses because you don’t have enough income, the leftover becomes a general tax loss.

You can only use income in these calculations if you haven’t already used it for other tax purposes.

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Next up: IQ 2B: Effect of attributed CFC net loss and FIF net loss from before first affected year

or “Handling overseas tax losses from before a specific year”
Next

Part I Treatment of tax losses
Attributed controlled foreign company net losses and foreign investment fund net losses

IQ 2Ring-fencing cap on attributed CFC net losses

  1. This section applies if a person, for a tax year and a country or territory (the jurisdiction),—

  2. derives an amount of attributed CFC income or FIF income calculated under the attributable FIF income method; and
    1. has an amount of attributed CFC net loss or FIF net loss—
      1. carried forward to the tax year:
        1. made available under section IQ 4 to the person by another company in the same group.

        2. The total amount of attributed CFC net loss and FIF net loss, relating to a CFC or FIF (the loss entity) resident in the jurisdiction when the loss arises and not an elective attributing CFC or elective attributing FIF, that is subtracted from the person's net income for the tax year is the lesser of—

        3. the total amount of attributed CFC income, and FIF income calculated under the attributable FIF income method or branch equivalent method, that the person derives in the tax year in relation to a CFC or FIF that is resident in the jurisdiction for the accounting period corresponding to the tax year:
          1. the total amount of attributed CFC net loss and FIF net loss—
            1. relating to the loss entity and the jurisdiction; and
              1. carried forward to the tax year or made available in the tax year to the person by another company in the same group; and
                1. available to the person under subsection (1B), (1C), or section IQ 3.

                2. The total amount of attributed CFC net loss and FIF net loss, relating to an elective attributing CFC or elective attributing FIF (the loss entity) resident in the jurisdiction when the loss arises, that is subtracted from the person's net income for the tax year is the lesser of—

                3. the total amount of attributed CFC income, and FIF income calculated under the attributable FIF income method or branch equivalent method, that the person derives in the tax year in relation to an elective attributing CFC or elective attributing FIF—
                  1. with the same election commencement date as the loss entity; and
                    1. resident in the jurisdiction for the accounting period corresponding to the tax year:
                    2. the total amount of attributed CFC net loss and FIF net loss—
                      1. relating to the loss entity and the jurisdiction; and
                        1. carried forward to the tax year or made available in the tax year to the person by another company in the same group; and
                          1. available to the person under subsection (1B), (1C), or section IQ 3.

                          2. If an amount of attributed CFC net loss or FIF net loss arises for a person in an income year for which section IQ 2B applies to the person, or is made available to the person by a company for which the loss arises in an income year for which section IQ 2B applies to the company, all of the attributed CFC net loss or FIF net loss is available for subtracting from the person's net income for the tax year.

                          3. If an amount of attributed CFC net loss of a person, or made available to the person, relates to an income year before section IQ 2B applies to the person and is carried forward to a tax year in which section IQ 2B applies to the person,—

                          4. the amount of the attributed CFC net loss available in the tax year for subtracting from the person's net income is equal to the equivalent CFC loss under section IQ 2B:
                            1. the amount of the attributed CFC net loss is reduced by the converted BE loss under section IQ 2B.

                              1. In subsection (1), the person may take into account an amount of attributed CFC income or FIF income only to the extent to which they have not accounted for it in—

                              2. calculating a deduction under sections DN 4 or DN 8 (which relate to ring-fencing caps); or
                                1. establishing their entitlement to make available, under section IC 5 (Company B using company A's tax loss) or IQ 4, an amount of attributed CFC net loss or FIF net loss carried forward; or
                                  1. applying subsection (1) in relation to another attributed CFC net loss or FIF net loss.

                                    1. If the person cannot use all of the maximum amount referred to in subsection (1) because there is insufficient net income, the surplus is no longer available to them as a CFC net loss, but becomes a tax loss component under section IA 2(4) (Tax losses).

                                    Compare
                                    Notes
                                    • Section IQ 2(1A) heading: inserted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 94(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1A): inserted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 94(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1A)(a): amended (with effect on 1 July 2011), on (applying for income years beginning on or after 1 July 2011), by section 94(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1) heading: replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2(1): replaced (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2(1BA) heading: inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2(1BA): inserted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 114(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2(1B) heading: substituted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), pursuant to section 94(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1B): substituted (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 94(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1C) heading: inserted (with effect on 30 June 2009), on , by section 302(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section IQ 2(1C): inserted (with effect on 30 June 2009), on , by section 302(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section IQ 2(1C): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 94(6)(a) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1C)(a): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 94(6)(b) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(1C)(b): amended (with effect on 30 June 2009), on (applying for income years beginning on or after 1 July 2009), by section 94(6)(c) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(2)(b): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 94(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(2)(c): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 94(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2(3): substituted (with effect on 1 April 2008), on , by section 302(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section IQ 2 list of defined terms attributable FIF income: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section IQ 2 list of defined terms attributable FIF income method: inserted, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section IQ 2 list of defined terms company: inserted (with effect on 1 April 2008), on , by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2 list of defined terms elective attributing CFC: inserted (with effect on 30 June 2009), on , by section 114(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2 list of defined terms elective attributing FIF: inserted (with effect on 30 June 2009), on , by section 114(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section IQ 2 list of defined terms FIF net loss: inserted (with effect on 1 April 2008), on , by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2 list of defined terms income year: inserted (with effect on 1 April 2008), on , by section 94(8) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                                    • Section IQ 2 list of defined terms tax loss: repealed (with effect on 1 April 2008), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).