The ATO website says: "Tax averaging allows you to even out your income and tax payable over a maximum of 5 years to take good and bad income years into account"
When you select Yes in the “Entity Information” section to enable Tax Averaging for an entity; TaxPlan auto-calculates the average based on the primary production income over up to 5 years using the 4 values entered for each income year under the “Tax Averaging” heading and also the current year Basic Taxable Income; using the Projected Income amounts entered for current year tax planning.
For example:
Client scenario: Eligible for tax averaging over 4 years (not 5)
In this scenario, when tax averaging is only applicable for the prior 3 years + the current year, leave the corresponding cell blank to exclude that year from the calculations.
For example:
Client scenario: No PP income (or a PP income loss) for one year
If a taxpayer has started tax averaging and then has a primary production loss or no primary production income in one year, the user must enter “-1” in the corresponding year cell rather than a zero or leaving it blank. This enables TaxPlan to include the nil or loss year in tax averaging calculations, but with a “nil” value of primary production income for the year.
For example:
This example will include 5 years in averaging calculations, with the 2020 year having a nil amount of PP income.
Client scenario: No taxable income for prior 4 years
The same method applies in scenarios where a client was tax averaging and had losses (treated as NIL primary production income for tax averaging purposes) or NIL primary production income in the prior 4 years to the current year.
You need to enter a "-1" value into each of the corresponding year's no income or losses income years for these to be included in tax averaging. The current year's income for tax averaging is added as normal by entering the year’s data in the Project Income section below.
For example:
