Income Tax Act 2007 section 797

Individuals claiming sideways or capital gains relief for film-related losses

Section 797 sets out the circumstances in which an individual who has claimed sideways relief or capital gains relief for film-related trading losses will be treated as receiving taxable income, effectively clawing back the benefit of those loss reliefs.

• Where an individual claims sideways or capital gains relief for a film-related trading loss and disposes of a right to profits from the trade, a chargeable event arises once all three conditions — the relief claim, the disposal, and an exit event — have been met
• An exit event occurs each time the individual receives non-taxable consideration for the disposal, or each time claimed film-related losses increase or capital contributions decrease such that losses exceed contributions (or the excess grows)
• On each chargeable event, the individual is treated as receiving income (outside the trade) equal to the total non-taxable consideration received for all relevant disposals plus any amount by which claimed film-related losses exceed the individual's capital contribution, subject to rules against double counting
• It does not matter whether anyone is still carrying on the trade when the chargeable event occurs, nor whether the individual also receives taxable consideration alongside the non-taxable consideration