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  • 1 For each joining company that transferred a same business test tax loss or same business test net capital loss to the head company, determine the year of income in which the joining company first failed the continuity of ownership or control tests. Against each of the listed years, show the total amount of losses which first failed the continuity of ownership or control test in that year.

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Note:

    • Do not include transferred film losses or foreign source losses at item 1.
    • Do not include losses transferred by a joining company which satisfied the continuity of ownership and control transfer tests at item 1.
    • Do not include losses transferred by a joining trust at item 1.

    The aim of item 1 is to find out (in respect of companies which transferred losses to a head company of a consolidated group because a same business transfer test was satisfied):

    • the period of time between the year of failure of the continuity of ownership or control transfer tests and the trial year, and
    • the losses that failed the continuity of ownership or control tests at the joining time and/ or in the trial year.

    When a company joins a consolidated group any unused carry forward losses are transferred to the head company if the losses could have been used by the joining entity, assuming sufficient income or gains in the 'trial year', which generally commences 12 months prior to joining the consolidated group and ends immediately after the joining time. In certain circumstances, the trial year may be a shorter period than 12 months. Refer to subsection 707-120(2) of ITAA 1997.

    Whether the losses could have been used by the joining company in the trial year is determined by applying modified versions of the usual tests for deducting and applying losses. A joining company with a carry forward tax loss or net capital loss will need to satisfy a same business test unless the company satisfies the following continuity of ownership test conditions (and the control test):

    • There must be persons who beneficially owned (between them) shares carrying (between them) the right to exercise more than 50% of the voting power in the company, and rights to receive more than 50% of the company's dividends and rights to receive more than 50% of the company's capital distributions at all times during the ownership test period. Refer to sections 165-150 to 165-160 of ITAA 1997.
    • It is reasonable to assume that there are persons (none of them companies or trustees) who between them have beneficial interests (directly, or indirectly through one or more interposed entities) in shares in the company carrying (between them) a majority of the voting power, and rights to dividend and capital distributions at all times during the ownership test period. Refer to sections 165-150 to 165-160 of ITAA 1997.
    • Where tax losses are claimed in an income year ending after 21 September 1999, the company must meet the 'same share and interest' requirement, except where the 'saving' rule applies. Refer to section 165-165 and subsection 165-12(7) of ITAA 1997.
    • A modified version of the above rules can apply to a listed public company and its 100% subsidiaries. Refer to Division 166 of ITAA 1997.

    Anti-avoidance provisions are found at Subdivisions 175-A and 175-B of ITAA 1997.

    Same business test losses-companies only

    The following table shows how the same business test applies for companies joining a consolidated group. Refer to subsections 707-120(1) and (3) and subsections 707-125(1) to (3) of ITAA 1997.

    Same business transfer tests for companies

    In these circumstances:

    Test the joining entity's business at these points:

    1. The loss was made by the joining entity for an income year starting after 30 June 1999
     
    • just before the end of the income year in which the loss was made
    • the income year in which the joining entity first fails the ownership or control tests if that income year started before the trial year, and
    • the trial year.
     
    1. The loss was made by the joining entity for an income year starting before 1 July 1999
     
    • just before the ownership or control tests were first failed, and
    • the trial year.
     

    Where a loss is transferred as a result of satisfying the same business test, it may only be transferred again if-in addition to satisfying the usual transfer tests-the entity transferring the loss carried on the same business at these times:

    • just before the end of the income year in which the loss was previously transferred to it, and
    • during the trial year.

    Refer to subsection 707-135(2) of ITAA 1997.

    Under the same business test the company must carry on the same business at all the times indicated in the preceding table-that is, throughout the trial year and year of ownership change (if applicable) and other relevant time. The test is not satisfied if at any time the company did not carry on the same business as it did at another required time or it derives assessable income from:

    • a business of a kind that it did not carry on before the relevant time, or
    • a transaction of a kind that it did not enter into in the course of its business operations before the relevant time.

    'Same' means 'identical' and not merely 'similar'. The term 'same business' is to be read as referring to the same business, in the sense of the identical business. However, the term does not mean identical in all respects. A company may expand or contract its activities without necessarily ceasing to carry on the same business. The organic growth of a business does not necessarily cause the business to fail the same business test provided the business retains its identity. However, if through a process of evolution a business changes its essential character, the entity would fail the test. Application of the same business test is a question of fact and is usually determined by a process of weighing up various relevant factors.

    For more information refer to sections 165-13 and 165-210 of ITAA 1997 and Taxation Ruling TR 1999/9.

    Year ownership test failed 2002-2003

    Show at label J the total amount of tax losses and net capital losses of joining companies which first failed the continuity of ownership or control tests in the 2002-03 income year but satisfied the same business test. If there is no amount, leave blank.

    Year ownership test failed 2001-2002

    Show at label K the total amount of tax losses and net capital losses of joining companies which first failed the continuity of ownership or control tests in the 2001-02 income year but satisfied the same business test. If there is no amount, leave blank.

    Year ownership test failed 2000-2001

    Show at label L the total amount of tax losses and net capital losses of joining companies which first failed the continuity of ownership or control tests in the 2000-01 income year but satisfied the same business test. If there is no amount, leave blank.

    Year ownership test failed 1999-2000

    Show at label M the total amount of tax losses and net capital losses of joining companies which first failed the continuity of ownership or control tests in the 1999-2000 income year but satisfied the same business test. If there is no amount, leave blank.

    Year ownership test failed 1998-1999 and earlier income years

    Show at label N the total amount of tax losses and net capital losses of joining companies which first failed the continuity of ownership or control tests in the 1998-99 and earlier income years but satisfied the same business test. If there is no amount, leave blank.

    Example 16

    A consolidated group comes into existence on 1 July 2002. During the 2002-03 income year the following joining companies transfer tax losses and/ or net capital losses because they satisfy the same business transfer test:

    Joining company

    Loss year

    Amount $

    Sort of loss

    Year of ownership change

    A

    1993-94

    2000-01

    1,000

    50

    Tax

    Net capital

    1994-95 2001-02

    2001-02

    B

    1998-99

    2001-02

    350

    400

    Tax

    Net capital

    2002-03

    2002-03

    C

    1998-99

    550

    Net capital

    1999-2000

    For the 2002-03 income year, the head company completes part C, item 1 on the schedule as follows:

    Year ownership test failed

     

    2002-2003

    J

    750

    2001-2002

    K

    50

    2000-2001

    L

     

    1999-2000

    M

    550

    1998-1999
    and earlier income years

    N

    1,000

    The amount of the tax loss incurred by company A ($1,000) is recorded at label N because the first change of ownership occurred during the 1994-95 income year.

    Last modified: 30 Jul 2003QC 27493