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  • 2 Amount of losses utilised after consolidation, for which the continuity of ownership test is not passed but the same business test is satisfied.

    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 film losses or foreign source losses utilised at item 2.
    • Do not include at item 2 losses utilised for which the head company satisfied the continuity of ownership test.

    Show at item 2 the amount of tax losses and net capital losses utilised by the head company after consolidation where the continuity of ownership test was not passed after consolidation but the same business test was satisfied.

    Before a head company can utilise a loss generated by the consolidated group, or a loss transferred from a joining entity, it must satisfy the continuity of ownership and control tests or the same business test. Subdivision 707-B of ITAA 1997 modifies the recoupment tests for transferred losses. The loss year is modified so that it starts from when the loss was transferred to the head company. Accordingly, losses transferred to a head company of a consolidated group because they satisfied the same business transfer test are effectively refreshed in the hands of the head company, in that the ownership test period for these losses commences at the time they are transferred to the head company.

    However, in determining whether a head company can use a loss transferred to it from a joining company which passed the continuity of ownership and control tests, changes in ownership of the joining company prior to it joining the consolidated group are taken into account. In addition, it is assumed that the head company's interest in the joining company remains unchanged from the joining time. This means that, in determining if a head company can utilise a loss transferred to it from a joining company, the head company will satisfy the continuity of ownership test if the joining company would have satisfied the continuity of ownership test in respect of the loss.

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

    Tax losses

    Show at label O the amount of tax losses utilised by the head company which did not satisfy the continuity of ownership and control tests but did satisfy the same business test.

    Net capital losses

    Show at label P the amount of net capital losses utilised by the head company which did not satisfy the continuity of ownership and control tests but did satisfy the same business test.

    Example 17

    A consolidated group comes into existence on 1 July 2002. On that date the following losses are transferred to the head company from a joining company which satisfied the continuity of ownership and control transfer tests:

    Year loss incurred

    Sort of loss

    Amount $

    1999-2000

    Tax

    1,200

    1999-2000

    Net capital

    4,600

    During the period from the start of the loss year (1 July 1999) until immediately after the joining time (1 July 2002) there was a 40% change in the persons who controlled the voting power of the head company and had the rights to the company's dividends and capital distributions. The joining company was a 100% subsidiary of the head company during this period.

    For the 2002-03 income year the consolidated group generates sufficient capital gains and other assessable income to enable the transferred tax and net capital losses to be fully utilised applying the available fraction method. On 1 August 2002 there is a 20% change in the persons who, at the start of the loss year, controlled the voting power of the head company and had the rights to the company's dividends and capital distributions. The head company does not satisfy the continuity of ownership test because of the change of majority ownership on 1 August 2002-that is, combined ownership changes of 60% (40% + 20%). However, the head company satisfies the same business test because the consolidated group carried on the same business during the 2002-03 income year as it did immediately before the change of ownership.

    In determining whether a head company can use a loss transferred to it from a joining company which passed the continuity of ownership and control tests, changes in ownership of the joining company prior to it joining the consolidated group are taken into account.

    The head company completes part C, item 2 on the schedule as follows:

    Tax losses

    O

    1,200

    Net capital losses

    P

    4,600

    Last modified: 30 Jul 2003QC 27493