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  • 3 Amount of losses carried forward to later income years for which the same business test must be satisfied before they can be utilised.

    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 3.
    • Do not include at item 3 losses carried forward to later income years for which the head company satisfies the continuity of ownership test.

    Show at item 3 the amount of tax losses, excluding film losses, and net capital losses carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.

    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 period for these losses starts 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 Q the amount of tax losses carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.

    Net capital losses

    Show at label R the amount of net capital losses carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.

    Example 18

    A consolidated group comes into existence on 1 July 2002. On that date, tax losses of $2,200 are transferred to the head company from a joining company which satisfies the continuity of ownership and control transfer tests.

    For the 2002-03 income year, the consolidated group makes group tax losses of $1,700 and group net capital losses of $3,500 which are carried forward to the 2003-04 income year.

    There is a change of majority ownership of the head company during the 2002-03 year but this does not result in the head company joining another consolidated group. The head company must satisfy the same business test in later income years to utilise the losses carried forward comprising tax losses of $3,900 ($2,200 + $1,700) and net capital losses of $3,500.

    The head company completes part C, item 3 on the schedule as follows:

    Tax losses

    Q

    3,900

    Net capital losses

    R

    3,500

    Last modified: 30 Jul 2003QC 27493