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  • 2 Tax losses transferred from joining entities after consolidation

    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 net capital losses, foreign source losses or film losses at item 2.
    • Net capital losses transferred from joining entities after consolidation are shown at item 7, and foreign source losses at Part E-Foreign source losses.
    • Do not include tax losses transferred at consolidation. Include these losses at item 1.
    • For the definition of a tax loss refer to section 995-1 of ITAA 1997.

    This item requires information on the amount of tax losses, excluding film losses and foreign source losses, transferred from joining entities to the head company after the date the consolidated group has been brought into existence-that is, the date specified in the notice of choice given to the Commissioner. Refer to section 703-50 of ITAA 1997.

    The relevant amount of tax losses transferred during the income year is to be recorded against labels D, E or F depending on which loss transfer test has been satisfied.

    When an entity joins a consolidated group it calculates its taxable income or loss for the period up to the time it joins the group. Generally, any unused carry forward losses are transferred to the head company if the losses could have been used by the joining entity, assuming it had 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 entity in the trial year is determined by applying modified versions of the usual tests for deducting and applying losses.

    A joining entity is any eligible entity that joins a consolidated group. For details of who can and cannot be members of a consolidated group refer to sections 703-15 and 703-20 of ITAA 1997.

    Continuity of ownership test losses-companies only

    Show at label D those tax losses that were transferred after consolidation because the continuity of ownership and control tests were satisfied from the start of the year when the loss was incurred until immediately after the joining time. For more information on the continuity of ownership and control tests see the information on Part A-Tax losses and net capital losses consolidated, item 1.

    Same business test losses-companies only

    Show at label E those tax losses that were transferred after consolidation because the continuity of ownership or control tests were failed but the joining company satisfied the same business test. For more information on the same business test see Part A-Tax losses and net capital losses consolidated, item 1.

    Other losses-trusts only

    Show at label F those tax losses that were transferred after consolidation by a trust. For more information on the trust loss legislation see the information on Part A-Tax losses and net capital losses consolidated, item 1.

    Example 2

    A consolidated group comes into existence on 1 July 2002. During the 2002-03 income year the following tax losses are transferred to the head company from joining entities which pass the loss transfer tests indicated.

    Joining entity

    Joining time

    Tax loss amount
    $

    Transfer test passed

    Continuity of ownership

    Same business

    Other

    A Company

    1.7.2002

    1,800

    No

    Yes

     

    B Company

    1.7.2002

    2,300

    No

    Yes

     

    C Company

    3.2.2003

    7,800

    Yes

       

    X Fixed trust

    8.6.2003

    1,100

       

    Yes

    Y non-fixed trust

    8.6.2003

    4,600

       

    Yes

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

    Continuity of ownership test losses

    A

    7,800

    Same business test losses

    B

    2,300

    Other losses

    C

    5,700

    As X Company's same business tax losses were transferred at consolidation, the amount transferred is recorded at item 1, label B.

    Last modified: 30 Jul 2003QC 27493