• Residency requirement for losses

    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

    A notional deduction is not allowable for a previous year loss if a CFC does not satisfy the residency requirement in the period when the loss was incurred. The general rule is that a CFC resident in a broad-exemption listed country can only claim a notional deduction for a previous year loss if:

    • the loss was incurred in a statutory accounting period commencing on or after 1 July 1997 and the CFC was a resident of a broad-exemption listed country in that period, or
    • the loss was incurred in a statutory accounting period commencing before 1 July 1997 and the CFC was a resident of a listed country in that period.

    The general rule for a CFC resident in a non-broad-exemption listed country is that the CFC can only claim a notional deduction for a previous year loss if:

    • the loss was incurred in a statutory accounting period commencing on or after 1 July 1997 and the CFC was a resident of a non-broad-exemption listed country in that period, or
    • the loss was incurred in a statutory accounting period commencing before 1 July 1997 and the CFC was a resident of an unlisted country in that period.

    Modifications to the general rule deal with cases where a company:

    • remains a resident of the same country
    • is treated as changing residence from a listed country to an unlisted country or vice versa as a result of changes to the list(s) of countries or political developments - for example, as a result of the dissolution of a country.

    In these cases, the losses incurred by a CFC in an earlier period are not denied solely because the listing status of a CFC's country of residence changes. The following table summarises the availability of losses incurred in statutory accounting periods commencing before 1 July 1997.

    Scenario

    CFC's current country of residence

    Availability of losses for statutory accounting periods commencing after 1 July 1997

    Losses incurred by a listed country CFC in a statutory accounting period commencing before 1 July 1997.

    broad-exemption listed country

    Allowable*

    non-broad-exemption listed country

    Generally not allowable
    Allowable*
    if the non-broad-exemption listed country arises from the dissolution of the listed country.
    Allowable*
    if the non-broad-exemption listed country is the same country as the unlisted country.

    Losses incurred by an unlisted country CFC in a statutory accounting period commencing before 1 July 1997.

    broad-exemption listed country

    Generally not allowable
    Allowable*
    if the broad-exemption listed country is the same country as the unlisted country.

    non-broad-exemption listed country

    Allowable*

    Losses incurred by a listed country CFC in a statutory accounting period commencing before 1 July 1997. The CFC subsequently changes residence to another listed country in a statutory accounting period commencing before 1 July 1997.

    broad-exemption listed country

    Allowable*

    non-broad-exemption listed country

    Generally not allowable
    Allowable*
    if the non-broad-exemption listed country arises from the dissolution of the last-mentioned listed country.
    Allowable*
    if the non-broad-exemption listed country is the same country as the last-mentioned listed country.

    Losses incurred by an unlisted country CFC in a statutory accounting period commencing before 1 July 1997. The CFC subsequently changes residence to a listed country in a statutory accounting period commencing before 1 July 1997.

    broad-exemption listed country

    Not allowable because the losses would have been denied previously.

    non-broad-exemption listed country

    Not allowable because the losses would have been denied previously.

    Losses incurred by a listed country CFC in a statutory accounting period commencing before 1 July 1997. The CFC subsequently changes residence to an unlisted country in a statutory accounting period commencing before 1 July 1997.

    broad-exemption listed country

    Not allowable because the losses would have been denied previously.

    non-broad-exemption listed country

    Not allowable because the losses would have been denied previously.

    Losses incurred by a broad-exemption listed country CFC in a statutory accounting period commencing after 1 July 1997.

    broad-exemption listed country

    Allowable*

    non-broad-exemption listed country

    Generally not allowable
    Allowable*
    if the non-broad-exemption listed country arises from the dissolution of the broad-exemption listed country.
    Allowable*
    if the non-broad-exemption listed country is the same country as the broad-exemption listed country.

    Losses incurred by a non-broad-exemption listed country CFC in a statutory accounting period commencing after 1 July 1997.

    broad-exemption listed country

    Generally not allowable
    Allowable*
    if the broad-exemption listed country is the same as the non-broad-exemption listed country.

    non-broad-exemption listed country

    Allowable*

    * The losses are not allowable if they were denied in an earlier statutory accounting period.

    Last modified: 05 Dec 2006QC 17522