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  • Page 2 of the schedule

    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

    Part B Ownership and same business test - company and listed widely held trust only

    1 Whether continuity of majority ownership test passed

    If the entity has deducted, applied (or, if applicable, transferred in or transferred out) in the 2008–09 income year a loss, including a foreign loss component of a tax loss, incurred in any of the listed years, print X in the appropriate boxes to indicate whether the entity has satisfied the continuity of majority ownership test in respect of that loss.

    The aim of item 1 is to find out if:

    • the continuity of majority ownership test at section 165-12 of the ITAA 1997 - if the entity is a company, or
    • the 50% stake test at Subdivision 269-C of Schedule 2F to the ITAA 1936 - if the entity is a listed widely held trust

    has been satisfied in respect of a loss if a loss in any of the periods listed at item 1 is applied by being claimed as a deduction - if the entity is a company or listed widely held trust.

    Company only

    A tax loss of an earlier income year is not deductible, and a net capital loss cannot be applied, unless a company has maintained the same owners as prescribed in section 165-12 of the ITAA 1997 (see also section 165-96External Link of the ITAA 1997 for applying net capital losses of earlier years).

    For more information on the rules for arrangements affecting beneficial ownership, see section 165-180External Link of the ITAA 1997.

    The following conditions apply:

    • Where tax losses are sought to be deducted, or net capital losses are sought to be applied, in an income year ending after 21 September 1999, majority ownership must be maintained from the start of the loss year to the end of the income year.
    • There must be persons who, at all times during the ownership test period, beneficially owned (between them) shares carrying (between them) the right to
      • exercise more than 50% of the voting power in the company
      • receive more than 50% of the company's dividends, and
      • receive more than 50% of the company's capital distributions. See sections 165-150External Link to 165-160External Link of the ITAA 1997.
       
    • It is reasonable to assume that there are persons (none of them companies) 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. See sections 165-150External Link to 165-160External Link of the 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. See section 165-165External Link and subsection 165-12(7)External Link of the ITAA 1997.
    • A modified version of the above rules applies to widely held companies and eligible Division 166 companies - see Division 166External Link of the ITAA 1997.

    If the company fails to meet a condition of section 165-12 of the ITAA 1997, the company must satisfy the conditions relating to carrying on the same business under section 165-13 of the ITAA 1997.

    For more information on the same business test, see Taxation Ruling TR 1999/9 Income tax: the operation of sections 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132.

    Note

    • Even if the company satisfies the ownership tests of section 165-12 of the ITAA 1997 or if not, then the same business test of section 165-13 of the ITAA 1997, it cannot deduct earlier income year tax losses unless it satisfies the control test at section 165-15 of the ITAA 1997.
    • Anti-avoidance provisions are at Subdivisions 175-A and 175-B of the ITAA 1997.

    For more information, see the information on R Tax losses deducted item 7 in the Company tax return instructions 2009.

    Listed widely held trust only

    A tax loss for a listed widely held trust may not be deductible if abnormal trading in the units of the trust has occurred during the period from the beginning of the loss year until the end of the income year. Abnormal trading is defined in Subdivision 269-B of Schedule 2F to the ITAA 1936. If abnormal trading has occurred the trust must meet the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936. If the trust cannot meet the 50% stake test it must satisfy the same business test in Subdivision 269-F of Schedule 2F to the ITAA 1936.

    Note: If deductions for bad debts are involved, then section 266-135 of Schedule 2F to the ITAA 1936 may apply.

    Completing item 1 of part B

    Print X in the Yes boxes at A to F (as applicable) if, during the 2008–09 income year, the entity seeks to utilise a loss of the relevant year and the entity has passed:

    • the continuity of majority ownership test - if the entity is a company, or
    • the 50% stake test - if the entity is a listed widely held trust in respect of the loss of that particular year.

    Print X in the No boxes at A to F (as applicable) for each year in respect of which the entity seeks to deduct a loss if the continuity of majority ownership test or the 50% stake test - as applicable - has not been satisfied in respect of that loss and the entity is required to satisfy the same business test.

    If there was no loss deducted (or, if applicable, not transferred in or transferred out) in respect of a particular year, leave the boxes next to that year blank.

    Note: Examples for part B item 1

    Although examples 3 and 4 are for companies, the examples, notes and comments apply equally to listed widely held trusts - which must satisfy the 50% stake test.

    Example 3

    A company had incurred tax losses in earlier income years. The company deducted all of these tax losses in respect of the 2008–09 income year. At the beginning of the 2008–09 income year, the company had undeducted losses from the 2003–04, 2005–06, 2006–07 and 2007–08 income years. The continuity of majority ownership test was failed during the 2005–06 income year, but all other tests for allowing the tax losses to be applied have been passed by the company.

    On these facts, for the tax losses of the 2005–06 income year and earlier income years, the company has not passed the continuity of majority ownership test.

    Complete part B item 1 as follows:

    Year of loss

    Label

    Yes

    No

    2008–09

    A

    -

    -

    2007–08

    B

    X

    -

    2006–07

    C

    X

    -

    2005–06

    D

    -

    X

    2004–05

    E

    -

    -

    2003–04 and earlier income years

    F

    -

    X

    The above example shows that:

    • there was no deduction for a tax loss incurred in the 2004–05 income year
    • the company passed the continuity of majority ownership test for the tax losses of the 2006–07 and 2007–08 income years
    • the company failed the continuity of majority ownership test for the tax losses of the 2003–04 and the 2005–06 income years.
    End of example

     

    Example 4

    A company that incurred a tax loss in the 2003–04 income year subsequently undergoes a change in majority ownership in the 2004–05 income year. The company satisfies the same business test in respect of the 2003–04 tax loss.

    The company incurs a further tax loss in the 2005–06 income year and satisfies the continuity of majority ownership test in respect of this 2005–06 tax loss.

    In the 2008–09 income year the company deducts the tax losses incurred in the 2003–04 and 2005–06 income years.

    Print X in the Yes box at D 2005–06 and X in the No box at F 2003–04 and earlier income years.

    End of example
    Last modified: 27 Nov 2009QC 21731