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  • 2 Amount of losses deducted for which the continuity of majority ownership test is not passed but the same business test is satisfied - excludes film 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

    Show at item 2 the total amount of losses, including a foreign loss component of a tax loss, applied during the 2008–09 income year - if the entity is either a company or a listed widely held trust - and for which the same business test must be satisfied.

    Note: In addition to those companies with either tax losses or net capital losses that have not passed the continuity of majority ownership test, this item also applies to listed widely held trusts with tax losses that have not passed the 50% stake test.

    Same business test: company and listed widely held trust
    Company

    Under the same business test, the company must carry on the same business throughout the income year that it carried on immediately before the disqualifying change of ownership. The test is not satisfied if at any time during the income year the relevant entity did not carry on the same business as it did immediately before the change in the ownership of the entity or it derives assessable income from:

    • a business of a kind that it did not carry on before the disqualifying event, or
    • a transaction of a kind that it did not enter into in the course of its business operations before the disqualifying event.

    'Same' means 'identical' and not merely 'similar'. The term 'same business' is to be read as referring to the same business, in the sense of the identical business. However, the term does not mean identical in all respects.

    A company may expand or contract its activities without necessarily ceasing to carry on the same business. The organic growth of a business does not necessarily cause the business to fail the same business test provided the business retains its identity. But, if through a process of evolution, a business changes its essential character, the entity may fail the test. Application of the same business test is a question of fact and is usually determined by a process of weighing up various relevant factors.

    For more information, see sections 165-13External Link and 165-210External Link of the ITAA 1997 and Taxation Ruling TR 1999/9.

    Listed widely held trust

    A listed widely held trust must carry on the same business as it carried on before the first abnormal trading in its units - that caused the failure of the 50% stake test - occurred.

    For application of the same business test for a listed widely held trust, see company.

    For more information, see section 266-125External Link and Subdivision 269-F of Schedule 2FExternal Link to the ITAA 1936.

    The principles outlined in Taxation Ruling TR 1999/9 may be of assistance.

    Tax losses

    Show at G the amount of tax losses, including a foreign loss component of a tax loss, deducted by the entity that do not meet the continuity of majority ownership test but satisfy the same business test.

    Net capital losses

    Show at H the amount of net capital losses applied by a company that do not meet the continuity of majority ownership test but satisfy the same business test.

    Example 5

    A company had the following losses:

    Year

    Tax loss

    Net capital loss

    2002–03

    $1,000

    -

    2003–04

    $2,000

    -

    2004–05

    -

    $500

    2005–06

    $1,600

    $800

    2006–07

    -

    -

    2007–08

    $10,000

    $2,000

    2008–09

    -

    -

    TOTALS

    $14,600

    $3,300

    There was a change in the underlying beneficial ownership of the company in the 2006–07 income year.

    The company passed the same business test and all other tests in relation to the losses incurred prior to that year and passed the continuity of majority ownership test and all other tests in relation to the 2007–08 losses.

    Tax losses

    All tax losses incurred in the 2002–03, 2003–04 and 2005–06 income years were deducted in the 2008–09 income year, as well as $6,000 of the 2007–08 tax loss.

    Net capital losses

    All of the 2004–05 net capital loss and $600 of the 2005–06 net capital loss were applied in the 2008–09 income year.

    Of all of the above losses, which are being applied in the 2008–09 income year, those which are subject to the same business test being satisfied by the company are as follows:

    Tax losses

    Year

    Amount

    2002–03

    $1,000

    2003–04

    $2,000

    2005–06

    $1,600

    TOTAL

    $4,600

    Net capital losses

    Year

    Amount

    2004–05

    $500

    2005–06

    $600

    TOTAL

    $1,100

    Complete part B item 2 as follows:

    Part B item 2
Labe G Tax losses: $4,600
Label H Net capital losses: $1,100

    The 2007–08 tax loss of $6,000 was deducted by the company on the basis that the company had satisfied the continuity of majority ownership test. Therefore, this amount is not shown at G Tax losses.

    As $200 of the 2005–06 net capital loss was not applied during the 2008–09 income year, that amount of $200 is not shown at H Net capital losses for the 2008–09 income year even though the same business test would need to be passed in a later income year in order for the company to be able to apply that net capital loss in a later income year.

    End of example
    Last modified: 27 Nov 2009QC 21731