• 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 or applied (or, if applicable, transferred in or transferred out) in the 2009-10 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 165-96 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 165-180 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 165-150 to 165-160 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 165-150 to 165-160 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 165-165 and subsection 165-12(7) of the ITAA 1997.
    • A modified version of the above rules applies to widely held companies and eligible Division 166 companies - see Division 166 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.

    Attention
    • 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.
    End of attention

     

    Further Information

    For more information, see the information on R Tax losses deducted under 7Reconciliation to taxable income or loss in the Company tax return instructions 2010.

    End of further information

    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.

    Attention

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

    End of attention

    Completing item 1 of part B

    Print X in the Yes boxes at A to F (as applicable) if, during the 2009-10 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.

    Attention

    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.

    End of attention

    Example 3

    A company had incurred tax losses in earlier income years. The company deducted all of these tax losses in respect of the 2009-10 income year. At the beginning of the 2009-10 income year, the company had undeducted losses from the 2004-05, 2006-07, 2007-08 and 2008-09 income years. The continuity of majority ownership test was failed during the 2006-07 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 2006-07 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

               

    2009-10

    A

    Yes

     

    No

     

    Print X in the appropriate box.

    2008-09

    B

    Yes

    X

    No

     

    Print X in the appropriate box.

    2007-08

    C

    Yes

    X

    No

     

    Print X in the appropriate box.

    2006-07

    D

    Yes

     

    No

    X

    Print X in the appropriate box.

    2005-06

    E

    Yes

     

    No

     

    Print X in the appropriate box.

    2004-05 and earlier income years

    F

    Yes

     

    No

    X

    Print X in the appropriate box.


    The above example shows that:

    • there was no deduction for a tax loss incurred in the 2005-06 income year
    • the company passed the continuity of majority ownership test for the tax losses of the 2007-08 and 2008-09 income years
    • the company failed the continuity of majority ownership test for the tax losses of the 2004-05 and the 2006-07 income years.

    Example 4

    A company that incurred a tax loss in the 2004-05 income year subsequently undergoes a change in majority ownership in the 2005-06 income year. The company satisfies the same business test in respect of the 2004-05 tax loss.

    The company incurs a further tax loss in the 2006-07 income year and satisfies the continuity of majority ownership test in respect of this 2006-07 tax loss.

    In the 2009-10 income year the company deducts the tax losses incurred in the 2004-05 and 2006-07 income years.

    Print X in the Yes box at D 2006-07 and X in the No box at F 2004-05 and earlier income years.

    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

    Write at item 2 the total amount of losses, including a foreign loss component of a tax loss, applied during the 2009-10 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.

    Attention

    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.

    End of attention

    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 165-13 and 165-210 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 266-125 and Subdivision 269-F of Schedule 2F to the ITAA 1936.

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

    Tax losses

    Write 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

    Write 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
    $

    2003-04

    1,000

     

    2004-05

    2,000

     

    2005-06

     

    500

    2006-07

    1,600

    800

    2007-08

       

    2008-09

    10,000

    2,000

    2009-10

       

    Total

    14,600

    3,300

    There was a change in the underlying beneficial ownership of the company in the 2007-08 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 2008-09 losses.

    Tax losses

    All tax losses incurred in the 2003-04, 2004-05 and 2006-07 income years were deducted in the 2009-10 income year, as well as $6,000 of the 2008-09 tax loss.

    Net capital losses

    All of the 2005-06 net capital loss and $600 of the 2006-07 net capital loss were applied in the 2009-10 income year.

    Of all of the above losses, which are being applied in the 2009-10 income year, those which are subject to the same business test being satisfied by the company are as follows:

    Tax losses

    Year

    Amount
    $

    2003-04

    1,000

    2004-05

    2,000

    2006-07

    1,600

    Total

    4,600

    Net capital losses

    Year

    Amount
    $

    2005-06

    500

    2006-07

    600

    Total

    1,100

    Complete part B item 2 as follows:

    Part B item 2

    The 2008-09 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 2006-07 net capital loss was not applied during the 2009-10 income year, that amount of $200 is not shown at H Net capital losses for the 2009-10 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.

    3 Losses carried forward for which the same business test must be satisfied before they can be deducted in later years - excludes film losses

    Attention

    Item 3 asks for information about the tax losses and net capital losses for which the entity must satisfy the same business test in subsequent years for the entity to be able to utilise those losses.

    End of attention

    Company and listed widely held trust

    For more information on the same business test, see the information on part B item 2.

    Tax losses

    Write at I the total amount of tax losses, including a foreign loss component of a tax loss, carried forward to later income years for which the same business test must be satisfied for the entity to deduct those tax losses in later income years.

    Net capital losses

    Write at J the total amount of net capital losses carried forward to later income years for which the same business test must be satisfied for the company to apply those net capital losses in later income years.

    Example 6

    As at the end of the 2009-10 income year, the company had the following losses:

    Year

    Tax loss
    $

    Net capital loss
    $

    2003-04

    1,500

     

    2004-05

    3,000

     

    2005-06

     

    700

    2006-07

    1,900

    900

    2007-08

       

    2008-09

    1,000

    1,500

    2009-10

       

    Total

    7,400

    3,100

    A change in the underlying beneficial interests in the company took place during the 2007-08 income year. As a result, the company must satisfy the same business test for the tax losses of the following income years:

    • 2003-04 ($1,500)
    • 2004-05 ($3,000)
    • 2006-07 ($1,900).

    It must also satisfy the same business test in respect of the net capital losses for the following income years:

    • 2005-06 ($700)
    • 2006-07 ($900).

    The 2008-09 tax loss ($1,000) and the net capital loss ($1,500) are not affected.

    The company completes part B item 3 as follows:

    Part B item 3

    4 Do current year loss provisions apply?

    Is the company required to calculate its taxable income or tax loss for the year under Subdivision 165-B or its net capital gain or net capital loss for the year under Subdivision 165-CB of the ITAA 1997?

    A company is required to calculate its taxable income and tax loss under Subdivision 165-B of the ITAA 1997 where it does not satisfy the continuity of majority ownership test for the whole income year - see section 165-35 of the ITAA 1997. The current year loss provisions also apply where, during the income year, a person begins to control, or becomes able to control, the voting power in the company for the purpose or one of the purposes of gaining an advantage under the ITAA 1997 or gaining such a benefit for someone else - see section 165-40 of the ITAA 1997.

    However, the current year loss rules do not apply in either case if the same business test is satisfied.

    If the current year loss provisions apply, the company calculates its taxable income and tax loss by dividing the income year into periods according to when the change in ownership or control took place. Each separate period is regarded as an income year, with a notional tax loss or notional taxable income calculated for each separate period.

    The company's tax loss for the income year - see section 165-70 of the ITAA 1997 - consists of the total of notional losses calculated under section 165-50 or 165-75 of the ITAA 1997.

    The current year loss rules in Subdivision 165-CB of the ITAA 1997, where applicable, determine the company's net capital gain and net capital loss for the income year. If the company is required to calculate its taxable income and tax loss for the income year under Subdivision 165-B of the ITAA 1997 then Subdivision 165-CB will automatically apply - see section 165-102 of the ITAA 1997. The company works out its net capital gain and net capital loss by dividing the income year into periods according to when the change in ownership or control took place.

    A notional net capital gain or notional net capital loss is calculated for each period.

    A company's net capital loss for the income year - see section 165-114 of the ITAA 1997 - consists of the total of notional net capital losses calculated under section 165-108 of the ITAA 1997.

    Print X in the Yes box at K if the company is required to calculate its taxable income or tax loss under the provisions of Subdivision 165-B or its net capital gain or net capital loss under the provisions of Subdivision 165-CB.

    Print X in the No box at K if the company is not required to calculate its taxable income or tax loss under the provisions of Subdivision 165-B or its net capital gain or net capital loss under the provisions of Subdivision 165-CB.

    Part C Unrealised losses - company only

    Has a changeover time occurred in relation to the company after 1.00pm by legal time in the Australian Capital Territory on 11 November 1999?

    A changeover time is the time of a change in majority ownership or in the control of a company.

    To determine whether a company has failed the continuity of majority ownership test or the change of control test for the purposes of Subdivision 165-CC of the ITAA 1997, see:

    • section 165-115C - change in ownership of company
    • section 165-115D - change in control of company.

    In determining whether there has been a change of ownership or control at a particular test time, the ownership or control profile is determined at two points in time - the reference time and the test time.

    For this purpose, the reference (base) time is the later of 1.00pm (by legal time in the Australian Capital Territory) on 11 November 1999 (the commencement time) for a company in existence at that time (or the time when it came into existence if not), and the time immediately after the last preceding changeover time, if any.

    The continuity of majority ownership test is subject to the 'same share and interest' rule in section 165-165 of the ITAA 1997. This requires - subject to special rules for share and unit 'splits' or 'consolidations' - that exactly the same shares must continue to be held by the same persons throughout the 'test period' - that is, from reference time to test time - to count towards satisfaction of the test. Interests in any other entity - for example, shares in another company - must be exactly the same interests and beneficially owned by the same persons.

    There is a 'saving rule' in section 165-115C of the ITAA 1936 which provides that if the continuity of majority ownership test would have been satisfied but for the operation of the 'same share and interest rule', the test time is not a changeover time if the company has information from which it is reasonable to conclude that less than 50% of the company's unrealised net loss has been or will be duplicated as a result of any CGT event that happened during the test period.

    Subdivision 166-CA of Division 166 of the ITAA 1997 modifies the way in which Subdivision 165-CC of the ITAA 1997 applies to a widely held company or eligible Division 166 company.

    If the answer is yes, print X in the Yes box at L, and complete M.

    If the answer is no, print X in the No box at L, and do not complete M, N or O.

    At the changeover time did the company satisfy the maximum net asset value test under section 152-15 of the ITAA 1997?

    Any company that has a net value of CGT assets of $6 million or less, as determined under section 152-15 of the ITAA 1997, at the time it failed the continuity of majority ownership test, is not subject to the operation of Subdivision 165-CC of the ITAA 1997. The maximum threshold amount of $6 million includes the net value of the CGT assets of the company and any entity connected or affiliated with the company as referred to in section 152-15 of the ITAA 1997.

    If the answer is yes, print X in the Yes box at M, and do not complete N and O.

    If the answer is no, print X in the No box at M, and complete N.

    Attention

    If a company has failed the continuity of majority ownership test on two or more occasions since the commencement time, complete M in respect of the latest changeover time.

    End of attention

    If you printed X in the No box at M, has the company determined it had an unrealised net loss at the changeover time?

    Where a company that answered yes at L and no at M has an unrealised net loss at the changeover time, the company cannot, to the extent of the unrealised net loss, have capital losses taken into account, or deduct revenue losses, in respect of CGT events that happen to CGT assets owned at the changeover time unless the company satisfies the same business test. Whether a company has an unrealised net loss at the time of the change is determined in accordance with the method statement in section 165-115E of the ITAA 1997.

    If the answer is yes, print X in the Yes box at N, and complete O.

    If the answer is no, print X in the No box at N, and do not complete O.

    Attention

    If a company has failed the continuity of majority ownership test on two or more occasions since the commencement time, complete N in respect of the latest changeover time. Subdivision 165-CC of the ITAA 1997 requires a company to determine whether it has an unrealised net loss each time that it experiences a changeover time.

    End of attention

    If you printed X in the Yes box at N, what was the amount of unrealised net loss calculated under section 165-115E of ITAA 1997?

    Attention

    Subdivision 165-CC of the ITAA 1997 does not specify when a company has to calculate whether it has an unrealised net loss. However, this calculation must be done before claiming any loss or deduction on an asset that was held at the changeover time. Where no calculation has been undertaken as at the date of lodging the company's income tax return, print X in the No box at N, and do not complete O.

    End of attention

    An unrealised net loss is, broadly, the excess of the company's unrealised losses on assets over unrealised gains on assets at the changeover time. This is determined by deeming such assets to be disposed of at market value at the changeover time. A company may choose to exclude every asset that it acquired for less than $10,000 from the calculation of the amount. A company may also choose to use the written down value of depreciable plant - not a building or structure - at the changeover time rather than its market value at that time provided:

    • the expenditure incurred by the company to acquire the plant was less than $1 million, and
    • it would be reasonable for the company to conclude that the market value of the plant at the changeover time was not less than 80% of its written down value at that time.

    Whether a company has an unrealised net loss at a changeover time is calculated using the steps in the method statement below.

    Method statement

    Step 1

    Calculate, in respect of each CGT asset that the company owned at the changeover time, any:

    • notional capital gain or notional revenue gain
    • notional capital loss or notional revenue loss in respect of the asset at that time.

     

    Attention

    The notional calculation is made on the assumption that the company disposed of the asset at its market value at the changeover time. For an asset that is an item of trading stock, if the item's market value at the changeover time exceeded:

    • the latest valuation under Division 70 of the ITAA 1997, or
    • the cost of the item at the changeover time - if there is no valuation under Division 70,
    • the company has a notional revenue gain equal to the excess.
    End of attention

    If the item's market value at the changeover time was less than the latest valuation under Division 70 or the cost of the item at the changeover time - if there is no valuation under Division 70 - the company has a notional revenue loss equal to the difference.

    Step 2

    Add up the sum of the company's notional capital gains and the sum of the company's notional revenue gains. The total is the unrealised gross gain at the changeover time.

    Step 3

    Add up the sum of the company's notional capital losses and the sum of the company's notional revenue losses. The total is the unrealised gross loss at the changeover time.

    Step 4

    If the unrealised gross loss at the changeover time exceeds the unrealised gross gain at that time, the excess is the company's preliminary unrealised net loss.

    Step 5

    Add up the company's preliminary unrealised net loss and any capital loss or deduction disregarded under Subdivision 170-D of the ITAA 1997. The total is the company's unrealised net loss.

    Write at O the amount of unrealised net loss the company has at the changeover time.

    Write zero (0) at O if the company has an unrealised net gain at the changeover time.

    Attention

    The Commissioner of Taxation may give advice about methods to be used, and other things to be done, in valuing assets for the purposes of Subdivision 165-CC of the ITAA 1997.

    End of attention

    Part D Life insurance companies

    Only those companies that carry on the business of life insurance and that have complying superannuation/FHSA class tax losses or complying superannuation/FHSA net capital losses carried forward to later income years need to complete part D of the losses schedule.

    Complying superannuation/FHSA class tax losses carried forward to later income years

    Generally, a life insurance company will have a tax loss of the complying superannuation/FHSA class for an income year if the company's complying superannuation/FHSA deductions for that income year exceed the sum of:

    • the complying superannuation/FHSA assessable income for that income year, and
    • net exempt income for the income year that is attributable to the complying superannuation/FHSA assets.

    Write at P the amount of complying superannuation/FHSA class tax losses carried forward to later income years.

    Complying superannuation/FHSA net capital losses carried forward to later income years

    The complying superannuation/FHSA class of a life insurance company has a net capital loss for the income year if the total of all capital gains made from complying superannuation/FHSA assets during the income year is less than the total of all the capital losses made from complying superannuation/FHSA assets during the income year.

    Write at Q the amount of complying superannuation/FHSA net capital losses carried forward to later income years.

    Last modified: 02 Jun 2010QC 22862