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  • Same business test

    Where in relation to a particular tax loss the COT or control test is failed, or it is not practicable to show that the COT is satisfied, the loss can still be utilised if the same business test (SBT) is satisfied.

    The SBT is satisfied if all of the following conditions are met throughout the prospective loss recoupment year:

    • The company carries on the same overall business as it carried on immediately before the test time. ('Same' does not necessarily mean identical in all respects. The business can expand or contract provided it retains its essential character.)
    • The company does not derive assessable income from a type of business it did not carry on before the test time (the new business test). (A new business involves activities that are distinguishable from the company’s other activities. Note that a company would fail this condition if it started to carry on a business before the test time for the purpose of satisfying the SBT.)
    • The company does not derive assessable income from a kind of transaction it had not previously entered into in the course of its business before the test time (the new transaction test).

    A new type of transaction would be one:

    • outside the course of the business operations
    • extraordinary or unnatural when judged by the course of the business operations, or
    • usually considered one of a different kind from the transactions actually entered into by the company before the test time.
    Further information

    Find out more

    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 165-132External Link – for more information on the SBT, including a de minimus exception to the new business and new transaction tests.

    End of further information

    Test time

    The test time is:

    • where the company fails the COT for a particular loss – the latest time during the ownership test period that the company was able to satisfy the COT
    • where it is not practicable to show when the company failed the COT – the start of the loss year, or
    • if the company was formed during the loss year, and it is not practicable to show when the company failed the COT – the end of the loss year.

    Example

    Beetle Pty Ltd is an Australian company incorporated on 20 September 2001. The ultimate individual ownership of Beetle Pty Ltd is traceable. It made a tax loss in the 2002–03 income year. There was a change of 55% of the original ownership on 7 July 2003. It wishes to claim the loss in the 2005–06 year.

    Beetle Pty Ltd will not satisfy the continuity of ownership test as it had a change in majority ownership or control during the ownership test period. It will only be able to claim the losses where it satisfied the same business test since the test time. The test time for the SBT is the date ownership or control changed. In this case, it is 7 July 2003.

    Beetle Pty Ltd will only satisfy the same business test where it carries on the same business during the 2005–06 year that it carried on immediately before 7 July 2003.

    End of example
  • Last modified: 24 Aug 2013QC 23606