• Loss recoupment rules for companies

    In the 2007–08 Budget, the former government announced it would make changes to the loss recoupment rules for companies to:

    • ensure that companies do not fail the continuity of ownership test (COT) because they have multiple classes of shares on issue, or because they have special arrangements in place to make distributions of dividends and capital returns, with effect from 1 July 2002
    • clarify the meaning of ‘voting power’ in the context of the COT, with effect from 1 July 2007
    • ensure that the entry history rule in the consolidation regime is to be disregarded in applying the same business test (SBT), with effect from 1 July 2002.

    In the 2011–12 Budget, the former government announced its intention to further modify the operation of the company loss recoupment rules for certain entities, with effect from the 2011–12 income year.

    On 14 December 2013, the then Assistant Treasurer announced that the changes to the operation of the company loss recoupment rules that would have modified the tracing rules for certain entities will not be proceeding. However, the COT test will be modified so that ownership does not need to be traced through certain superannuation entities. This measure will be incorporated into the 2007-08 multiple classes of shares measure (applicable where a company has non-standard classes of shares or when it joins a consolidated group).

    Administrative treatment

    For the 2007-08 Budget-announced changes and the 2011-12 Budget announcement to modify the COT so that ownership does not need to be traced through certain superannuation entities, we will not undertake specific compliance activity to enforce the existing law during the period between the announcement and enactment of the proposed law.

    Protection for taxpayers

    In relation to the measures in the 2011-12 Budget that will not be proceeding, parliament has enacted legislation to provide protection for taxpayers who under-assessed their tax position on the basis of announced changes that will no longer proceed. Taxpayers who paid additional tax by following announced changes that will no longer proceed will be entitled to a refund.

    Information on how the protection works and which previous announcements are protected is available at Protection for anticipation of certain discontinued announcements.

    Legislation and supporting material

    The measure to implement changes to the company loss recoupment rules received Royal Assent on 16 September 2015. Broadly, these changes were made:

    • to allow companies with shares carrying unequal rights or having unequal voting power to be able to apply the COT;
    • to ensure that in applying the COT ownership does not have to be traced through certain superannuation entities in a company's ownership structure; and
    • to clarify that in the consolidation regime the entry history rule is disregarded in applying the SBT)

    For more information, refer to:

    Legislation implementing the protection measures received Royal Assent on 30 June 2014:

    Media release

    For more information, refer to:

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      Last modified: 24 Mar 2016QC 31719