Part A Tax losses and net capital losses consolidated - excludes film losses

1 Tax losses transferred from joining entities (including head company) at consolidation

You only need to complete item 1 if your group consolidated during the 2009-10 income year.

This item requires information on the amount of tax losses, excluding film losses, transferred from joining entities, including the head company, to the head company at the date the consolidated group has been brought into existence - that is, the date specified in the notice of choice given to the Commissioner of Taxation (Commissioner). See section 703-50 of the ITAA 1997.

Write the relevant amount of tax losses transferred at consolidation at A, B or C, depending on which loss transfer test has been satisfied.

When an entity joins a consolidated group as a subsidiary member part way through the entity's income year, it calculates its taxable income or tax loss for the period up to the time it joins the group. Generally any unused carry forward tax losses are transferred to the head company if they could have been used by the joining entity, assuming sufficient income, in the 'trial year', which generally begins 12 months before joining the consolidated group and ends immediately after the joining time. In certain circumstances, the trial year may be a period shorter than 12 months. See subsection 707-120(2) of the ITAA 1997.

Whether the tax losses could have been used by the joining entity in the trial year is determined by applying modified versions of the usual tests for deducting tax losses.

A joining entity is any eligible entity that joins a consolidated group. For details of who can or cannot be members of a consolidated group, see sections 703-15 and 703-20 of the ITAA 1997.

Continuity of ownership test losses - companies only

Write at A those tax losses that were transferred at consolidation because the continuity of ownership and control tests were satisfied for the ownership test period - that is, from the start of the year when the tax loss was incurred until immediately after the joining time. See sections 165-12, 165-15 and 707-120 of the ITAA 1997.

The following conditions apply:

• There must be persons who beneficially owned (between them) shares carrying (between them) the right to exercise more than 50% of the voting power in the company, and rights to receive more than 50% of the company's dividends and more than 50% of the company's capital distributions at all times during the ownership test period. See sections 165-150 to 165-160 of the ITAA 1997.
• Alternatively, it is reasonable to assume that there are persons (none of them companies or trustees) 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.
• If the company claims tax losses in an income year ending after 21 September 1999, it 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 can apply to widely held companies and eligible Division 166 companies. See Division 166 of the ITAA 1997.

Anti-avoidance provisions are found in Subdivisions 175-A and 175-B of the ITAA 1997.

Same business test losses - companies only

Write at B those tax losses that were transferred at consolidation where the continuity of ownership and control tests were failed but the joining company satisfied the same business test.

The following table shows how the same business test applies for companies joining a consolidated group. See subsections 707-120(1) to (3) and subsections 707-125(1) to (3) of the ITAA 1997.

Same business transfer tests for companies

In these circumstances:	Test the joining entity's business at these points:
1 The joining entity made the loss for an income year starting after 30 June 1999.	just before the end of the income year in which the loss was made the year of the ownership change if that year started before the trial year, and the trial year.
2 The joining entity made the loss for an income year starting before 1 July 1999.	just before the time of the ownership change, and the trial year.

For the purposes of the table, the time of the ownership change refers to the time when the joining entity first fails the ownership or control tests or, if the company is unable to point to the actual time the ownership test was failed, the relevant default test time shown in the table in subsection 165-13(2) of the ITAA 1997.

Where a tax loss is transferred as a result of satisfying the same business test, it may only be transferred again if - in addition to satisfying the usual transfer tests - the entity transferring the loss carried on the same business at these times:

• just before the end of the income year in which the loss was previously transferred to it, and
• during the trial year.

See subsection 707-135(2) of the ITAA 1997.

Under the same business test the company must carry on the same business at all the times indicated in the table above - that is, throughout the trial year and year of ownership change (if applicable) and the other relevant time. The test is not satisfied if at any time the company did not carry on the same business as it did at another required time or it derives assessable income from:

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

'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.

However, if through a process of evolution a business changes its essential character, the entity would 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, 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 and Taxation Ruling TR 2007/2 - Income tax: application of the same business test to consolidated and MEC groups - principally, the interaction between section 165-210 and section 701-1 of the Income Tax Assessment Act 1997.

Other losses - trusts only

Write at C those tax losses that were transferred at consolidation from a trust.

The trust loss legislation in Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) affects the deductibility of prior year tax losses by trusts.

The measures generally apply from 7.30pm Australian Eastern Standard Time on 9 May 1995. The legislation applies to two broad categories of trusts:

• fixed trusts - see section 272-65 of Schedule 2F to the ITAA 1936
• non-fixed trusts (including discretionary trusts) defined in section 272-70 of Schedule 2F to the ITAA 1936.

Fixed trusts are subject to the 50% stake test which tests for continuity of interests in the trust during the relevant periods. See Subdivision 269-C of Schedule 2F to the ITAA 1936.

The relevant test period for transfer purposes ends when the trial year ends immediately after joining time.

Non-fixed trusts, which are not excepted trusts, are subject to:

• the 50% stake test - if applicable
• the control test - see Subdivision 269-E of Schedule 2F to the ITAA 1936, and
• the pattern of distributions test - see Subdivision 269-D of Schedule 2F to the ITAA 1936 - if applicable.

See Division 267 of Schedule 2F to the ITAA 1936 in relation to the ownership and control tests that apply to non-fixed trusts.

The control test is applied as though the test period ended immediately after the joining time.

Where the pattern of distributions test is applied as a transfer test, the income year in which the trust joins the consolidated group is treated as the recoupment year instead of the trial year. See subsection 707-130(2) of the ITAA 1997.

A distribution made by a trust after the time it joins a consolidated group is not counted in determining if the pattern of distributions test is passed as a transfer test, if the distribution is made from income or capital of the trust that is attributable to a time after the joining time. See subsection 707-130(4) of the ITAA 1997.

For more information see appendix 8 in the Trust tax return instructions 2010.

Example 1

A consolidated group came into existence on 23 July 2009. During the 2009-10 income year the following tax losses were transferred to the head company from joining entities that passed the loss transfer tests indicated.

Joining entity	Joining time	Tax loss amount $	Transfer test passed
			Continuity of ownership	Same business	Other
Company A	23/07/2009	1,500
Company B	23/07/2009	3,200	X
Company C	03/02/2010	4,600
Fixed trust X	23/07/2009	1,800
Non-fixed trust Y	23/07/2009	3,100

The head company completes item 1 part A on the schedule as follows:

As Company C transferred its continuity of ownership tax losses after consolidation, the amount transferred is written at D item 2.

2 Tax losses transferred from joining entities after consolidation

This item requires information on the amount of tax losses, excluding film losses, transferred from joining entities to the head company after the date the consolidated group has been brought into existence - that is, the date specified in the notice of choice given to the Commissioner. See section 703-50 of the ITAA 1997.

Write the relevant amount of tax losses transferred during the income year at D, E or F depending on which loss transfer test has been satisfied.

When an entity joins a consolidated group, it calculates its taxable income or tax loss for the period up to the time it joins the group. Generally, any undeducted carry forward tax losses are transferred to the head company if the losses could have been used by the joining entity, assuming it had sufficient income or gains, in the 'trial year', which generally begins 12 months before joining the consolidated group and ends immediately after the joining time. In certain circumstances, the trial year may be a period shorter than 12 months. See subsection 707-120(2) of the ITAA 1997.

Whether the tax losses could have been utilised by the joining entity in the trial year is determined by applying modified versions of the usual tests for deducting tax losses.

A joining entity is any eligible entity that joins a consolidated group. For details of who can and cannot be members of a consolidated group, see sections 703-15 and 703-20 of the ITAA 1997.

Continuity of ownership test losses - companies only

Write at D those tax losses that were transferred after consolidation because the continuity of ownership and control tests were satisfied from the start of the year when the tax loss was incurred until immediately after the joining time. For more information on the continuity of ownership and control tests, see item 1 Tax losses transferred from joining entities (including head company) at consolidation in part A.

Same business test losses - companies only

Write at E those tax losses that were transferred after consolidation because the continuity of ownership and control tests were failed but the joining company satisfied the same business test. For more information on the same business test, see item 1 Tax losses transferred from joining entities (including head company) at consolidation in part A.

Other losses - trusts only

Write at F those tax losses that were transferred after consolidation by a trust. For more information on the trust loss legislation, see item 1 Tax losses transferred from joining entities (including head company) at consolidationExample 2

A consolidated group came into existence on 1 July 2009. During the 2009-10 income year the following tax losses were transferred to the head company from joining entities that passed the loss transfer tests indicated.

Joining entity	Joining time	Tax loss amount $	Transfer test passed
			Continuity of ownership	Same business	Other
Company X	01/07/2009	1,800	X
Company Y	02/07/2009	2,300	X
Company Z	03/02/2010	7,800
Fixed trust A	08/06/2010	1,100
Non-fixed trust B	08/06/2010	4,500

The head company completes item 2 part A on the schedule as follows:

As Company X's same business tax losses were transferred at consolidation, the amount transferred is written at B item 1.

3 Tax losses utilised

This item requires information on the amount of tax losses, excluding film losses, utilised. A head company utilises a tax loss to the extent it is deducted from an amount of the head company's assessable income and net exempt income.

Subject to certain limitations, corporate tax entities can choose the amount of prior year tax losses they wish to deduct from the excess, if any, of their assessable income over total deductions (other than tax losses) in a later income year. This also means that corporate tax entities can choose not to deduct prior year losses in order to pay sufficient tax to be able to frank their distributions. See Division 36 of the ITAA 1997.

Subject to various rules, an earlier year tax loss is deducted in a later income year - to the extent that it has not already been utilised - as shown by the following formulas:

• If the head company has no net exempt income and has an excess of assessable income over total deductions - other than tax losses - deduct the tax loss from the excess assessable income. See subsection 36-17(2) of the ITAA 1997.
• If the head company has net exempt income and an excess of assessable income over total deductions - other than tax losses - deduct the tax loss from the net exempt income and then deduct any remaining amount of tax loss from the excess assessable income. See subsection 36-17(3) of the ITAA 1997.
• If the head company has net exempt income and an excess of total deductions - other than tax losses - over assessable income, deduct the excess deductions from the net exempt income and then deduct the tax loss from any net exempt income that remains. See subsection 36-17(4) of the ITAA 1997.

A head company's net exempt income is calculated in accordance with section 36-20 of the ITAA 1997.

A head company may be entitled to utilise carry forward tax losses broadly comprising of:

• tax losses generated by the consolidated group - group losses, or
• transferred tax losses that were generated by an entity before it became a member of the group.

Before utilising a group tax loss or a transferred tax loss, a head company is required to pass the continuity of ownership and control tests or the same business test.

For more information on the conditions applying to the continuity of ownership test, see item 1 Tax losses transferred from joining entities (including head company) at consolidation in part A. For more information on the same business test, see sections 165-13 and 165-210 of the ITAA 1997 and Taxation Rulings TR 1999/9 and TR 2007/2.

The operation of the continuity of ownership test for transferred losses is modified by Subdivision 707-B of the ITAA 1997. Firstly, the loss year is modified so that it starts from when the loss was transferred to the head company (however, subsection 707-140(2) of the ITAA 1997 provides that the head company is not prevented from utilising the loss for the income year in which the transfer occurs). Secondly, in determining whether a head company can use a loss transferred to it from a company as a result of passing the continuity of ownership and control tests, changes in ownership of a loss company before it joined the consolidated group are recognised. See section 707-210 of the ITAA 1997.

Tax losses generated by a consolidated group - group losses - are effectively utilised before transferred tax losses. See paragraph 707-310(3)(b) of the ITAA 1997.

Concessional tax losses are utilised after group tax losses and are effectively utilised before other transferred tax losses. See subsections 707-350(2) and (4) of the IT(TP)A.

All losses transferred to a head company for the first time from the entity that actually made them constitute a bundle of losses. Losses in the bundle will be categorised by the 'sort of loss' such as a tax loss or net capital loss. See section 707-315 of the ITAA 1997.

Available fraction

Work out an available fraction for each loss bundle. The available fraction limits the annual rate at which the bundle's losses may be recouped by the head company.

Where losses are transferred for the first time, the available fraction is calculated as follows:

modified market value of the joining loss entity at the initial transfer time adjusted market value of the head company at the initial transfer time

The modified market value of a joining entity is the amount that would be the market value of the entity at the joining time if:

• the entity has no losses and the balance of its franking account is nil
• the subsidiary members of the group at the time are separate entities and not divisions or parts of the head company of the group
• the entity's market value did not include an amount attributable (directly or indirectly) to a membership interest in a member of the group (other than the entity) that is a corporate tax entity or an entity that transferred losses to the head company, and
• a trust (other than a corporate tax entity or a trust with losses) contributes to the joining entity's market value only to the extent attributable to fixed entitlements (at the joining time) to income or capital of the trust that is not attributable (directly or indirectly) to membership interests in another member of the group that is a corporate tax entity or a trust with losses.

See section 707-325 of the ITAA 1997.

An increase in the value of the loss entity is excluded from the entity's modified market value if the increase results from either of these events:

• an injection of capital into the loss entity, its associate or, if the loss entity is a trust, an associate of the trustee, or
• a non-arm's length transaction that involved the loss entity, its associate or, if the loss entity is a trust, an associate of the trustee.

The rules apply to events that occur in the four years before the loss entity joins the group. See subsections 707-325(2) and (4) of the ITAA 1997, and Taxation Ruling TR 2004/9 - Income tax: consolidation: what is meant by 'injection of capital' in section 707-325 of the Income Tax Assessment Act 1997?

The head company's adjusted market value at the initial transfer time is the amount that would be the market value at that time if:

• the head company did not have a loss of any sort for an income year ending before that time, and
• the balance of the head company's franking account was nil at that time.

See subsection 707-320(1) of the ITAA 1997. The value of the head company is worked out on the basis that subsidiary members of the consolidated group are part of the head company.

The available fraction is adjusted if certain events happen - for example, the consolidated group acquires a new loss entity or the sum of the available fractions in the group would otherwise exceed 1.

See subsection 707-320(2) of the ITAA 1997.

The use of transferred losses is apportioned if their available fraction applied for only part of the income year or when the available fraction changes during the income year. See section 707-335 of the ITAA 1997.

Apply the available fraction using a three-step process as follows:

1. Work out the amount of each category of the group's income or gains as specified in column 2 of the table in subsection 707-310(3) of the ITAA 1997. This is the group's total income or gains for each category, less relevant deductions including group losses and concessional losses (but not transferred losses whose use is limited by their available fraction).
2. Multiply each category amount by the bundle's available fraction. The result is taken to be the head company's only income or gains for that category.
3. On the basis of the step 2 assumption work out a notional taxable income for each loss bundle.

This process enables the head company to determine the amount of transferred losses of each sort it can use from the loss bundle to determine its actual taxable income.

Tax losses must first be deducted against exempt income. A special rule provides that the head company, in working out its actual taxable income, can offset its transferred tax losses against assessable income provided they have been first utilised against a fraction of its total exempt income. See section 707-340 of the ITAA 1997.

Note An example of applying the available fraction using the three-step process is at Example 11.

Group

Write at G the amount of group tax losses utilised.

Group tax losses are those tax losses that have been generated by the consolidated group. Group tax losses are effectively utilised before transferred tax losses.

Also include at G group foreign losses converted into tax losses that were utilised during the income year.

Transferred

Write at I the amount of transferred tax losses utilised.

Transferred tax losses are those tax losses that have been made outside the consolidated group and transferred into the group from an entity when it joined the group. Transferred tax losses utilised on a concessional basis are also included at I.

Also include at I foreign loss components of tax losses transferred from joining entities that were utilised during the income year.

Total

Write at R the total of G and I.

Transfer this amount to RTax losses deducted item 7 on your Company tax return 2010.

4 Transferred tax losses utilised

This item requires information on the amount of transferred tax losses utilised, excluding net capital losses and film losses. A head company utilises a transferred tax loss to the extent it is deducted from an amount of the head company's assessable income or exempt income.

Write at A, D, G, J, M and P, as required, the TFNs of those joining entities that had tax losses from their loss bundles utilised by applying the available fraction method. A bundle of losses consists of all the losses of a joining entity that are transferred to the head company at the same time.

If tax losses have been utilised for more than six loss bundles, write the joining entities' TFNs for the six loss bundles that had the largest amounts of tax losses utilised.

Write at B, E, H, K, N and Q, as required, the corresponding available fractions calculated for the loss bundles for joining entities whose TFNs are recorded at A, D, G, J, M and P respectively. However, if tax losses in a loss bundle are utilised with different available fractions (because losses have been 'donated' to other loss bundles), each of the amounts utilised is to be considered separately (see the Donated tax losses box).

Each available fraction is to be completed to three decimal places (for example, 0.475, 0.520, 0.700). However, where rounding to three decimal places would result in an available fraction of nil, consolidated groups are permitted to round the available fraction to the first non-zero digit. See subsection 707-320(4) of the ITAA 1997. Where the available fraction is less than 0.0005, the amount of 0.000 should be written at the relevant label. Where the available fraction is greater than 0.0005 but less than 0.001, the fraction should be rounded up to 0.001.

Where losses are transferred for the first time, the available fraction is calculated as follows:

modified market value of the joining loss entity at the initial transfer time adjusted market value of the head company at the initial transfer time

For details of how the modified market value of the joining loss entity and adjusted market value of the head company are determined, see 3 Tax losses utilised in part A.

Where an available fraction has been adjusted as a result of certain events - for example, a new member joined the group and transferred a loss bundle - write the adjusted available fraction applicable at the end of the income year.

An available fraction cannot be a negative amount or greater than 1. If the sum of the group's available fractions would total more than 1, each available fraction is proportionally reduced. See subsection 707-320(2) of the ITAA 1997.

The available fraction for a bundle is adjusted or maintained when one of five adjustment events listed in the table in subsection 707-320(2) of the ITAA 1997 occurs.

For more information about the calculation of the available fraction, see 3 Tax losses utilised in part A.

Where the available fraction of a loss bundle has been increased as a result of one company - the value donor - donating value to a loss company, write the increased available fraction.

Write at C, F, I, L, O and R, as required, the corresponding amount of transferred tax losses utilised from loss bundles of joining entities whose TFNs are recorded at A, D, G, J, M and P, respectively.

If tax losses have been utilised from more than six loss bundles, write the six largest amounts utilised.

Example 3

A wholly owned group consists of a head company - Company H - and two subsidiary companies - Company A and Company.B The group consolidated on 1 July 2003.

Tax losses were transferred from Company A and Company B to Company H at the time the group was formed.

It was determined that the conditions for the value donor concession were satisfied. Modified market value has been donated to Company A from both Company H and Company B. The available fractions that were worked out, after applying the value donor concession, are as follows:

Company A	Company B
0.900	0.100

Details of subsidiary losses carried forward and companies to which they could have been transferred (assuming Subdivisions 170-A of the ITAA 1997 had not been amended to provide only for transfers involving an Australian branch of a foreign bank) are as follows:

Company	Transferor TFN	Tax loss carried forward to 2009-10	Transferable to:
			Company H	Company A	Company B
A	222 222 222	1,000
B	333 333 333	300 250	X	X

It was also determined that Company B satisfied the loss donor conditions and its transferable tax loss was donated to Company A to be used in accordance with Company A's increased available fraction. $300 of this loss was carried forward to the 2009-10 income year.

For the 2009-10 income year, the consolidated group has assessable income of $2,200 and deductions of $200. There are no capital gains or assessable foreign income or film income. The available fraction amount for each bundle is as follows:

Loss bundle	Income amount	Multiplied by available fraction	Available fraction amount for bundle
	$		$
A	2,000	0.900	1,800
B	2,000	0.100	200

The consolidated group can therefore utilise all of the tax losses in Company A's bundle ($1,000) and can also utilise all of Company B's transferable tax loss ($300) because it is used in accordance with Company A's increased available fraction.

Company B's non-transferable tax loss ($250) can only be utilised to the extent of $200. The remaining $50 of this loss will be carried forward to the 2010-11 income year.

The head company, Company H, completes item 4 part A on the schedule as follows:

Example 4

A consolidated group determines the following amounts of tax losses utilised from eight loss bundles for the 2009-10 income year:

Company	Transferor TFN	Available fraction	Tax losses utilised $
A	111 111 111	0.105	5,250
B	222 222 222	0.311	4,100
C	333 333 333	0.132	2,350
D	444 444 444	0.183	4,730
E	555 555 555	0.095	1,300
F	666 666 666	0.009	25
G	777 777 777	0.154	3,405
H	888 888 888	0.000	2,100

Company H and Company B have satisfied the value donor and loss donor conditions. Company H has donated its entire modified market value as well as its transferable losses to Company B, the real loss-maker. Company B's increased available fraction is 0.311 and Company H's reduced available fraction is 0.000.

The head company completes item 4 part A on the schedule as follows:

Information has been recorded for the loss bundles that had the six largest amounts of tax losses utilised.

Company H's donated tax losses are shown against its TFN, not the TFN of the real loss-maker, Company B. The available fraction recorded for the value/loss donor, Company H, for donated tax losses is the increased available fraction of the real loss-maker company, Company B, not Company H's reduced available fraction of nil.