On 1 March 2019, legislation was enacted that will supplement the current ‘same business test’ for losses with a more flexible 'similar business test'. The new test will expand access to past year losses when companies (or listed widely held trusts) enter into new transactions or business activities.
The similar business test will allow a company (or listed widely held trust) to access losses where their business, while not the same, is similar having regard to:
- the extent to which the assets that are used in its current business to generate assessable income were also used in its former business to generate assessable income
- the extent to which the activities and operations from which its current business is generating assessable income were also the activities and operations from which its former business generated assessable income
- the identity of its current business and the identity of its former business, and
- the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods of the former business.
As a test for accessing past year losses, the 'similar business test' will only be available for losses made in income years starting on or after 1 July 2015.
The 'same business test' and the 'similar business test' are collectively referred to as the 'business continuity test'.
For more information, see New legislation.
LCR 2017/D6 The business continuity test - carrying on a similar business
A head company of a consolidated group or multiple entry consolidated (MEC) group must complete the schedule and lodge it with the Company tax return 2018 (NAT 0656), if any of the following apply:
- The total of the group's tax losses and net capital losses carried forward to later income years is greater than $100,000.
- The total of its tax losses and net capital losses transferred from joining entities is greater than $100,000.
- The total of its tax losses deducted and net capital losses applied is greater than $100,000.
- It has an interest in a controlled foreign company (CFC) that has current year losses greater than $100,000.
- It has an interest in a CFC that has deducted or carried forward a loss to later income years greater than $100,000.
- It is a life insurance company, or is treated as a life insurance company under Subdivision 713-L of the ITAA 1997, and has a total of complying superannuation class tax losses and net capital losses carried forward to later income years greater than $100,000 (complete part D of the schedule).
The examples provided in these instructions are for illustration purposes only and may use lower figures, for simplicity.
A head company may need to complete the schedule for certain aspects of its net capital losses. While some of the information requested in the schedule is also requested in the Capital gains tax (CGT) schedule 2018 (NAT 3423) (CGT schedule), a head company that completes a consolidated groups losses schedule may also need to complete a CGT schedule.
If the head company completes the schedule for any aspect of its losses, it must complete all relevant parts of the schedule. For example, if a head company completes the schedule as a result of having tax losses and net capital losses carried forward to later income years greater than $100,000, it must also provide details of controlled foreign company (CFC) losses, even if the total of these losses is less than $100,000.
These instructions are based on provisions relating to consolidated groups. Some of those provisions are modified in Division 719 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to MEC groups.