Part C – Ownership test and business continuity test

1 Failure of the continuity of ownership or control tests

Item 1 asks:

For each joining company that transferred a business continuity test tax loss or business continuity test net capital loss to the head company, determine the income year in which the joining company first failed the continuity of ownership or control tests.

Against each of the listed income years, show the total amount of losses which first failed the continuity of ownership or control tests in that income year.

The 'same business test' and the 'similar business test' are collectively referred to as the 'business continuity test'. For more information, see Law Companion Ruling LCR 2019/1 The business continuity test – carrying on a similar business.

Don't include:

transferred film losses at item 1
losses transferred by a joining company that satisfied the continuity of ownership and control transfer tests at item 1
losses transferred by a joining trust at item 1.

The aim of item 1 is to find out (in respect of companies that transferred losses to a head company of a consolidated group because a business continuity transfer test was satisfied):

the period of time between the year of failure of the continuity of ownership or control transfer tests and the trial year
the losses that failed the continuity of ownership or control tests at the joining time and in the trial year.

Year ownership test failed

At the appropriate year, write the total amount of tax losses and net capital losses of joining companies that first failed the continuity of ownership or control tests in the income year, but satisfied the business continuity test. If there is no amount, leave blank.

For 2020–21 and earlier income years, write the total for those years.

Example 5: transfer losses when satisfying the business continuity test

A consolidated group came into existence on 1 July 2024. During 2024–25, the following joining companies transferred tax losses and net capital losses because the business continuity test was satisfied:

Tax losses and net capital losses transferable from joining entities to head company
Joining company	Loss year	Amount	Type of loss	Year of ownership change
A	2016-17	$1,000	Tax	2017–18
A	n/a	n/a	n/a	2022–23
A	2021–22	$50	Net capital	2023–24
B	2019–20	$350	Tax	2024–25
B	2021–22	$400	Net capital	2024–25
C	2019–20	$550	Net capital	2021–22

For 2024–25 the head company completes item 1 part C on the schedule
Year ownership test failed	Label	Amount
2024–25	J	$750
2023–24	K	$50
2022–23	L	$0
2021–22	M	$550
2020–21 and earlier income years	N	$1,000

The amount of the tax loss incurred by Company A ($1,000) is written at item 1 – label N because the first change of ownership occurred during 2017–18.

End of example

2 Above tests not passed but the business continuity test is satisfied

Item 2 asks for:

Amount of losses deducted/applied after consolidation, for which the continuity of ownership test is not passed but the business continuity test is satisfied.

The 'same business test' and the 'similar business test' are collectively referred to as the 'business continuity test'. For more information, see Law Companion Ruling LCR 2019/1Opens in a new window The business continuity test – carrying on a similar business.

Don't include film losses deducted at item 2.

Don't include at item 2 losses deducted or applied for which the head company satisfied the continuity of ownership test.

Write at item 2 the amount of tax losses deducted and net capital losses applied during 2024–25 by the head company after consolidation, where the continuity of ownership test was not passed, but the business continuity test was satisfied.

O Tax losses

Write at item 2 – label O the amount of tax losses deducted by the head company which didn't satisfy the continuity of ownership and control tests, but did satisfy the business continuity test.

P Net capital losses

Write at item 2 – label P the amount of net capital losses applied by the head company which didn't satisfy the continuity of ownership and control tests, but did satisfy the business continuity test.

Example 6: change of ownership of the head company

A consolidated group came into existence on 1 July 2024. On that date the following losses were transferred to the head company from a joining company that satisfied the continuity of ownership and control transfer tests.

Losses transferred from joining company to head company
Year loss incurred	Type of loss	Amount
2015–16	Tax	$1,200
2015–16	Net capital	$4,600

During the period from the start of the loss year (1 July 2015) until immediately after the joining time (1 July 2024) there was a 40% change in the persons who controlled the voting power of the head company and had the rights to the head company's dividends and capital distributions. The joining company was a 100% owned subsidiary of the head company during this period.

For 2024–25, the consolidated group generates sufficient capital gains and other assessable income to enable the transferred tax and net capital losses to be fully deducted or applied using the available fraction method.

On 1 August 2024, there is a further 20% change in the persons who controlled the voting power of the head company and had rights to the head company's dividends and capital distributions. The head company doesn't satisfy the continuity of ownership test because of the change of majority ownership on 1 August 2024; that is, combined ownership changes of 60% (40% + 20%). However, the head company satisfies the business continuity test because the consolidated group carried on the same or similar business during 2024–25 as it did immediately before the change of ownership.

In determining whether a head company can deduct or apply a loss transferred to it from a joining company that passed the continuity of ownership and control tests, changes in ownership of the joining company before it joined the consolidated group are taken into account.

The head company completes item 2 part C on the schedule
Type of loss	Label	Amount
Tax losses	O	$1,200
Net capital losses	P	$4,600

End of example

3 Losses carried forward to later income years

Item 3 asks for:

Amount of losses carried forward to later income years for which the business continuity test must be satisfied before they can be deducted/applied.

The 'same business test' and the 'similar business test' are collectively referred to as the 'business continuity test'. For more information, see Law Companion Ruling LCR 2019/1Opens in a new window The business continuity test – carrying on a similar business.

Don't include film losses carried forward at item 3.

Don't include at item 3 losses carried forward to later income years for which the head company satisfies the continuity of ownership test.

Write at item 3 the amount of tax losses and net capital losses carried forward to later income years for which the head company must satisfy the business continuity test to deduct or apply these losses.

Q Tax losses

Write at item 3 – label Q the amount of tax losses carried forward to later income years for which the head company must satisfy the business continuity test to deduct these losses.

R Net capital losses

Write at item 3 – label R the amount of net capital losses carried forward to later income years for which the head company must satisfy the business continuity test to apply these losses.

Example 7: head company must satisfy business continuity test

A consolidated group came into existence on 1 July 2024. On that date, tax losses of $2,200 were transferred to the head company from a joining company that satisfied the continuity of ownership and control transfer tests.

For 2024–25, the consolidated group made a group tax loss of $1,700 and a group net capital loss of $3,500, which are carried forward to 2025–26.

There was a change of majority ownership of the head company during 2024–25, but this didn't result in the head company joining another consolidated group. The head company must satisfy the business continuity test in later income years to deduct or apply the losses carried forward comprising tax losses of $3,900 ($2,200 + $1,700) and net capital losses of $3,500.