Introduction

What's new?

Application of losses with a nil available fraction

The Tax Laws Amendment (2009 Measures No. 4) Act 2009 amended the income tax law so that a transferred loss with a nil available fraction can be applied by the head company of a consolidated group in certain circumstances, with effect from 1 July 2002. The head company can apply the loss to reduce a net forgiven amount under the commercial debt forgiveness rules, reduce a capital allowance adjusted under the limited recourse debt rules, and reduce the capital gain that arises under capital gains tax (CGT) event L5 when the joining entity subsequently leaves the group.

See section 707-415 of the Income Tax Assessment Act 1997 (ITAA 1997).

Amendments to the company loss recoupment rules

In the 2007 Budget the Government announced changes to ensure that companies do not fail the continuity of ownership test because they have multiple classes of shares on issue, and to ensure that the entry history rule in the consolidation regime is disregarded in applying the same business test, with effect from 1 July 2002. At the time of publication these changes had not become law.

Who must complete the consolidated groups losses schedule 2010?

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 2010 (NAT 0656), if any of the following apply:

• The total of the group's tax losses and net capital losses carried forward to the 2010-11 income year 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 utilised tax losses and net capital losses is greater than $100,000.
• It has convertible foreign losses.
• It has an interest in a controlled foreign company (CFC) that has convertible CFC losses.
• 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 and has a total of complying superannuation/FHSA class tax losses and complying superannuation/FHSA net capital losses carried forward to the 2010-11 income year greater than $100,000.

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 2010 (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 foreign source losses even if the total of these losses is less than $100,000.

Note: The changes to the foreign loss provisions apply from the first income year starting on or after 1 July 2008. The requirement to complete item 1 of Part E Foreign source losses on the schedule, applies only to entities with an early substituted accounting period in their 2010 income year. Complete item 1 of Part E Foreign source losses only if the entity has an early substituted accounting period in its 2010 income year. For all other entities item 1 of Part E Foreign source losses applied only last year. If you completed item 1 in the 2009 schedule, do not complete it this year.

These instructions are based on provisions relating to consolidated groups. Some of those provisions are modified in Division 719 of the ITAA 1997 in relation to MEC groups.