INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART III - LIABILITY TO TAXATION  

Division 2A - Calculation of taxable income  

Subdivision B - Calculation of taxable income where disqualifying event occurs  

SECTION 50H   OCCURRENCE OF DISQUALIFYING EVENT  

50H(1)   [The disqualifying events]  

Subject to this section and section 50HA , a disqualifying event in relation to a company shall be deemed to have occurred at a time during a year of income (in this subsection referred to as the ``relevant time'' ) if the Commissioner is satisfied that:


(a) immediately after the relevant time, there was no natural person, and there were no natural persons, who beneficially owned shares in the company carrying between them the right to exercise more than one-half of the voting power in the company who, immediately before the relevant time, beneficially owned shares in the company carrying between them the right to exercise more than one-half of the voting power in the company;


(b) immediately after the relevant time there was no natural person, and there were no natural persons, who beneficially owned shares in the company carrying between them the right to receive more than one-half of any dividend that might be paid by the company who, immediately before the relevant time, beneficially owned shares in the company carrying between them the right to receive more than one-half of any dividend that might be paid by the company;


(c) immediately after the relevant time there was no natural person, and there were no natural persons, who beneficially owned shares in the company carrying between them the right to receive more than one-half of any distribution of capital of the company who, immediately before the relevant time, beneficially owned shares in the company carrying between them the right to receive more than one-half of any distribution of capital of the company;


(d) at the relevant time, the voting power in the company was controlled, or became capable of being controlled, either directly or through one or more interposed companies, trustees or partnerships, by a person or persons who did not control the voting power in the company and was not or were not, as the case may be, capable of controlling the voting power in the company, either directly or through one or more interposed companies, trustees or partnerships, at any time before the relevant time, being a time during the year of income, and that person or those persons acquired the control of that voting power or became capable of acquiring the control of that voting power, as the case may be, for the purpose, or for purposes that included the purpose, of receiving any benefit or obtaining any advantage in relation to the application of this Act or securing that another person or other persons would receive such a benefit or obtain such an advantage;


(e) immediately before the relevant time, the company had an available loss and, at the relevant time, the company derived income that would not have been derived by the company, or a capital gain accrued to the company that would not have accrued to the company, if the company had not had an available loss immediately before the relevant time;


(f) immediately before the relevant time, the company had an available profit and, at the relevant time, the company incurred a loss or outgoing that would not have been incurred by the company if the company had not had an available profit immediately before the relevant time;


(g) immediately before the relevant time, the company had an available loss or an available profit and a person other than the company will, either directly or indirectly, receive a benefit, or obtain an advantage, in relation to the application of this Act as a result of the operation of any agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business that:


(i) was entered into or commenced to be carried out at the relevant time; and

(ii) would not have been entered into or carried out if the company had not had an available loss or an available profit, as the case may be, immediately before the relevant time; or


(h) at the relevant time, the affairs or business operations of the company were managed or conducted without proper regard to the rights, powers or interests of a natural person or natural persons who controlled the voting power in the company at the relevant time or who was or were, as the case may be, capable of controlling the voting power in the company at the relevant time, either directly or through one or more interposed companies, trustees or partnerships.

50H(1A)   [Calculation of taxable income re s 50C]  

If:


(a) the taxable income of a company is required by subsection 50C(1) to be calculated in accordance with section 50C ; and


(b) the company satisfies the requirements of subsections 50HA(2) and (4);

then:


(c) for the purpose of applying section 50C to calculate the taxable income, subsection (1) of this section applies as if paragraphs (a), (b) and (c) were omitted and the paragraphs set out in subsection (1B) were substituted; and


(d) in the substituted paragraphs, the expressions control a non-fixed trust, directly or indirectly, excepted trust, fixed entitlement, group, more than a 50% stake and non-fixed trust have the same meanings as in Schedule 2F .

50H(1B)   [Substituted paragraphs]  

For the purposes of paragraph (1A)(c), the substituted paragraphs are as follows:


(a) immediately after the relevant time, the persons having fixed entitlements to shares of the income or shares of the capital of:


(i) if the company satisfied the requirements of paragraph 50HA(2)(a) - the company; or

(ii) if the company satisfied the requirements of paragraph 50HA(2)(b) - the holding entity mentioned in that paragraph;
or the percentages of those shares, were different from immediately before the relevant time;


(b) immediately after the relevant time, there were no individuals who had more than a 50% stake in either the income or capital of a non-fixed trust (other than an excepted trust) that held directly or indirectly a fixed entitlement to a share of the income or capital of the company at any time during the year of income who, immediately before the relevant time, had more than a 50% stake in the income or capital, respectively, of the non-fixed trust;


(c) at the relevant time, a group began to control a non-fixed trust (other than an excepted trust) that held directly or indirectly a fixed entitlement to a share of the income or capital of the company at any time during the year of income.

50H(2)   [Deemed available profit or loss]  

For the purposes of subsection (1):


(a) a company shall be taken to have had an available loss immediately before a time during the year of income if, had the year of income ended immediately before that time, the assessable income of the company of the year of income would have been less than the allowable deductions (other than deductions under section 79E , 79F , 80 , 80AAA or 80AA ) of the company of the year of income; and


(b) a company shall be taken to have had an available profit immediately before a time during a year of income if, had the year of income ended immediately before that time, the assessable income of the company of the year of income would have exceeded the allowable deductions (other than deductions under section 79E , 79F , 80 , 80AAA or 80AA ) of the company of the year of income.

50H(3)   [Application of subsec (1)(e)]  

Paragraph (1)(e) applies notwithstanding that the income referred to in that paragraph was derived by the company in the course of ordinary family or commercial dealing, but that paragraph does not apply in a case where the natural person or natural persons who had a shareholding interest or shareholding interests in the company immediately before, and immediately after, the time when the income was derived will benefit from the derivation of the income to an extent that the Commissioner considers to be fair and reasonable having regard to voting, dividend or capital rights attached to the shares in respect of which that person or those persons had a shareholding interest or shareholding interests in the company immediately after the time when the income was derived.

50H(3A)   [Where subsec (1)(e) does not apply]  

Paragraph (1)(e) applies even though the capital gain referred to in that paragraph accrued to the company in the course of ordinary family or commercial dealing, but:


(a) that paragraph does not apply if the natural person or natural persons who had a shareholding interest or shareholding interests in the company immediately before, and immediately after, the time when the capital gain accrued will benefit from the accrual of the capital gain to an extent that the Commissioner considers to be fair and reasonable; and


(b) in determining whether the extent to which that person or those persons will benefit is fair and reasonable, the Commissioner is to have regard to voting, dividend or capital rights attached to the shares in respect of which that person or those persons had a shareholding interest or shareholding interests in the company immediately after the time when the capital gain accrued.

50H(4)   [Application of subsec (1)(f)]  

Paragraph (1)(f) applies notwithstanding that the loss or outgoing referred to in that paragraph was incurred by the company in the course of ordinary family or commercial dealing, but that paragraph does not apply in a case where the natural person or natural persons who had a shareholding interest or shareholding interests in the company immediately before, and immediately after, the time when the loss or outgoing was incurred will benefit from any profit or advantage that has, or might, arise, directly or indirectly, from the incurring of the loss or outgoing to an extent that the Commissioner considers to be fair and reasonable having regard to voting, dividend or capital rights attached to the shares in respect of which that person or those persons had a shareholding interest or shareholding interests in the company immediately after the time when the loss or outgoing was incurred.

50H(5)   [Deemed receipt of benefit, etc, for subsec (1)(g)]  

Without limiting the generality of paragraph (1)(g), a person shall be deemed, for the purposes of that paragraph, to receive a benefit or obtain an advantage in relation to the application of this Act if the person is not liable to pay income tax in respect of a year of income, or the liability of the person to pay income tax in respect of a year of income is reduced, by reason that the person has not derived income that the person would have derived, or a capital gain that has not accrued to the person would have accrued to the person, if the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business referred to in that paragraph had not been entered into or carried out.

50H(6)   [Application of subsec (1)(g)]  

Paragraph (1)(g) applies notwithstanding that the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business referred to in that paragraph was entered into or carried out in the course of ordinary family or commercial dealing but that paragraph does not apply in relation to a benefit or advantage that is received or obtained by a person who had a shareholding interest in the company in the year of income, being a benefit or advantage that the Commissioner considers to be fair and reasonable having regard to voting, dividend or capital rights attached to the shares in respect of which that person had that shareholding interest in the company.

50H(7)   [Shareholding interest]  

For the purposes of this section:


(a) a person has a shareholding interest in a company if:


(i) the person is the beneficial owner of, or of an interest in, any shares in the company; or

(ii) the person is the trustee of a family trust (within the meaning of section 272-75 of Schedule 2F ) who is the owner of, or of an interest in, any shares in the company; and


(b) where a person has a shareholding interest in a company that has a shareholding interest in another company (including a shareholding interest that the company has in that other company by any other application or applications of this paragraph) that person shall be deemed to have a shareholding interest in that other company.

50H(8)   [Conduct of business operations]  

In determining for the purposes of this section whether the affairs or business operations of a company were managed or conducted as mentioned in paragraph (1)(h), regard shall be had to any act or thing done in the course of the management or conduct of those affairs or business operations, irrespective of the purpose or purposes for which the act or thing was done and notwithstanding that the act or thing was done in the course of ordinary family or commercial dealing.

50H(9)   [Derivation of income]  

For the purposes of this section, it shall be taken that:


(a) income would not have been derived, or a loss or outgoing would not have been incurred, by a company if a particular act had not been done;


(b) income would have been derived by a person if a particular act had not been done; or


(c) an agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out if a particular act had not been done,

if the income would not have been derived or the loss or outgoing would not have been incurred by the company, the income would have been derived by the person or the agreement, scheme, arrangement, understanding, transaction, course of conduct or course of business would not have been entered into or carried out, as the case may be, if none of 2 or more acts (including that act) had been done.

50H(10)   [Interpretation of subsec (9)]  

In subsection (9):


(a) a reference to the non-derivation, or to the derivation, of income includes a reference to the non-accrual, or to the accrual, as the case may be, of a capital gain; and


(b) a reference to the doing of an act includes a reference to the happening of an event or the existence of a matter or circumstance.


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