Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 175 - Use of a company's tax losses or deductions to avoid income tax  

Subdivision 175-A - Tax benefits from unused tax losses  

SECTION 175-10   First case: income or capital gain injected into company because of available tax loss  

175-10(1)  


The Commissioner may disallow the *excluded loss if, during the income year, the company *derived assessable income, or a *capital gain accrued to the company, some or all of which (the injected amount ) would not have been derived, or would not have accrued, if the excluded loss had not been available to be taken into account for the purposes of:
  • · Division 36 (which is about tax losses of earlier years);
  • · Division 165 (which is about the income tax consequences of changing ownership or control of a company);
  • · former Subdivision 375-G (which is about film losses).
  • 175-10(2)  


    However, the Commissioner cannot disallow the *excluded loss if the *continuing shareholders will benefit from the derivation or accrual of the *injected amount to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in the company.
    Note:

    Section 175-100 allows the Commissioner to disallow an excluded loss of an insolvent company.

    175-10(3)  
    The continuing shareholders are:


    (a) all of the persons who had *more than 50% of the voting power in the company during the whole (or the relevant part) of the *loss year and during the whole of the income year; and


    (b) all of the persons who had rights to *more than 50% of the company ' s dividends during the whole (or the relevant part) of the loss year and during the whole of the income year; and


    (c) all of the persons who had rights to *more than 50% of the company ' s capital distributions during the whole (or the relevant part) of the loss year and during the whole of the income year.

    To find out who they were, apply whichever tests are applied in order to determine whether the company can deduct the *tax loss (or the part of the tax loss) in the first place.

    Note 1:

    See section 165-12 (which is about the company maintaining the same owners).

    Note 2:

    Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.


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