ATO Interpretative Decision
ATO ID 2003/122 (Withdrawn)
Capital Gains Tax
Transfer of tax loss: written agreement - change to the amount of ordinary incomeFOI status: may be released
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This ATO ID is withdrawn as the law has changed with the introduction of the Consolidation regime.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a written agreement, under section 170-50 of the Income Tax Assessment Act 1997 (ITAA 1997) to transfer a tax loss invalid, where the income company is later found to have derived a lesser amount of ordinary income and as a result a greater amount of assessable net capital gain in the deduction year?
Decision
No. A tax loss transferred to an income company under Subdivision 170-A of the ITAA 1997 is deductible against an income company's assessable income including net capital gains.
Facts
Company L and Company G are members of the same wholly owned group of companies at all the relevant times.
For the purposes of Subdivisions 170-A and 170-B of the ITAA 1997, Company L is a 'loss company'. Company G is an 'income company' for the purposes of Subdivision 170-A and a 'gain company' for the purposes of Subdivision 170-B of the ITAA 1997.
Company L, validly entered into a written agreement pursuant to section 170-50 of the ITAA 1997 to transfer an amount of tax loss of $6,000 to Company G for the deduction year.
On the same day, Company L also entered into a written agreement pursuant to section 170-150 of the ITAA 1997 to transfer $4,000 net capital loss to Company G for an application year that was the same as the deduction year.
For the relevant deduction year Company G had, at the time of entering into the relevant loss transfer agreements, a taxable income of $10,000 comprising a $4,000 net capital gain and $6,000 of ordinary income for the purposes of section 6-5 of the ITAA 1997.
Company G had no net exempt income in the deduction year.
After the loss transfers Company G revised the computation of its $10,000 taxable income for the deduction year such that it now comprised $7,000 assessable net capital gain and $3,000 other net assessable income.
Reasons for Decision
Subsection 170-15(1) of the ITAA 1997 provides that Company G is taken to have incurred the amount of transferred tax loss in the loss year.
Subsection 170-20(1) states that:
If an amount of a *tax loss is transferred, the *income company can deduct the amount in accordance with section 36-17 (which is about how to deduct a tax loss), but only for the income year of the income company for which the amount is transferred. That income year is called the deduction year.
As Company G derived no net exempt income in the deduction year, the tax loss transferred to Company G is deductible in the deduction year under subsection 36-17(2) of the ITAA 1997 which states that:
If the entity's total assessable income for the later income year exceeds the entity's total deductions (except *tax losses), the entity is to deduct from that excess so much of the tax loss as the entity chooses. The entity may choose a nil amount.
Section 102-5 of the ITAA 1997 provides that assessable income includes net capital gain for the income year.
Therefore the transferred tax loss is deductible to the income company as against not only its other net assessable income but also against its assessable net capital gain.
Accordingly, the fact that Company G has revised the calculation of the respective proportions of net capital gain and other net assessable income included in its taxable income has no effect on the validity of the written agreements to transfer $6,000 of tax loss and $4,000 net capital loss to Company G.
Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
section 36-17
subsection 36-17(2)
section 102-5
Subdivision 170-A
subsection 170-15(1)
subsection 170-20(1)
section 170-50
Subdivision 170-B
section 170-150
Related Public Rulings (including Determinations)
Taxation Ruling TR 98/12
ATO ID 2003/119
ATO ID 2003/120
ATO ID 2003/121
Keywords
Group company loss transfers
Date reviewed: 3 April 2014
ISSN: 1445-2782
| Date: | Version: | |
| 15 November 2002 | Original statement | |
| You are here | 11 April 2014 | Archived |