ATO Interpretative Decision
ATO ID 2004/964 (Withdrawn)
Income tax
Continuity of Ownership Test: listed public company - requirement that exactly the same shares or interests must continue to be heldFOI status: may be released
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This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 listed public company within Division 166 of the Income Tax Assessment Act 1997 (ITAA 1997) that is seeking to deduct a tax loss required to meet the rule in section 165-165 of the ITAA 1997 that exactly the same shares or interests must continue to be held?
Decision
No. By virtue of section 166-165 of the ITAA 1997, the rule in section 165-165 of the ITAA 1997 does not apply to interests in listed public companies.
Facts
The taxpayer is a listed public company within Division 166 of the ITAA 1997 (Company L).
Company L incurred a tax loss in an earlier income year.
Entity E has 20% of the voting power and rights to 20% of the dividends and capital distributions in respect of Company L at the start of the loss year. Entity F has 40% of the voting power, and rights to 40% of dividend and capital distributions in respect of Company L at that time.
In the 2003-04 income year Entity E acquires beneficial ownership of a further 35% of the shares in Company L from Entity F. Following this transaction, Entity E has 55% of the voting power and rights to 55% of the dividends and capital distributions in respect of Company L. Entity F now has 5% of the voting power and rights to 5% of the dividends and capital distributions in respect of Company L.
The preceding transaction amounts to abnormal trading in shares in Company L under Subdivision 960-H of the ITAA 1997. It is the only abnormal trading in shares in Company L at any time during the test period.
Following the abnormal trading in the 2003-04 income year, the respective shareholdings of Entity E and Entity F in Company L remain unchanged to the end of the test period.
In the 2004-05 income year Company L seeks to deduct its tax loss under section 36-17 of the ITAA 1997.
Reasons for Decision
Subsection 166-5(2) of the ITAA 1997 states:
Substantial continuity of ownership
The listed public company is taken to have met the conditions in section 165-12 (which is about the company maintaining the same owners) if there is substantial continuity of ownership of the company as between the start of the test period and each of these other times in the period:
To establish substantial continuity of ownership under section 166-145 of the ITAA 1997 Company L is required to show that persons (none of them companies or trustees) that had directly, or indirectly through interposed entities, more than 50% of the voting power and had rights to more than 50% of dividends and capital distributions in respect of Company L at the start of the test period also had more than 50% of the voting power and had rights to more than 50% of dividends and capital distributions at each of the other times during the test period specified in subsection 166-5(2) of the ITAA 1997.
Sections 166-150, 166-155 and 166-160 of the ITAA 1997 determine who has more than 50% of the voting power in a listed public company, and rights to more than 50% of its dividends and capital distributions respectively at any particular time.
For the purpose of establishing substantial continuity of ownership under Subdivision 166-D of the ITAA 1997, the rule in section 165-165 of the ITAA 1997 does not apply. Section 166-165 of the ITAA 1997, which states that certain rules in Division 165 of the ITAA 1997 also apply for the purposes of an ownership test in Division 166 of the ITAA 1997, does not refer to section 165-165 of the ITAA 1997.
Entity E and Entity F collectively had directly more than 50% of the voting power in Company L and rights to more than 50% of its dividends and capital distributions at the start of the test period, at the end of each income year during the test period and at the time of the abnormal trading in shares in Company L in the 2003-04 income year.
Therefore Company L has established substantial continuity of ownership as required by subsection 166-5(2) of the ITAA 1997.
Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
section 36-17
Division 165
section 165-12
section 165-165
Division 166
subsection 166-5(2)
Subdivision 166-D
section 166-145
section 166-150
section 166-155
section 166-160
section 166-165
subsection 166-170(2)
Subdivision 960-H
Keywords
Carry forward losses
Tax loss
ISSN: 1445-2782
| Date: | Version: | |
| 30 November 2005 | Original statement | |
| You are here | 12 March 2010 | Archived |