ATO Interpretative Decision
ATO ID 2005/8
Income tax
Continuity of ownership test: listed public company - same people must control the voting power or company must carry on same businessFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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, subject to section 165-15 of the ITAA 1997 which requires that the same people must control the voting power, or the company must carry on the same business?
Decision
Yes. Subdivision 166-A of the ITAA 1997 does not modify the way section 165-15 of the ITAA 1997 applies to a company that is a listed public company.
Facts
The taxpayer, Company S, incurred a tax loss in an earlier income year which it is now seeking to deduct.
Company S is a listed public company within Division 166 of the ITAA 1997.
Company S meets the conditions in section 165-12 of the ITAA 1997 as modified by Division 166 of the ITAA 1997. Company G and Company H collectively have more than 50% of the voting power and rights to more than 50% of the dividends and capital distributions in respect of Company S at each of the times in the test period referred to in subsection 166-5(2) of the ITAA 1997.
In an income year following the loss year, Company H acquires additional shares in Company S. Following this transaction Company H has more than 50% of the shares in Company S.
Reasons for Decision
Subsection 166-5(1) of the ITAA 1997 states that Subdivision 166-A of the ITAA 1997 modifies the way Subdivision 165-A of the ITAA 1997 applies to listed public companies within Division 166 of the ITAA 1997. Accordingly, it cannot be said that Subdivision 166-A replaces or denies the application of Subdivision 165-A.
Under section 165-10 of the ITAA 1997, a company cannot deduct a tax loss unless it meets either the conditions in section 165-12 of the ITAA 1997 (which is about the company maintaining the same owners) or section 165-13 of the ITAA 1997 (which is about the company carrying on the same business).
Even if a company meets the conditions in section 165-12 or section 165-13 of the ITAA 1997, it cannot deduct a tax loss unless it meets the requirements in section 165-15 of the ITAA 1997 that the same people must control the voting power, or the company must carry on the same business.
Subdivision 166-A of the ITAA 1997 does not modify the way that section 165-15 of the ITAA 1997 applies to a company that is a listed public company. Accordingly, listed public companies under Division 166 of the ITAA 1997 must meet the requirements in section 165-15.
In the terms of the present case, Company S will be subject to section 165-15 of the ITAA 1997 even if it satisfies section 165-12 of the ITAA 1997. Accordingly, Company S would not be able to deduct the tax loss if Company H began to control, or became able to control, the voting power in Company S for the purpose of getting some benefit or advantage in relation to how the ITAA 1997 applies, or getting such a benefit or advantage for someone else, or for purposes including that purpose. However, Company S would be able to deduct the tax loss in these circumstances if it satisfies the same business test.
Date of decision: 20 December 2004Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
Subdivision 165-A
section 165-10
section 165-12
section 165-13
section 165-15
Division 166
Subdivision 166-A
subsection 166-5(1)
subsection 166-5(2)
Keywords
Prior year losses
Tax loss
ISSN: 1445-2782