ATO Interpretative Decision
ATO ID 2005/9
Income tax
Continuity of ownership test: listed public company - arrangements affecting beneficial ownership of sharesFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 165-180 of the ITAA 1997 where, for the purposes of a test, the Commissioner may treat a person as not having beneficially owned particular shares at a particular time if the conditions in subsections 165-180(2) and 165-180(3) of the ITAA 1997 are met?
Decision
Yes. Subsection 166-165(2) of the ITAA 1997 states that section 165-180 of the ITAA 1997 also applies for the purposes of an ownership test in Subdivision 166-D of the ITAA 1997.
Facts
The taxpayer, Company S, has a tax loss from an earlier income year which it is 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 C and Company D collectively have more than 50% of the voting power in Company S and rights to more than 50% of the dividends and capital distributions of Company S at each of the times in the test period specified in subsection 166-5(2) of the ITAA 1997.
In the 2004-05 income year, Company C acquires most of the shares that Company D beneficially owns in Company S. Company D holds on to a small number of shares in Company S following this transaction.
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).
For the purposes of a test, the Commissioner may pursuant to section 165-180 of the ITAA 1997 treat a person as not having beneficially owned particular shares at a particular time if the conditions in subsections 165-180(2) and 165-180(3) are met.
Subsection 166-165(2) of the ITAA 1997 states that section 165-180 of the ITAA 1997 also applies for the purposes of an ownership test in Subdivision 166-D of the ITAA 1997. The reference to a 'particular time' in section 165-180 is treated as if it were a reference to the ownership test time provided for in section 166-145 of the ITAA 1997.
In the circumstances of the present case, section 165-180 of the ITAA 1997 would apply if it were determined that by virtue of Company D retaining a small number of shares in Company S, an arrangement that meets the conditions specified in subsections 165-180(2) and 165-180(3) had been entered into.
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 165-180
subsection 165-180(2)
subsection 165-180(3)
Division 166
Subdivision 166-A
subsection 166-5(1)
subsection 166-5(2)
Subdivision 166-D
section 166-145
subsection 166-165(2)
Keywords
Prior year losses
Tax loss
ISSN: 1445-2782