Tax Law Improvement Act (No. 1) 1998 (46 of 1998)
Schedule 1 Amendment of the Income Tax Assessment Act 1997
6 Subdivision 175-D
Repeal the Subdivision, substitute:
Subdivision 175-CA - Tax benefits from unused net capital losses of earlier income years
Table of sections
175-40 When Commissioner can disallow net capital loss of earlier income year
175-45 First case: capital gain injected into company because of available net capital loss
175-50 Second case: someone else obtains a tax benefit because of net capital loss available to company
175-40 When Commissioner can disallow net capital loss of earlier income year
(1) This Subdivision sets out cases where the Commissioner may prevent a company, in working out its *net capital gain or *net capital loss for an income year, from applying some or all of a *net capital loss it has for an earlier income year (or of part of one) (the excluded loss). This is called disallowing the excluded loss.
Note: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5.
(2) However, the Commissioner cannot *disallow the *excluded loss if, in determining (under section 165-96) whether Subdivision 165-A would prevent the company from deducting the loss (or the part of the loss) for the income year if the loss were a *tax loss of the company for that earlier income year, the company:
(a) would fail to meet a condition in section 165-12 (which is about the company maintaining the same owners) in respect of the income year; but
(b) would meet the condition in section 165-13 (which is about the company carrying on the same *business) in respect of the income year.
Note: Subdivision 165-A deals with the deductibility of a company's tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year.
175-45 First case: capital gain injected into company because of available net capital loss
(1) The Commissioner may *disallow the *excluded loss if, during the income year, the company made a *capital gain some or all of which (the injected capital gain) it would not have made if the excluded loss had not been available to be applied in working out the company's *net capital gain or *net capital loss for the income year (or for some other income year).
(2) However, the Commissioner cannot *disallow the *excluded loss if the *continuing shareholders will benefit from the making of the injected capital gain to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in the company.
(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 earlier income 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 earlier income 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 earlier income year and during the whole of the income year.
To find out who they were, apply whichever tests are applied in order to determine (under section 165-96) whether Subdivision 165-A would prevent the company from deducting the loss for the current year if it were a *tax loss of the company for that earlier income year.
See section 165-12 (which is about the company maintaining the same owners).
175-50 Second case: someone else obtains a tax benefit because of net capital loss available to company
(1) The Commissioner may *disallow the *excluded loss if:
(a) a person has obtained or will obtain a tax benefit in connection with a *scheme; and
(b) the scheme would not have been entered into or carried out if the excluded loss had not been available to be applied in working out the company's *net capital gain or *net capital loss for the income year (or for some other income year).
(2) However, the Commissioner cannot *disallow the *excluded loss if:
(a) the person had a *shareholding interest in the company at some time during the income year; and
(b) the Commissioner considers the tax benefit to be fair and reasonable having regard to that shareholding interest.
(3) An expression means the same in this section as in Part IVA of the Income Tax Assessment Act 1936.
Subdivision 175-CB - Tax benefits from unused capital losses of the current year
Table of sections
175-55 When Commissioner can disallow capital loss of current year
175-60 Capital gain injected into company because of available capital loss
175-65 Capital loss injected into company because of available capital gain
175-70 Someone else obtains a tax benefit because of capital loss or gain available to company
175-75 Net capital loss resulting from disallowed capital losses
175-55 When Commissioner can disallow capital loss of current year
This Subdivision sets out cases where the Commissioner may prevent a company, in working out its *net capital gain or *net capital loss for an income year, from applying all or part of a *capital loss it made during the income year. This is called disallowing the capital loss or part.
175-60 Capital gain injected into company because of available capital loss
(1) The Commissioner may *disallow *capital losses of a company (or parts of them) for an income year if:
(a) the company has made a *capital gain some or all of which (the injected capital gain) it would not have made if it did not have those capital losses; and
(b) the injected capital gain was made in that income year.
The disallowed capital losses and parts of capital losses may exceed the amount of the injected capital gain.
Note: The disallowance may result in a net capital loss for the income year: see section 175-75.
(2) The Commissioner cannot disallow the capital losses or parts of the capital losses if the *continuing shareholders will benefit from the making of the injected capital gain to an extent that the Commissioner thinks fair and reasonable having regard to their respective *shareholding interests in the company.
(3) The continuing shareholders are the individuals who had *shareholding interests in the company both immediately before the *injected capital gain was made, and immediately afterwards.
175-65 Capital loss injected into company because of available capital gain
(1) The Commissioner may *disallow a *capital loss of a company for an income year to the extent that the company would not have made the loss if it had not also made some or all of a *capital gain it made in that income year.
Note: The disallowance may result in a tax loss for the income year: see section 175-75.
(2) The Commissioner cannot disallow any of the *capital loss if:
(a) the *continuing shareholders will benefit from any profit or advantage that has arisen or might arise directly or indirectly from the loss being made; and
(b) the Commissioner thinks that the extent to which they will benefit is fair and reasonable having regard to their respective *shareholding interests in the company.
(3) The continuing shareholders are the individuals who had *shareholding interests in the company both immediately before the *capital loss was made, and immediately afterwards.
175-70 Someone else obtains a tax benefit because of capital loss or gain available to company
(1) The Commissioner may *disallow a *capital loss of a company if:
(a) a person (other than the company) has obtained or will obtain a tax benefit in connection with a *scheme; and
(b) the scheme would not have been entered into or carried out if the company had not made some or all (the available capital loss) of the capital loss.
However, the capital loss may be disallowed only to the extent of the available capital loss.
(2) The Commissioner may *disallow *capital losses of a company (or parts of them) if:
(a) a person has obtained or will obtain a tax benefit in connection with a *scheme; and
(b) the scheme would not have been entered into or carried out if the company had not made some or all (the available capital gains) of the *capital gains it made:
(i) before it made the capital losses; and
(ii) in the same income year as it made them.
The disallowed capital losses and parts of capital losses may exceed the amount of the available capital gains.
Note: The disallowance may result in a tax loss for the income year: see section 175-75.
(3) An expression means the same in this section as in Part IVA of the Income Tax Assessment Act 1936.
(4) The Commissioner cannot *disallow under this section if:
(a) the person who has obtained or will obtain the tax benefit had a *shareholding interest in the company at some time during the income year; and
(b) the Commissioner considers the tax benefit to be fair and reasonable having regard to that shareholding interest.
175-75 Net capital loss resulting from disallowed capital losses
If a company has a *net capital gain for an income year because the Commissioner *disallows under this Subdivision *capital losses of the company for the income year (or parts of them), the company also has a net capital loss for the income year equal to the total of those losses and parts of losses.
To find out how much of the net capital loss can be applied
in later income years: see Subdivision 165-CA.
To find out how to apply it: see sections 102-5 and 102-15.
Subdivision 175-C - Tax benefits from unused bad debt deductions
Table of sections
175-80 When Commissioner can disallow deduction for bad debt
175-85 First case: income or capital gain injected into company because of available bad debt
175-90 Second case: someone else obtains a tax benefit because of bad debt deduction available to company
175-80 When Commissioner can disallow deduction for bad debt
(1) This Subdivision sets out cases where the Commissioner may disallow some or all of a deduction for a debt (or part of a debt) that is owed to a company and is written off as bad in the income year.
(2) However, the Commissioner cannot disallow any of the deduction if:
(a) the company fails to meet a condition in section 165-123 (about the company maintaining the same owners) in respect of the *first continuity period or the *second continuity period; but
(b) meets the condition in section 165-126 (about the company carrying on the same *business).
175-85 First case: income or capital gain injected into company because of available bad debt
(1) The Commissioner may disallow some or all of the deduction if the company would not have had some or all (the injected amount) of its assessable income or *capital gains for the income year if:
(a) the debt had not been incurred; and
(b) the debt (or the relevant part of the debt) had not been written off (or able to be written off) as bad.
(2) However, the Commissioner cannot disallow any of the deduction if the *continuing shareholders will benefit from the company having the injected amount to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in the company.
(3) The continuing shareholders are:
(a) all of the persons who had *more than 50% of the voting power in the company throughout the *first continuity period and the *second continuity period; and
(b) all of the persons who had rights to *more than 50% of the company's dividends throughout the *first continuity period and the *second continuity period; and
(c) all of the persons who had rights to *more than 50% of the company's capital distributions throughout the *first continuity period and the *second continuity period.
To find out who they were, apply whichever tests are applied in order to determine whether the company can deduct the debt (or the relevant part of the debt) in the first place.
See section 165-123 (about the company maintaining the same owners).
175-90 Second case: someone else obtains a tax benefit because of bad debt deduction available to company
(1) The Commissioner may disallow some or all of the deduction if:
(a) a person has obtained or will obtain a tax benefit in connection with a *scheme; and
(b) the scheme would not have been entered into or carried out if the debt had not been incurred and the debt (or the relevant part of the debt) had not been written off (or able to be written off) as bad.
(2) However, the Commissioner cannot disallow any of the deduction if:
(a) the person had a *shareholding interest in the company at some time during the income year; and
(b) the Commissioner considers the tax benefit to be fair and reasonable having regard to that shareholding interest.
(3) An expression means the same in this section as in Part IVA of the Income Tax Assessment Act 1936.
Subdivision 175-D - Shareholding interest in the company
Table of sections
175-95 When a person has a shareholding interest in the company
175-95 When a person has a shareholding interest in the company
(1) A person has a shareholding interest in the company if the person is the beneficial owner of:
(a) *shares in the company; or
(b) an interest in *shares in the company.
(2) A person also has a shareholding interest in the company if:
(a) the person has a shareholding interest in another company; and
(b) the other company has a shareholding interest in the company (including one resulting from any other application or applications of this subsection).
[The next Division is Division 195.]