New Business Tax System (Integrity and Other Measures) Act 1999 (Incorporating amendments up to Act No. 78 of 2001) (169 of 1999)
Schedule 5 Transfers of losses within wholly-owned company groups
Income Tax Assessment Act 1997
12 At the end of Division 170
Add:
Subdivision 170-C - Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly-owned groups of companies
Guide to Subdivision 170-C
170-201 What this Subdivision is about
If a tax loss or a net capital loss is transferred between companies in the same wholly-owned group, this Subdivision provides for adjustments to:
(a) the cost base and reduced cost base of direct and indirect equity interests held by group companies in the loss company, or in the income company or gain company; and
(b) the reduced cost base of direct and indirect debt interest held by group companies in the loss company; and
(c) the cost base and reduced cost base of direct and indirect debt interests held by group companies in the income company or gain company.
Table of sections
Operative provisions
170-205 Object of Subdivision
170-210 Transfer of tax loss: direct and indirect interests in the loss company
170-215 Transfer of tax loss: direct and indirect interests in the income company
170-220 Transfer of net capital loss: direct and indirect interests in the loss company
170-225 Transfer of net capital loss: direct and indirect interests in the gain company
[This is the end of the Guide]
Operative provisions
170-205 Object of Subdivision
Interests in the loss company
(1) The main object of this Subdivision is to ensure that, if an amount of a *tax loss or *net capital loss is transferred by a company to another company in the same *wholly-owned group, the loss transferred is not duplicated by a member of the group.
(2) Duplication could occur by the making of a *capital loss, or the reduction of a *capital gain, from a *CGT event that happens in relation to an equity interest held (directly or indirectly) in the loss company or by the making of a capital loss in relation to a debt interest held (directly or indirectly) in the loss company.
Interests in the income company or gain company
(3) This Subdivision may also require an adjustment to the cost base and reduced cost base of an equity or debt interest held (directly or indirectly) by a group company in the income company or gain company.
(4) This adjustment is to reflect an increase in the market value of the interest because of the transfer of the loss if the increase is still reflected in the market value of the interest when a *CGT event happens in relation to the interest.
170-210 Transfer of tax loss: direct and indirect interests in the loss company
(1) If:
(a) an amount of a *tax loss is transferred by a company to another company; and
(b) Subdivision 170-A applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in the loss company or is owed a debt by the loss company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) throughout the deduction year, the group company is a member of the same *wholly-owned group as the loss company (disregarding a period when either was not *in existence); and
(f) a *CGT event happens in relation to the share or debt on or after the commencement of this section; and
(g) the relevant agreement referred to in section 170-50 is made on or after that commencement;
the *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced in accordance with subsection (3).
(2) If:
(a) an amount of a *tax loss is transferred by a company to another company; and
(b) Subdivision 170-A applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in another company or is owed a debt by another company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):
(i) in the other company or a third company acquiring shares in the loss company; or
(ii) in a *borrowing by the loss company from the other company or from a third company; and
(f) throughout the deduction year, the group company, the other company and the third company (if any) are all members of the same *wholly-owned group as the loss company (disregarding, for a particular company, a period when it was not *in existence); and
(g) a *CGT event happens in relation to the share or debt on or after the commencement of this section; and
(h) the relevant agreement referred to in section 170-50 is made on or after that commencement;
the *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced in accordance with subsection (3).
(3) The *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced by an amount that is appropriate having regard to:
(a) the group company's direct or indirect interest in the loss company; and
(b) the amount of the loss transferred; and
(c) the extent to which the loss reduced the market value of the share or debt; and
(d) any consideration received by the loss company for the loss transferred; and
(e) whether, because of a dividend or dividends paid by the loss company, the consideration is no longer reflected (wholly or partly) in the market value of the share or debt when a *CGT event happens in relation to it.
(4) Any reduction is to be made immediately before a *CGT event happens in relation to the share or debt and is to have effect from that time or the end of the deduction year, whichever is the earlier.
Note: This subsection is relevant for indexing elements of a cost base (see sections 114-1 and 114-15).
170-215 Transfer of tax loss: direct and indirect interests in the income company
(1) If:
(a) an amount of a *tax loss is transferred by a company to another company; and
(b) Subdivision 170-A applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in the income company or is owed a debt by the income company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) throughout the deduction year, the group company is a member of the same *wholly-owned group as the income company (disregarding a period when either was not *in existence); and
(f) a *CGT event happens in relation to the share or debt on or after the commencement of this section; and
(g) the relevant agreement referred to in section 170-50 is made on or after that commencement;
the *cost base and *reduced cost base of the share or debt are increased in accordance with subsection (3).
(2) If:
(a) an amount of a *tax loss is transferred by a company to another company; and
(b) Subdivision 170-A applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in another company or is owed a debt by another company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):
(i) in the other company or a third company acquiring shares in the income company; or
(ii) in a *borrowing by the income company from the other company or from a third company; and
(f) throughout the deduction year, the group company, the other company and the third company (if any) are all members of the same *wholly-owned group as the income company (disregarding, for a particular company, a period when it was not *in existence); and
(g) a *CGT event happens in relation to the share or debt on or after the commencement of this section; and
(h) the relevant agreement referred to in section 170-50 is made on or after that commencement;
the *cost base and *reduced cost base of the share or debt are increased in accordance with subsection (3).
(3) The *cost base and *reduced cost base are increased by an amount that is appropriate having regard to:
(a) the group company's direct or indirect interest in the income company; and
(b) the amount of the loss transferred; and
(c) any consideration given by the income company for the loss transferred.
Note: This is because the consideration may be less than the commercial value of the loss transferred.
(4) However, the increase cannot exceed the increase in the market value of the *share or debt that results from the transfer of the loss. (If no increase in that market value results, for example because the consideration paid for the transfer of the loss equals the commercial value of the loss transferred, then there is no increase in the *cost base and *reduced cost base.)
(5) Any increase is to be made immediately before a *CGT event happens in relation to the share or debt and is to have effect from that time or the end of the deduction year, whichever is the earlier.
Note: This subsection is relevant for indexing elements of a cost base (see sections 114-1 and 114-15).
(6) No increase is to be made to the *cost base and *reduced cost base of a share or debt to the extent to which, because of a dividend or dividends paid by the income company, the increase in the market value of the share or debt that resulted from the transfer of the loss is no longer in existence at the time when a *CGT event happens in relation to the share or debt.
170-220 Transfer of net capital loss: direct and indirect interests in the loss company
(1) If:
(a) an amount of a *net capital loss is transferred by a company to another company; and
(b) Subdivision 170-B applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in the loss company or is owed a debt by the loss company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) throughout the application year, the group company is a member of the same *wholly-owned group as the loss company (disregarding a period when either was not *in existence); and
(f) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;
the *cost base and *reduced cost base of the share or debt are reduced in accordance with subsection (3).
(2) If:
(a) an amount of a *net capital loss is transferred by a company to another company; and
(b) Subdivision 170-B applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in another company or is owed a debt by another company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):
(i) in the other company or a third company acquiring shares in the loss company; or
(ii) in a *borrowing by the loss company from the other company or from a third company; and
(f) throughout the application year, the group company, the other company and the third company (if any) are all members of the same *wholly-owned group as the loss company (disregarding, for a particular company, a period when it was not *in existence); and
(g) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;
the *cost base and *reduced cost base of the share or debt are reduced in accordance with subsection (3).
(3) The *cost base and *reduced cost base are reduced by an amount that is appropriate having regard to:
(a) the group company's direct or indirect interest in the loss company; and
(b) the amount of the loss transferred; and
(c) the extent to which the loss reduced the market value of the share or debt; and
(d) any consideration received by the loss company for the loss transferred; and
(e) whether, because of a dividend or dividends paid by the loss company, the consideration is no longer reflected (wholly or partly) in the market value of the share or debt when a *CGT event happens in relation to it.
(4) Any reduction is to be made immediately before a *CGT event happens in relation to the share or debt and is to have effect from that time or the end of the application year, whichever is the earlier.
Note 1: Subsection (4) is relevant for indexing elements of a cost base (see sections 114-1 and 114-15).
Note 2: Reductions under subsection 160ZP(13) of the Income Tax Assessment Act 1936 are also relevant: see section 170-220 of the Income Tax (Transitional Provisions) Act 1997.
170-225 Transfer of net capital loss: direct and indirect interests in the gain company
(1) If:
(a) an amount of a *net capital loss is transferred by a company to another company; and
(b) Subdivision 170-B applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in the gain company or is owed a debt by the gain company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) throughout the application year, the group company is a member of the same *wholly-owned group as the gain company (disregarding a period when either was not *in existence); and
(f) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;
the *cost base and *reduced cost base of the share or debt are increased in accordance with subsection (3).
(2) If:
(a) an amount of a *net capital loss is transferred by a company to another company; and
(b) Subdivision 170-B applies in respect of the transfer; and
(c) a company (the group company ) holds a *share in another company or is owed a debt by another company in respect of a loan; and
(d) the group company *acquired the share or debt on or after 20 September 1985; and
(e) the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):
(i) in the other company or a third company acquiring shares in the gain company; or
(ii) in a *borrowing by the gain company from the other company or from a third company; and
(f) throughout the application year, the group company, the other company and the third company (if any) are all members of the same *wholly-owned group as the gain company (disregarding, for a particular company, a period when it was not *in existence); and
(g) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;
the *cost base and *reduced cost base of the share or debt are increased in accordance with subsection (3).
(3) The *cost base and *reduced cost base are increased by an amount that is appropriate having regard to:
(a) the group company's direct or indirect interest in the gain company; and
(b) the amount of the loss transferred; and
(c) any consideration given by the gain company for the loss transferred.
Note: This is because the consideration may be less than the commercial value of the loss transferred.
(4) However, the increase cannot exceed the increase in the market value of the *share or debt that results from the transfer of the loss. (If no increase in that market value results, for example because the consideration paid for the transfer of the loss equals the commercial value of the loss transferred, then there is no increase in the *cost base and *reduced cost base.)
(5) Any increase is to be made immediately before a *CGT event happens in relation to the share or debt and is to have effect from that time or the end of the application year, whichever is the earlier.
Note: This subsection is relevant for indexing elements of a cost base (see sections 114-1 and 114-15).
(6) No increase is to be made to the *cost base and *reduced cost base of a share or debt to the extent to which, because of a dividend or dividends paid by the gain company, the increase in the market value of the share or debt that resulted from the transfer of the loss is no longer in existence at the time when a *CGT event happens in relation to the share or debt.
Note: Increases under subsections 160ZP(14) and (15) of the Income Tax Assessment Act 1936 are also relevant: see section 170-225 of the Income Tax (Transitional Provisions) Act 1997.
[The next Division is Division 175.]