INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 165 - Income tax consequences of changing ownership or control of a company  

Subdivision 165-CD - Reductions after alterations in ownership or control of loss company  

Operative provisions

SECTION 165-115ZD   Adjustment (or further adjustment) for interest realised at a loss after global method has been used  

165-115ZD(1)  


This section affects how sections 165-115ZA and 165-115ZB apply to an interest (the equity ) in, or a debt owed by, a company if, apart from this section, a loss (the realised loss ):


(a) would be *realised for income tax purposes by a *realisation event that happens to the equity or debt; or


(b) would be so realised but for Subdivision 170-D (which defers realisation of capital losses and deductions);

and the company chose to use the *global method of working out whether it had an adjusted unrealised loss at the last alteration time:


(c) that happened for the company before the realisation event; and


(d) immediately before which the equity or debt was, or was part of:


(i) if the company was a *loss company at that alteration time - a relevant equity interest, or a relevant debt interest, that an entity had in the company; or

(ii) otherwise - what would have been such an interest if the company had been a loss company at that alteration time.
Note:

If that last alteration time is before the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent, the owner of the equity or debt may choose to apply section 165-115ZD of the Income Tax (Transitional Provisions) Act 1997 instead of this section.

165-115ZD(2)  
In addition to any application to the equity or debt, in relation to that last alteration time, that sections 165-115ZA and 165-115ZB have apart from this section, those sections apply (and are taken always to have applied) to the equity or debt, in relation to that last alteration time, as if:


(a) the company had an adjusted unrealised loss at that time worked out under this section; and


(b) the company were therefore a *loss company at that time; and


(c) that adjusted unrealised loss were the company ' s overall loss at that time.

165-115ZD(3)  
For the purposes of how sections 165-115ZA and 165-115ZB apply because of this section, the adjustment amount under section 165-115ZB is to be worked out and applied in accordance with subsection 165-115ZB(6) (the non-formula method). Adjusted unrealised loss worked out under this section

165-115ZD(4)  


The adjusted unrealised loss referred to in paragraph (2)(a) is worked out using this method statement: Method statement

Step 1.

Add up the amount or value of each thing covered by subsection (5). (If the total exceeds the realised loss, reduce the total by the excess.)


Step 2.

Reduce the step 1 amount by so much of the realised loss as it is reasonable to conclude is attributable to none of these:

  • (a) a notional capital loss, or a notional revenue loss, that the company has at that last alteration time in respect of a *CGT asset;
  • (b) a trading stock decrease in relation to that time for a CGT asset that was *trading stock of the company at that time.
  • Note:

    If the equity or debt is a revenue asset, the realised loss is different from the loss referred to in subsection (1): see subsection (9).

    165-115ZD(5)  
    This subsection covers each thing covered by an item in the table, except to the extent that:


    (a) it is reasonable to conclude that the thing was not attributable to value that is reflected in what would, if that last alteration time had been a *changeover time for the company, be a notional capital gain or notional revenue gain that the company had under section 165-115F at that changeover time in respect of a *CGT asset; or


    (b) the thing has resulted in a reduction of the *reduced cost base of the equity or debt.


    Things that might expose an unrealised loss netted off by use of global method
    Item Thing covered
    1 A *dividend that the company pays during the period referred to in subsection (6)
    2 A thing that is taken under this Act to be a dividend and that the company pays during the period referred to in subsection (6)
    3 A distribution of income or capital to a *member that the company makes during the period referred to in subsection (6) and is not covered by item 1 or 2
    4 An amount of income tax to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event that happens, during the period referred to in subsection (6), to a *CGT asset (in its character as a CGT asset, *trading stock or a *revenue asset) that the company owned at that last alteration time and *acquired for not less than $10,000
    5 A loss or outgoing to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event of the kind referred to in item 4
    6 The difference between:
    (a) the *capital proceeds (as worked out under subsection (7)) of a *CGT event:
    (i) that happens, during the period referred to in subsection (6), to a *CGT asset that the company owned at that last alteration time and *acquired for not less than $10,000; and
    (ii) as a result of which the asset is *acquired by an entity that is an *associate of the company at the time of the CGT event; and
    (b) the *market value of the asset at the time of the CGT event;
    but only if those capital proceeds are less than that market value

    165-115ZD(6)  
    The period starts at that last alteration time and ends at the earlier of:


    (a) the time of the *realisation event referred to in paragraph (1)(a); or


    (b) the time immediately before the earliest time when the equity or debt is no longer, or is no longer part of:


    (i) if the company was a *loss company at that last alteration time - a relevant equity interest, or a relevant debt interest, that an entity has in the company; or

    (ii) otherwise - what would have been such an interest if the company had been a loss company at that last alteration time.

    165-115ZD(7)  
    For the purposes of item 6 of the table in subsection (5), the *capital proceeds of the *CGT event are to be worked out:


    (a) under subsection 116-20(1) only; and


    (b) disregarding subsection 103-10(1) and paragraph 103-10(2)(a) (about entitlement to receive money or property). Notices under section 165-115ZC not affected

    165-115ZD(8)  
    To avoid doubt:


    (a) a notice need not be given under section 165-115ZC because of this section; and


    (b) this section does not affect the requirements that apply to a notice that otherwise must be given under that section. If equity or debt is a revenue asset

    165-115ZD(9)  


    If the equity or debt is a *revenue asset at the time of the *realisation event, subsection (4) applies on the basis that the realised loss is the total of:


    (a) the loss (if any) *realised for income tax purposes by the realisation event happening to the equity or debt in its character as a *CGT asset; and


    (b) the loss (if any) realised for income tax purposes by the realisation event happening to the equity or debt in its character as a revenue asset.


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