ATO Interpretative Decision

ATO ID 2003/502

Income Tax

Meaning of tax loss: 'saving rule'- loss not restricted to amounts deducted in the income year
FOI status: may be released

[HISTORY: This ATOID has been amended to include the (*) asterisk in subsection 165-12(7) that is a minor amendment to the provisions providing useful interpretation with reference to direct interests and indirect equity interests by making them defined terms under section 995 of ITAA 1997].

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a loss company has transferred part of its tax loss under Subdivision 170-A of the Income Tax Assessment 1997 (ITAA 1997) is the relevant 'tax loss' for the purposes of applying subsection 165-12(7) of the ITAA 1997 to the loss company, that part of the tax loss not transferred that is seeks to deduct in the income year?

Decision

No. The relevant tax loss figure is the whole of the tax loss that was not transferred under Subdivision 170-A of the ITAA 1997 and not just the part sought to be deducted in the relevant income year.

Facts

In the relevant loss year, Loss Company incurred a tax loss of $100 under section 36-10 of the ITAA 1997.

In the first succeeding income year after the loss year, Loss Company could not deduct all or part of the $100 tax loss carried forward and transferred an amount of $70 under Subdivision 170-A of the ITAA 1997.

In the second succeeding income year after the loss year, Loss Company was not able to satisfy the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 because of the operation of the 'same share same interest rule' in section 165-165 of the ITAA 1997. Loss Company was not able to deduct a part of the $30 tax loss carried forward unless the requirements of subsection 165-12(7) of the ITAA 1997 (the 'saving rule') were met, enabling the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 to be treated as having been satisfied.

Reasons for Decision

Subsection 165-12(7) of the ITAA 1997 provides that where a condition in subsection 165-12(2), 165-12(3) or 165-12(4) is not satisfied, only because of the operation of section 165-165 of the ITAA 1997, that the condition can be taken as being satisfied where:

the company has information from which it would be reasonable to conclude that less than 50% of the *tax loss has been reflected in deductions, capital losses or reduced assessable income, that occurred, or could occur in future, because of the happening of any *CGT event in relation to any *direct equity interests or *indirect equity interests in the company during the *ownership test period.

*denotes a term defined in subsection 995-1(1) of the ITAA 1997

In satisfying the 'less than 50% of the tax loss' arrangement in subsection 165-12(7) of the ITAA 1997, the relevant tax loss amount is the Loss Company's tax loss as defined in section 36-10 of the ITAA 1997.

Pursuant to subsection 170-20(2) of the ITAA 1997, the Loss Company can no longer deduct the amount of tax loss transferred under Subdivision 170-A of the ITAA 1997 and it is taken not to have incurred the tax loss to the extent of that amount.

The relevant tax loss figure to be taken into account in satisfying the 'less than 50% of the tax loss' requirement in subsection 165-12(7) of the ITAA 1997 is the amount of tax loss not transferred, that is $30, and not just the amount sought to be deducted by the Loss Company in the particular income year.

Date of decision: 7 May 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 36-10
   subsection 165-12(2)
   subsection 165-12(3)
   subsection 165-12(4)
   subsection 165-12(7)
   section 165-165
   Subdivision 170-A
   subsection 170-20(2)
   section 995-1

Keywords
Company losses

Siebel/TDMS Reference Number: 3576897

Business Line: Public Groups and International

Date of publication: 4 July 2003

ISSN: 1445-2782

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