ATO Interpretative Decision

ATO ID 2003/537

Income Tax

Deducting tax loss - saving rule - subvention payment for previous loss transfer
FOI status: may be released

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

In determining the extent that a tax loss has been reflected for the purposes of applying subsection 165-12(7) of the Income Tax Assessment Act 1997 (ITAA 1997), is the value of a subvention payment received by a loss company for transferring part of a tax loss taken into account?

Decision

No. As the transferred amount of tax loss that gave rise to the subvention payment is deemed by subsection 170-20(2) of the ITAA 1997 not to have been incurred by the loss company, any associated subvention payment is therefore not related to the defined tax loss that is being considered by subsection 165-12(7) of the ITAA 1997.

Facts

Loss Company incurred a $100 tax loss as calculated under subsection 36-10(4) of the ITAA 1997 in respect of the relevant loss year.

In the subsequent income year Loss Company transferred $60 of the tax loss under Subdivision 170-A of the ITAA 1997.

Loss Company received $18 of subvention payment because of that loss transfer.

Loss Company seeks to deduct the remaining $40 tax loss in a later income year.

The $40 tax loss cannot be deducted as the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 are not satisfied because of the operation of section 165-165 of the ITAA 1997.

In the relevant ownership test period, as defined in subsection 165-12(1) of the ITAA 1997, an individual R disposed of an indirect equity interest, as defined in subsection 995-(1) of the ITAA 1997. The disposal resulted in CGT event A1 happening under subsection 104-10(2) of the ITAA 1997.

Because of the happening of CGT event A1, individual R became entitled to a capital loss in the disposal year in respect of the disposal of the relevant indirect equity interest.

That capital loss is not taken to be disregarded under Subdivision 170-D of the ITAA 1997 or any other provision.

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 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.

The $18 subvention payment that Loss Company received from transferring the $60 amount of tax loss is not related to the $40 of remaining tax loss that Loss Company now seeks to deduct and therefore cannot be taken into account in determining the extent that the $40 tax loss has been reflected for the purposes of applying subsection 165-12(7) of the ITAA 1997.

The $60 tax loss transferred by Loss Company is no longer deemed to have been incurred by it because of the operation of subsection 170-20(2) of the ITAA 1997.

Note: This ATO ID has been amended to remove a reference to paragraph 165-12(9)(b) of ITAA 1997 which has been repealed by the Tax Laws Amendment (2007 Measures No 4) Act 2007. Indirect equity interest is now a defined term in subsection 995-1(1) of the ITAA 1997.

Date of decision: 23 June 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 104-10(2)
   subsection 165-12(1)
   subsection 165-12(2)
   subsection 165-12(3)
   subsection 165-12(4)
   subsection 165-12(7)
   paragraph 165-12(9)(b)
   section 165-165
   Subdivision 170-A
   subsection 170-20(2)
   Subdivision 170-D

Keywords
Capital gains tax
CGT event A1-disposal of a CGT asset
Dealings & transactions
Group company loss transfers
Losses

Siebel/TDMS Reference Number: 3550584

Business Line: Public Groups and International

Date of publication: 4 July 2003

ISSN: 1445-2782

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