ATO Interpretative Decision
ATO ID 2003/734
Income Tax
Company Losses- applying a part year net capital lossFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can a company apply any part of a net capital loss made during an earlier income year if there was a change in majority ownership of the company during that income year and the company did not satisfy the same business test for the current income year in which that net capital loss is sought to be applied?
Decision
Yes. Subsection 165-96(2) of the Income Tax Assessment Act 1997 (ITAA 1997) will allow the company to apply the part of the net capital loss made during the latter part of the earlier income year if, assuming that latter part of the year had been treated as the whole of the earlier income year for the purposes of applying Subdivision 165-A of the ITAA 1997, that the company would have been entitled to apply the net capital loss in the current income year.
Facts
Pursuant to section 102-20 of the ITAA 1997 Company A made the following capital losses and capital gains during the income year ended 30 June 1999:
| •Capital losses of: |
$1 000 on 28 September 1998 $2 000 on 1 December 1998 $4 000 on 5 February 1999 $6 000 on 1 June 1999 |
| •Capital gains of: |
$2 500 on 13 November 1998 $3 500 on 22 March 1999 |
Company A therefore made a net capital loss of $7,000 in respect of the earlier income year ended 30 June 1999.
Company A made no capital gains or capital losses in the income years ended 30 June 2000 and 30 June 2001.
Company A seeks to apply its net capital loss of $7,000 against a capital gain of $10,000 in the current income year ended 30 June 2002, its only capital gain or loss made during that income year.
In applying subsection 165-96(1) of the ITAA 1997, Company A failed to satisfy the conditions in Subdivision 165-A of the ITAA 1997 on the 31 January 1999. However, for the purposes of applying subsection 165-96(2) of the ITAA 1997 it would satisfy those conditions from that date to the end of the current income year ended 30 June 2002.
Reasons for Decision
Company A cannot apply its net capital loss in respect of the income year ended 30 June 2002 under subsection 165-96(1) of the ITAA 1997, as it does not satisfy the conditions in Subdivision 165-A of the ITAA 1997 at all times from 1 July 1998 to 30 June 2002.
Pursuant to subsection 165-96(2) of the ITAA 1997, Company A can apply in the current income year that part of the net capital loss it made after the disqualifying change in ownership on 31 January 1999.
Section 102-20 of the ITAA 1997 provides that a capital gain or capital loss is 'made' at the time of the relevant CGT event.
In the relevant part of the earlier income year (i.e. from 31 January 1999 until 30 June 1999) Company A made capital losses totalling $10,000 and a capital gain of $3,500.
Therefore $6,500 of Company A's net capital loss of $7,000 that was made in the income year ended 30 June 1999, may be applied against the $10,000 capital gain it made in the current income year ended 30 June 2002.
Note that for the purposes of subsection 165-96(2) of the ITAA 1997, the 'part' of the net capital loss can also mean the whole amount of the net capital loss of the earlier income year. This will be the case where the capital gain(s) and the capital loss(s) that feature in the calculation of the net capital loss under section 102-10 of the ITAA 1997 were all made during the relevant latter part of the earlier income year.
Date of decision: 19 May 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Subdivision 165-A
section 102-10
section 102-20
subsection 165-96(1)
subsection 165-96(2)
Keywords
Companies
Company losses
Entities & taxpayer groups
Group company loss transfers
ISSN: 1445-2782
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
