ATO Interpretative Decision

ATO ID 2003/737 (Withdrawn)

Income Tax

Company losses: continuity of ownership test - shareholding change by order of the Family Court
FOI status: may be released

This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 19 February 2010

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Can a company deduct a prior year tax loss if shares carrying 50% of relevant rights in the company are transferred from one individual to another during the 'ownership test period' by order of the Family Court, and the company changes its business in the period between the share transfer and the end of the deduction year?

Decision

No. The transfer of shares pursuant to the Court order means that the company is unable to satisfy the continuity of ownership test of section 165-12 of the Income Tax Assessment Act 1997 (ITAA 1997). The company is also unable to satisfy the same business test in terms of section 165-13 of the ITAA 1997.

Facts

A company incurred a tax loss in a particular income year (the loss year) which it sought to deduct in a later income year (the deduction year). In the period between the loss year and deduction year, shares carrying 50% of voting, dividend, and capital rights in the company were transferred from one shareholder to another pursuant to an order of the Family Court. The company had ceased its business activities prior to the share transfer and a new profitable business enterprise was commenced by the company in the period between the share transfer and the end of the deduction year.

Reasons for Decision

In order to meet the continuity of ownership test for recoupment of a prior year tax loss under section 165-12 of the ITAA 1997, a company must be able to show that the same persons owned shares carrying more than 50% of the voting power, rights to dividends and rights to capital distributions on a continuous basis from the beginning of the loss year to the end of the year of recoupment of that loss (the 'ownership test period').

In this case, the transfer of shares carrying 50% of relevant rights in the company during the ownership test period means that the continuity of ownership test cannot be met.

There is no provision within the ITAA 1997 that enables this position to be considered differently in circumstances where the ownership changes are brought about as a direct result of an order of the Family Court.

The change to the business of the company after the transfer of shares means that it cannot meet the same business test in terms of 165-13 of the ITAA 1997. Accordingly, the company cannot satisfy the conditions contained within Division 165 to enable it to deduct the prior year tax loss.

Date of decision: 6 June 2003

Year of income: 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Division 165
   section 165-12
   section 165-13

Keywords
Continuity of ownership

Business Line: Losses and CGT Centre of Expertise

Date of publication: 22 August 2003

ISSN: 1445-2782

history

	Date:	Version:
	6 June 2003	Original statement
You are here →	19 February 2010	Archived

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