ATO Interpretative Decision
ATO ID 2003/738
Income Tax
Company losses: company deregistration - incorporation of a new companyFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 that bears the same characteristics as a company that was deregistered by the Australian Securities and Investments Commission (ASIC) claim deductions for tax losses incurred by the deregistered company?
Decision
No. A company that is incorporated with the same fundamental characteristics as a previously deregistered company, is a new company, and therefore, cannot claim deductions for prior year tax losses incurred by the deregistered company.
Facts
A company with prior year tax losses ceased its trading activities pursuant to the sale of its business to another entity. The company failed to lodge returns and other documentation with ASIC within the prescribed periods and ASIC deregistered the company in accordance with section 601AB of the Corporations Act 2001. Some time later, the principals of the company decided that the company should reacquire its previous business.
The principals initially sought reinstatement of the company by ASIC, but settled on registration of a new company that had the same name, underlying documentation, public officer, directors and shareholders (with the same proportionate shareholdings) as the deregistered company.
Reasons for Decision
The deregistration of a company has the effect that the company ceases to exist on deregistration (subsection 601AD(1) of the Corporations Act 2001). ASIC may reinstate the registration of a company with effect that the company is taken to have continued in existence as if it had not been deregistered (section 601AH of the Corporations Act 2001).
The registration of a company, so that it may carry on the business previously carried on by the deregistered company, does not serve to reinstate the deregistered company. Instead, it establishes the existence of another company, albeit that it may bear the same characteristics as the deregistered company with the same persons having ownership and control.
Subdivision 36-A of the Income Tax Assessment Act 1997 allows a tax loss of an entity to be deducted by that entity in later income years. It does not allow the tax loss to be deducted by another entity. Common ownership and control of the deregistered company and the 'replacement' company do not negate the fact that the companies are separate entities. The replacement company is, therefore, prevented from claiming deductions for tax losses incurred by the deregistered company.
Date of decision: 19 June 2003Year of income: Year ended 30 June 2002
Legislative References:
Corporations Act 2001
section 601AB
section 601AH
subsection 601AD(1)
Subdivision 36-A
Keywords
Company deregistration
Ownership, interests, control & rights
ISSN: 1445-2782
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