ATO Interpretative Decision

ATO ID 2003/988 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it does not contain an interpretative decision and involves a straight application of the law that existed as at the date the ATO ID was published. Note - this ATO ID deals with the application of law that, subsequent to the publication of the ATO ID, was amended retrospectively so that it no longer applies to any tax loss incurred in an income year commencing on or after 1 July 2002 subject to certain transitional exceptions.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

When a listed public company that is seeking to apply Division 166 of the Income Tax Assessment Act 1997 (ITAA 1997) cannot establish which persons had more than 50% of its voting, dividend and capital distribution rights at the start of the loss year and there is abnormal trading in its shares during the loss year, will the time of abnormal trading become the test time under subsection 166-5(5) of the ITAA 1997 for the purposes of the same business test in section 165-13 of the ITAA 1997?

Decision

Yes. Where a listed public company cannot ascertain which persons had more than 50% of its voting, dividend and capital distribution rights at the start of the loss year, it will not be able to demonstrate substantial continuity of ownership under section 166-145 of the ITAA 1997 as between the start of the test period and the first of the times specified in subsection 166-5(2) of the ITAA 1997, being the time of abnormal trading in its shares. The time of abnormal trading shares therefore becomes the test time for the same business test.

Facts

The taxpayer company incurred a loss during a year of income and seeks a deduction for that loss in a subsequent year of income.

The taxpayer was a listed public company at all times during the test period as specified in subsection 166-5(1) of the ITAA 1997.

At the start of the loss year the company could not ascertain which persons, none of them companies or trustees, had directly, or indirectly through interposed entities, more than 50% of its voting power, or had rights to more than 50% of its dividends or capital distributions within sections 166-150, 166-155, or 166-160 of the ITAA 1997 respectively.

There was abnormal trading in shares in the company within Subdivision 960-H of the ITAA 1997 during the loss year.

Reasons for Decision

Subsection 166-5(2) of the ITAA 1997 states:

Substantial continuity of ownership

(2) The *listed public company is taken to have met the conditions in section 165-12 (which is about the company maintaining the same owners) if there is *substantial continuity of ownership of the company as between the start of the *test period and each of these other times in the period:

(a)

the time of each *abnormal trading in *shares in the company;

and

(b)

the end of each income year.

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

To establish substantial continuity of ownership under section 166-145 of the ITAA 1997, the company is required to show that persons (none of them companies or trustees) that had directly, or indirectly through interposed entities, more than 50% of its voting power and had rights to more than 50% of its dividends and capital entitlements at the start of the test period, also had more than 50% of its voting power and had rights to more than 50% of its dividends and capital distributions, at each of the other times specified in subsection 166-5(2) of the ITAA 1997.

The provisions of sections 166-150, 166-155 and 166-160 of the ITAA 1997 apply in determining who has more than 50% of a listed public company's voting power, and rights to more than 50% of its dividends and capital distributions respectively at any particular time.

Because the company cannot ascertain which persons had more than 50% of its voting power, or had rights to more than 50% of its dividends or its capital distribution rights at the start of the loss year, it is unable to demonstrate substantial continuity of ownership as between the start of the test period and the first of the times specified in subsection 166-5(2) of the ITAA 1997.

As there has been abnormal trading in shares in the company during the loss year, the time of that abnormal trading is the first time at which the company is required to demonstrate substantial continuity of ownership. It is unable to do so and therefore, in accordance with subsection 166-5(5), the time of the abnormal trading becomes the test time for the same business test.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 165-12
   section 165-13
   Division 166
   subsection 166-5(1)
   subsection 166-5(2)
   subsection 166-5(5)
   section 166-145
   section 166-150
   section 166-155
   section 166-160
   Subdivision 960-H

Related ATO Interpretative Decisions
ATO ID 2003/987

Keywords
Company losses
Continuity of ownership

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  7 November 2003

ISSN: 1445-2782