ATO Interpretative Decision

ATO ID 2004/555 (Withdrawn)

Income Tax

Company bad debts: company unable to show continuity of ownership test satisfied for any period
FOI status: may be released

This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.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Status of this decision: Decision Withdrawn 12 March 2010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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a debt incurred in an earlier income year is written off as bad by a company and it is not practicable for the company to show any period when it satisfied the continuity of ownership test (COT), does the company have a test time for the purpose of applying the same business test (SBT) in order to claim a bad debt deduction?

Decision

Yes. The company's test time for the purpose of applying the SBT is the end of the day on which the debt was incurred pursuant to Item 2 of subsection 165-126(2) of the Income Tax Assessment Act 1997 (ITAA 1997).

Facts

Company X is not a listed public company or a 100% subsidiary of a listed public company within Division 166 of the ITAA 1997.

A debt incurred on 1 February 2002 was subsequently written-off as bad by company X during the 2002-03 income year.

Company X is unable to show that COT is satisfied for any period from the date the debt was incurred as, in the circumstances, it is not practicable to obtain details of the ultimate beneficial ownership of shareholdings in a non-resident company.

Reasons for Decision

Section 165-123 of the ITAA 1997 requires, in determining whether a company can deduct a bad debt, that the conditions of COT be satisfied at all times during the ownership test period from the start of the first continuity period (being the day when the debt was incurred), to the end of the second continuity period (being the end of the current year, which in this instance occurs on 30 June 2003).

Where the conditions of section 165-123 of the ITAA 1997 are not satisfied, section 165-126 of the ITAA 1997 provides an alternative SBT condition. Item 1 of subsection 165-126(2) of the ITAA 1997 does not apply to company X as the COT conditions are not satisfied for any period from the start of the first continuity period.

Where Item 1 of subsection 165-126(2) of the ITAA 1997 does not apply and the debt was incurred before the current year, Item 2 of subsection 165-126(2) of the ITAA 1997 provides that the test time for the purpose of applying the SBT is the end of the day on which the debt was incurred.

In accordance with Item 2 of subsection 165-126(2) of the ITAA 1997, company X's test time for the SBT is the end of 1 February 2002.

Date of decision: 29 June 2004

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 165-123
   section 165-126
   subsection 165-126(2)
   Division 166

Keywords
Bad debts
Same business test

Business Line: Losses and Capital Gains Tax Centre of Expertise

Date of publication: 9 July 2004

ISSN: 1445-2782

history

	Date:	Version:
	29 June 2004	Original statement
You are here →	12 March 2010	Archived

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