ATO Interpretative Decision

ATO ID 2006/258

Income Tax

• Section 165-212A of the ITAA 1997 was repealed by the Tax Laws Amendment (2007 Measures No.5) Act 2007. As a result, the words "(other than a company covered by section 165-212A)" in subsection 165-210(1) of the ITAA 1997, and the Note to subsection 165-210(1) of the ITAA 1997, were omitted, applicable to:

  (a)

  any tax loss that is incurred in an income year commencing on or after 1 July 2005; and

  (b)

  any net capital loss that is made in an income year commencing on or after 1 July 2005; and

  (c)

  any deduction in respect of a bad debt that is incurred in an income year commencing on or after 1 July 2005.

Issue

Where a foreign resident company carries on business both in and out of Australia, is the business examined under the same business test (SBT) in section 165-13 of the Income Tax Assessment Act 1997 (ITAA 1997) restricted to the business carried on by the company in Australia?

Decision

No. The SBT is applied to the business carried on by the company both in and out of Australia.

Facts

A foreign resident company has a tax loss for an earlier income year (the loss year) which it seeks to deduct in a later income year. The company does not satisfy the conditions of section 165-12 of the ITAA 1997 relating to maintenance of the same owners and therefore seeks to satisfy the SBT under section 165-13 of the ITAA 1997.

The company carries on business both in and out of Australia at all relevant times.

Reasons for Decision

The conditions of the SBT are outlined in Subdivision 165-E of the ITAA 1997.

Subsection 165-210 of the ITAA 1997 provides:

SECTION 165-210 The test

165-210(1)

A company (other than a company covered by section 165-212A) satisfies the same business test if throughout the *same business test period it carries on the same *business as it carried on immediately before the *test time.

165-210(2)

However, the company does not satisfy the *same business test if, at any time during the *same business test period, it *derives assessable income from:

(a)

a *business of a kind that it did not carry on before the *test time; or

(b)

a transaction of a kind that it had not entered into in the course of its business operations before the *test time.

165-210(3)

The company also does not satisfy the *same business test if, before the *test time, it:

(a)

started to carry on a *business it had not previously carried on; or

(b)

in the course of its business operations, entered into a transaction of a kind that it had not previously entered into;

and did so for the purpose, or for purposes including the purpose, of being taken to have carried on throughout the *same business test period the same business as it carried on immediately before the test time.

165-210(4)

...

*

denotes a term defined in section 995-1 of the ITAA 1997

Section 165-210 of the ITAA 1997 refers to 'the business' carried on by the company and to 'a business of a kind or 'a transaction of a kind'. There are no references in section 165-210 to the tax jurisdiction in which the business is carried on or the transaction is entered into. Further, the business of a foreign resident company conducting activities both in and out of Australia may only be properly ascertained by reference to the company's global activities. Therefore it is concluded that the SBT applies to the business carried on by the company both in and out of Australia.

Year of income:  Year ended 30 June 2006

Legislative References:
Income Tax Assessment Act 1997
   section 165-12
   section 165-13
   Subdivision 165-E
   section 165-210
   subsection 165-210(1)
   subsection 165-210(2)
   subsection 165-210(3)
   subsection 165-210(4)

Related Public Rulings (including Determinations)
Taxation Ruling TR 1999/9

Keywords
Same business test
Tax loss

Siebel/TDMS Reference Number:  5430654

Business Line:  Public Groups and International

Date of publication:  15 September 2006

ISSN: 1445-2782