ATO Interpretative Decision
ATO ID 2006/41
Income Tax
Group company loss transfers-the amount of the net capital loss specified in the written agreementFOI status: may be released
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 loss company and a gain company agree to transfer the combined amount of the net capital losses for two or more capital loss years in a written agreement entered into under section 170-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The amount of the net capital loss that must be specified in a written agreement pursuant to paragraph 170-150(2)(b) of the ITAA 1997 is the net capital loss that is worked out for the one capital loss year only, and cannot be the combined amount of the net capital losses that is worked out for two or more capital loss years.
Facts
Loss Company and Gain Company are both members of the same wholly-owned group at all relevant times within section 170-130 of the ITAA 1997.
Loss Company makes a net capital loss for an income year (the first capital loss year) and a further net capital loss for a later income year (the second capital loss year).
Loss Company wishes to transfer the net capital losses for both the first capital loss year and the second capital loss year to Gain Company in the application year. The application year does not start after 30 June 2003.
Loss Company and Gain Company enter into a written agreement for the transfer of a net capital loss in the application year purportedly pursuant to section 170-150 of the ITAA 1997. The amount of the net capital loss specified in the written agreement is the combined amount of the net capital losses for the first capital loss year and the second capital loss year.
Reasons for Decision
Subsection 170-150(2) of the ITAA 1997 lists the conditions for a valid written agreement to transfer a net capital loss. Paragraph 170-150(2)(b) of the ITAA 1997 states that a written agreement must specify the amount of the net capital loss being transferred.
Section 995-1 of the ITAA 1997 defines 'net capital loss' as having the meaning given by sections 102-10 of the ITAA 1997 and 165-114 of the ITAA 1997 and affected by section 701-30 of the ITAA 1997. Both section 102-10 and section 165-114 of the ITAA 1997 refer to the working out of a net capital loss for the income year.
Therefore, from the definition of 'net capital loss', it follows that the amount of the net capital loss that must be specified in a written agreement is the net capital loss that is worked out for the one capital loss year only, and not the combined amount of the net capital losses that is worked out for two or more capital loss years.
Date of decision: 7 February 2006Year of income: Year ended 31 December 1999
Legislative References:
Income Tax Assessment Act 1997
section 102-10
section 165-114
section 170-130
section 170-150
subsection 170-150(2)
paragraph 170-150(2)(b)
section 701-30
section 995-1
Keywords
Capital gains tax
Capital losses
Net capital losses
Group company loss transfers
ISSN: 1445-2782
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