INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 170 - Treatment of certain company groups for income tax purposes  

Subdivision 170-B - Transfer of net capital losses within certain wholly-owned groups of companies  

Conditions for transfer

SECTION 170-145   Maximum amount that can be transferred   Loss company can only transfer what it cannot use itself

170-145(1)  


The amount transferred cannot exceed what would be the amount of the * loss company ' s * unutilised * net capital loss at the end of the application year if the loss company utilised the net capital loss to the greatest extent possible.
Note:

If the capital loss year and the application year are the same, the whole of the net capital loss would be unutilised, because section 102-5 does not allow a net capital loss to be applied in the income year in which it was made.

Example:

In the application year the loss company has:

  • · a net capital loss from an earlier income year of $25,000; and
  • · other capital losses totalling $10,000; and
  • · capital gains totalling $20,000;
  • Of the $25,000 loss, the loss company can transfer to the gain company no more than:


    $25,000   -   ($20,000   -   $10,000)   =   $15,000

    170-145(2)  


    (Repealed by No 169 of 1999)

    170-145(3)  


    (Repealed by No 169 of 1999)

    170-145(4)  


    (Repealed by No 169 of 1999) Transferred loss must not exceed what the gain company can use

    170-145(5)  
    No amount can be transferred if, apart from the operation of this section, the gain company would not have a *net capital gain for the application year.

    170-145(6)  
    The amount transferred also cannot exceed the amount worked out as follows: Method statement


    Step 1.

    Work out what, apart from the operation of this section, would have been the gain company ' s *net capital gain for the application year.


    Step 2.

    Subtract each amount that:

  • (a) the gain company can apply under section 170-115 in working out its *net capital gain for the application year; and
  • (b) was transferred to the gain company (by the loss company or any other company) by an agreement made before the agreement by which the first amount is transferred.
  • Example:

    In the application year:

  • · the gain company has capital gains totalling $60,000 and capital losses totalling $25,000; and
  • · another company, being a member of the same wholly-owned group as the gain company, transferred a net capital loss of $15,000 to the gain company; and
  • · the loss company incurred a net capital loss of $50,000.
  • Of the $50,000 loss, the loss company can transfer to the gain company no more than:


    $60,000   -   $25,000   -   $15,000   =   $20,000

    170-145(7)  


    Subsection (6) does not apply if the transfer occurs because either or both of the conditions in subsections 170-142(2) and (4) are met. In that case, the amount transferred also cannot exceed the amount worked out as follows: Method statement

    Step 1.

    Identify each *bundle of losses that, on the assumption in subsection 170-142(2) or (4) (as appropriate), would have included the *net capital loss.

    Note 1:

    There will be 2 or more bundles of losses identified if both of the conditions in subsections 170-142(2) and (4) are met.

    Note 2:

    There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph 170-142(4) if the conditions in subsections 170-130(1) and (2) are met in relation to the loss company and the gain company because of multiple applications of section 170-133 each involving a different first link company.


    Step 2.

    For each *bundle identified, work out how much of the *net capital loss the gain company would have been able to apply in working out its *net capital gain for the application year assuming that:

  • (a) the loss could have been applied in that year only after the application in that year of any other losses of that *sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the *loss company to the gain company for that year; and
  • (b) if the bundle would have included 2 or more transferable losses of that sort - those losses could have been applied only in the order in which the loss company made them.
  • Note 1:

    If the assumption in subsection 170-142(2) is relevant to the bundle, it would have included losses made by the gain company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707-A .

    Note 2:

    If the assumption in paragraph 170-142(4) is relevant to the bundle, it would have included losses actually made by the first link company and transferred (by one or more transfers under Subdivision 707-A ) to the gain company.


    Step 3.

    Total every result of step 2 for the *net capital loss.


     

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