Income Tax (Consequential Amendments) Act 1997 (39 of 1997)

Schedule 4   Consequential amendments of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993

25   At the end of the Act

Add:

Schedule 1 - Tax losses and the Income Tax Assessment Act 1997

Subdivision 170-A - Transfer of tax losses from a transferring corporation to a receiving corporation

Guide to Subdivision 170-A

170-1 What this Subdivision is about

A transferring corporation (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993) can transfer a tax loss to a receiving corporation (within the meaning of that Act) so that the receiving corporation can deduct it. The corporations must be related in such a way that that Act would apply to a transfer of assets from the transferring corporation to the receiving corporation.

Table of sections

170-5 Basic principles for transferring tax losses

Effect of transferring a tax loss

170-10 When a company can transfer a tax loss

170-15 Income company is taken to have incurred transferred loss

170-20 Who can deduct transferred loss

170-23 When income company must maintain same owners and control

170-25 Tax treatment of payment for transferred tax loss

Conditions for transfer

170-28 The Financial Corporations (Transfer of Assets and Liabilities) Act 1993 must apply to asset transfer from loss company to income company

170-32 The loss year

170-33 The transfer year

170-35 The loss company

170-50 Transfer by written agreement

170-55 Losses must be transferred in order they are incurred

170-60 Income company cannot transfer transferred tax loss

Effect of agreement to transfer more than can be transferred

170-65 Agreement transfers as much as can be transferred

170-70 Amendment of assessments

170-5 Basic principles for transferring tax losses

(1) A transferring corporation (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993) can transfer a tax loss to a receiving corporation (within the meaning of that Act) so that the receiving corporation can deduct it.

(2) The corporations must be related in such a way that that Act would apply to a transfer of assets from the transferring corporation to the receiving corporation.

(3) The receiving corporation need not have enough assessable income to offset the transferred tax loss.

(4) The tax loss is transferred by an agreement between the 2 corporations.

Effect of transferring a tax loss

170-10 When a corporation can transfer a tax loss

(1) A transferring corporation within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 (the loss company ) can transfer an amount of its *tax loss for an income year of the loss company (the loss year ) to a receiving corporation within the meaning of that Act (the income company ) if the conditions in this Subdivision are met.

(2) The amount transferred can be the whole or part of the *tax loss.

Note: A PDF cannot transfer a tax loss, except one for a period before it became a PDF: see section 195-10.

(3) However, the *loss company cannot transfer so much of the *tax loss as the loss company has deducted, or can deduct, for an income year before the one in which the amount is transferred.

170-15 Income company is taken to have incurred transferred loss

(1) If an amount of a *tax loss is transferred, the *amount is taken to be a tax loss incurred by the *income company in the *loss year.

(2) However, if the *loss year is the same as the income year of the *income company for which the amount is transferred (the transfer year ), the *income company is taken to have incurred the *tax loss in the income year before the loss year.

Note: This rule is needed because Division 36 allows a tax loss to be deducted only if it was incurred in an earlier income year.

170-20 Who can deduct transferred loss

(1) If an amount of a *tax loss is transferred, the *income company can deduct the amount in accordance with section 36-15 (which is about how to deduct a tax loss), but only if Subdivision 165-A (as modified by section 170-23) and Subdivision 175-A do not prevent it from doing so.

Note: Subdivision 165-A is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.

Subdivision 175-A is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.

(2) The *loss company can no longer deduct the transferred amount and is taken not to have incurred the *tax loss to the extent of that amount.

170-23 When income company must maintain same owners and control

(1) Ordinarily, Subdivision 165-A prevents a company from deducting for an income year (the deduction year ) a tax loss if there has been a change in the ownership or control of the company between the loss year and the deduction year.

Note: Subdivision 165-A is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.

(2) However, subsection (3) modifies that Subdivision so that the *income company is prevented from deducting for the deduction year a transferred amount of a *tax loss only if there has been a change in ownership or control in the income company between the transfer year and the deduction year.

(3) That Subdivision applies to the transferred amount as if all references to “*loss year” in that Subdivision were references to “*transfer year”.

170-25 Tax treatment of payment for transferred tax loss

(1) A payment received for an amount of a *tax loss is neither assessable income nor exempt income of the *loss company.

(2) The *income company cannot deduct a payment it makes for an amount of a *tax loss.

Conditions for transfer

170-28 Financial Corporations (Transfer of Assets and Liabilities) Act 1993 must apply to asset transfer from loss company to income company

If it were assumed that:

(a) an asset (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993) had been transferred by the *loss company to the *income company on the last day of a particular income year of the *loss company (the notional transfer year ); and

(b) the requirements of paragraphs 7(6)(a) and (b) of that Act were satisfied in relation to that transfer;

then it must be the case that that Act would have applied to that transfer.

170-32 The loss year

The *loss year must be either:

(a) the income year in which the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced; or

(b) an earlier income year.

170-33 The transfer year

(1) The *transfer year must either:

(a) end at the end of the *notional transfer year; or

(b) correspond to the income year of the *loss company that next follows the *notional transfer year.

(2) Also, the *transfer year must be one of the 5 income years after the income year in which the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced.

170-35 The loss company

If the *loss year and the *transfer year are the same, it must be the case that the *loss company was not required to calculate the *tax loss under section 165-70 or 175-35.

170-50 Transfer by written agreement

(1) The transfer must be made by a written agreement between the *loss company and the *income company.

(2) The agreement must:

(a) specify the *transfer year (which may be earlier than the income year in which the agreement is made); and

(b) specify the amount of the *tax loss being transferred; and

(c) be signed by the public officer of each company; and

(d) be made on or before the day of lodgment of the *income company’s *income tax return for the *transfer year, or within such further time as the Commissioner allows.

Note: The agreement will usually be made in the next income year after the one in which the tax loss is transferred.

170-55 Losses must be transferred in order they are incurred

(1) If the *loss company has 2 or more *tax losses (other than *film losses) that it can transfer in the *transfer year, it can transfer them only in the order in which it incurred them.

(2) If the *loss company has 2 or more *film losses that it can transfer in the *transfer year, it can transfer them only in the order in which it incurred them.

170-60 Income company cannot transfer transferred tax loss

The *income company cannot transfer an amount of a *tax loss transferred to it, or any part of the amount.

Effect of agreement to transfer more than can be transferred

170-65 Agreement transfers as much as can be transferred

(1) If the amount specified in an agreement exceeds the maximum amount that the *loss company can transfer to the *income company in the *transfer year, only that maximum amount is taken to have been transferred.

(2) One reason why an agreement might specify more than can be transferred is that an assessment has been amended since the agreement.

170-70 Amendment of assessments

The Commissioner may amend an assessment to disallow a deduction for a transferred amount of a *tax loss:

(a) if the agreement to transfer the tax loss is ineffective because the *loss company did not actually incur the loss; or

(b) to the extent that section 170-65 reduces the transferred amount of a tax loss because the loss company did not actually incur some of it.

The Commissioner may do so despite section 170 (Amendment of assessments) of the Income Tax Assessment Act 1936.