Edited version of your written advice

Authorisation Number: 1012689717280

Ruling

Subject: Company tax losses

Question 1

In the income years ending 30 June 2015 and 30 June 2016, will Company A be an 'eligible Division 166 company' and therefore eligible to access the modifications in Subdivision 166-A when applying the continuity of ownership test in section 165-12 of the Income Tax Assessment 1997 (ITAA 1997)?

Answer

Yes.

Question 2

In the income years ending 30 June 2015 and 30 June 2016, will Company A satisfy the conditions in section 165-12 of the ITAA 1997 as modified by Division 166 of the ITAA 1997, for each tax loss made in the income years ended 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on:

Year ended 30 June 2011.

Relevant facts and circumstances

Company A's ownership structure

1. Company A is an unlisted private company that is wholly-owned by Company B. Company B is also an unlisted private company.

2. All of the shares in Company A and Company B are ordinary shares, and carry equal voting power, and equal rights to dividends and capital distributions.

3. From 1 July 2010 to 30 June 2014, there has not been a 'corporate change' (as defined in subsection 166-175(1) of the ITAA 1997) in Company A.

4. Company B is wholly-owned by the Trustee of Trust Z. Trust Z is a unit trust constituted by a deed poll. Trust Z has more than 20 members and is registered as a managed investment scheme under the Corporations Act 2001.

5. As set out in the Trust Z Constitution, units in Trust Z confer (amongst other things):

• an equal and undivided beneficial interest in Trust Z;

• rights to the current and future income of Trust Z;

• entitlements to vote; and

• rights to the capital of Trust Z.

6. Trust Z has only one class of units on issue. The units in Trust Z have been listed on the Australian Securities Exchange (ASX) and are stapled to units in Trust Y such that they may not be dealt with independently of each other (the stapled securities).

7. All the stapled securities on issue are fully paid.

The holders of the stapled securities

8. At all times since at least 1 July 2010, Company C (through its wholly-owned subsidiary Company D) and Company E (through its wholly-owned subsidiaries Company F and Company G) together have held more than 50% of the stapled securities (individually, Company C and Company E have held between 10%-50% of the stapled securities during this time).

9. Company C and Company E are both companies whose ordinary shares are listed on an 'approved stock exchange' as defined in subsection 995-1(1) of the ITAA 1997 (see Regulation 995-1.05 of, and Schedule 5 to, the Income Tax Assessment Regulations 1997).

10. Company B, Company C, Company D, Company E, Company F, Company G and Trust Z have each held the same shares or interests, directly and indirectly, in Company A at all times from 1 July 2010 to 30 June 2014.

Company A's prior year tax losses

11. Company A has incurred tax losses in the income years ended 30 June 2011 to 30 June 2014.

12. Company A expects to be in a position to begin utilising some of its prior year tax losses in the income years ending 30 June 2015 and 30 June 2016.

Assumptions

13. Neither Company D, Company F nor Company G are a 'controlling entity' for the purposes of subsection 166-280(1) of the ITAA 1997.

14. The direct and indirect shareholdings in Company A as set out in the Relevant Facts will remain the same in the income years ending 30 June 2015 and 30 June 2016.

15. Company B, Company C, Company D, Company E, Company F, Company G and Trust Z will continue to hold the same shares or interests, directly and indirectly, in Company A throughout the income years ending 30 June 2015 and 30 June 2016 as they held throughout the period from 1 July 2010 to 30 June 2014.

16. There will not be a 'corporate change' as defined in subsection 166-175(1) of the ITAA 1997 in Company A in the income years ending 30 June 2015 and 30 June 2016.

17. Throughout the income years ending 30 June 2015 and 30 June 2016, Trust Z will remain a registered managed investment scheme under the Corporations Act 2001.

18. Throughout the income years ending 30 June 2015 and 30 June 2016, the shares in Company C, and the shares in Company E, will each remain listed on an 'approved stock exchange' as defined in subsection 995-1(1) of the ITAA 1997 (see Regulation 995-1.05 of, and Schedule 5 to, the Income Tax Assessment Regulations 1997).

Relevant legislative provisions

Corporations Act 2001

Income Tax Assessment Act 1936 Paragraph 318(6)(b)

Income Tax Assessment Act 1997 Division 165

Income Tax Assessment Act 1997 Division 166

Income Tax Assessment Act 1997 Subdivision 166-A

Income Tax Assessment Act 1997 Subdivision 166-E

Income Tax Assessment Act 1997 Subsection 166-5(1)

Income Tax Assessment Act 1997 Subsection 166-5(2)

Income Tax Assessment Act 1997 Subsection 166-5(3)

Income Tax Assessment Act 1997 Section 165-10

Income Tax Assessment Act 1997 Section 165-12

Income Tax Assessment Act 1997 Section 165-13

Income Tax Assessment Act 1997 Subsection 165-150(2)

Income Tax Assessment Act 1997 Subsection 165-155(2)

Income Tax Assessment Act 1997 Subsection 165-160(2)

Income Tax Assessment Act 1997 Section 165-165

Income Tax Assessment Act 1997 Section 165-208

Income Tax Assessment Act 1997 Section 166-145

Income Tax Assessment Act 1997 Subsection 166-145(2)

Income Tax Assessment Act 1997 Subsection 166-145(3)

Income Tax Assessment Act 1997 Subsection 166-145(5)

Income Tax Assessment Act 1997 Section 166-165

Income Tax Assessment Act 1997 Subsection 166-175(1)

Income Tax Assessment Act 1997 Section 166-235

Income Tax Assessment Act 1997 Subsection 166-235(2)

Income Tax Assessment Act 1997 Subsection 166-235(4)

Income Tax Assessment Act 1997 Subsection 166-235(6)

Income Tax Assessment Act 1997 Section 166-240

Income Tax Assessment Act 1997 Subsection 166-240(2)

Income Tax Assessment Act 1997 Subsection 166-245(2)

Income Tax Assessment Act 1997 Subsection 166-245(3)

Income Tax Assessment Act 1997 Subparagraph 166-245(3)(d)(i)

Income Tax Assessment Act 1997 Section 166-272

Income Tax Assessment Act 1997 Section 166-280

Income Tax Assessment Act 1997 Subsection 166-280(1)

Income Tax Assessment Act 1997 Subsection 166-280(2)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Question 1

Summary

Company A is an eligible Division 166 company and therefore eligible to access the modifications in Subdivision 166-A when applying the continuity of ownership test in section 165-12 of the ITAA 1997.

Detailed reasoning

Subdivision 165-A of the ITAA 1997 provides the general rules governing the deductibility of tax losses of earlier income years made by a company.

Pursuant to section 165-10 of the ITAA 1997, a company cannot deduct a tax loss unless it satisfies either:

(i) the continuity of ownership test (COT) in section 165-12 of the ITAA 1997; or

(ii) the same business test (SBT) in section 165-13 of the ITAA 1997

Broadly, a company will satisfy the COT under section 165-12 of the ITAA 1997 if, at all times from the start of the loss year to the end of the income year in which it seeks to deduct some or all of a tax loss, the same persons with the same interests either directly or indirectly have:

• more than 50% of the voting power in the company;

• rights to more than 50% of the company's dividends; and

• rights to more than 50% of the company's capital distributions.

Division 166 of the ITAA 1997 modifies the COT for a 'widely held company' or an 'eligible Division 166 company'. Broadly, Division 166 of the ITAA 1997 provides special concessional tracing rules which deem entities to hold voting, dividend or capital stakes attached to shares in the company so that the company does not have to trace through to the ultimate beneficial owners of the stakes, and provides for testing of continuity of ownership at specific points in time rather than continuously throughout the ownership test period.

Subsection 166-5(1) of the ITAA 1997 requires a company to be a widely held company or an eligible Division 166 company during 'the income year', i.e. the year in which the company seeks to deduct a tax loss and hence must satisfy the requirements of Division 165 as modified by Division 166 (paragraph 1.13 of the Explanatory Memorandum to the Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005).

'Widely held company' is defined in subsection 995-1(1) of the ITAA 1997 as:

(a) a company, *shares in which (except shares that carry a right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange; or

(b) a company with more than 50 members, other than a company where at least one of the following conditions is met during an income year:

(i) no more than 20 persons held, or had the right to acquire or become the holders of, shares representing at least 75% of the value of the shares in the company (other than shares that only carry a right to a fixed rate of dividend);

(ii) at least 75% of the voting power in the company was capable of being exercised by no more than 20 persons;

(iii) at least 75% of the amount of any dividend paid by the company during the year was paid to no more than 20 persons;

(iv) if no dividend was paid by the company during the year - the Commissioner is of the opinion that, if a dividend had been paid by the company during the year, at least 75% of the amount of the dividend would have been paid to no more than 20 persons.

Company A is not currently a widely held company as it is wholly-owned by Company B and its shares are not listed for quotation in the official list of an approved stock exchange. It is expected that this will continue to be the case throughout the income years ending 30 June 2015 and 30 June 2016. Accordingly, it will only be able to access the modifications in Division 166 where it satisfies the requirements to be an eligible Division 166 company.

'Eligible Division 166 company' is defined in subsection 995-1(1) of the ITAA 1997 to mean a company:

(a) that is not a *widely held company; and

(b) in which:

(i) *voting stakes that carry rights to more than 50% of the voting power in the company; or

(ii) *dividend stakes that carry rights to receive more than 50% of any dividends that the company may pay; or

(iii) *capital stakes that carry rights to receive more than 50% of any distribution of capital of the company;

are beneficially owned (whether directly, or *indirectly through one or more interposed entities) by:

(iv) a widely held company; or

(v) an entity mentioned in subsection 166-245(2) that satisfies the condition in subsection 166-245(3); or

(vi) a *non-profit company; or

(vii) a charity; or

(viii) 2 or more entities mentioned in subparagraphs (iv) to (vii).

The terms 'voting stake', 'dividend stake' and 'capital stake' are defined in subsection 995-1(1) of the ITAA 1997 to have the meanings given by section 166-235 of the ITAA 1997. Section 166-235 provides:

Meaning of voting stake

(1) An entity holds a voting stake in a company if:

(a) the entity is the registered holder of *shares in the company; and

(b) the shares carry rights to exercise voting power in the company.

(2) An entity (the stakeholder) also holds a voting stake in a company if:

(a) one or more other entities are interposed between the company and the stakeholder; and

(b) the stakeholder controls, or is able to control, voting power in the company indirectly through the interposed entity or entities.

Meaning of dividend stake

(3) An entity holds a dividend stake in a company if:

(a) the entity is the registered holder of *shares in the company; and

(b) the shares carry rights to all or any *dividends that the company may pay.

(4) An entity (the stakeholder) also holds a dividend stake in a company if:

(a) one or more other entities are interposed between the company and the stakeholder; and

(b) the stakeholder has the right to receive, for its own benefit and *indirectly through the interposed entity or entities, all or any *dividends that the company may pay.

Meaning of capital stake

(5) An entity holds a capital stake in a company if:

(a) the entity is the registered holder of *shares in the company; and

(b) the shares carry rights to all or any of a distribution of capital of the company.

(6) An entity (the stakeholder) also holds a capital stake in a company if:

(a) one or more other entities are interposed between the company and the stakeholder; and

(b) the stakeholder has the right to receive, for its own benefit and *indirectly through the interposed entity or entities all or any of a distribution of capital of the company.

The entities mentioned in subsection 166-245(2) of the ITAA 1997 are:

(a) a superannuation fund; and

(b) an approved deposit fund; and

(ba) an FHSA trust; and

(c) a special company; and

(d) a managed investment scheme; and

(e) any other entity, or entity of a kind, prescribed by the regulations.

Company A is directly wholly-owned by Company B, an entity that is itself not a widely held company nor an entity mentioned in subparagraphs (b)(v) to (vii) of the definition of eligible Division 166 company. Accordingly, Company A must examine its indirect ownership to determine whether it will be an 'eligible Division 166 company'.

The meaning of 'indirectly' in subsection 995-1(1) of the ITAA 1997 states, in part:

entities have the right to receive dividends or capital of a company indirectly for their own benefit if they would receive the dividends or capital for their own benefit if:

(a) the company were to pay or distribute the dividends or capital; and

(b) the dividends or capital were then successively paid or distributed by each entity interposed between the company and those entities…

Trust Z is a managed investment scheme registered under the Corporations Act 2001. It is therefore an entity mentioned in subsection 166-245(2) of the ITAA 1997 that satisfies the relevant condition in subsection 166-245(3) of the ITAA 1997 (specifically subparagraph 166-245(3)(d)(i)).

As Trust Z owns all of the ordinary shares in Company B, which in turn owns all of the ordinary shares in Company A, Trust Z is considered to hold a voting stake in Company A pursuant to subsection 166-235(2) of the ITAA 1997, i.e. it controls, or is able to control, voting power in Company A indirectly through Company B.

Similarly, Trust Z holds a dividend stake and a capital stake pursuant to subsections 166-235(4) and 166-235(6) of the ITAA 1997, as it has the right to receive, for its own benefit and indirectly through company B, all or any dividends that Company A may pay and all or any of a distribution of capital of Company A.

Company A will satisfy the requirements to be an 'eligible Division 166 company' on the basis that 100% of the voting stakes, dividend stakes and capital stakes are beneficially owned (indirectly through Company B) by Trust Z. Company A will therefore be eligible to access the modifications in Subdivision 166-A of the ITAA 1997 when applying the COT in section 165-12 of the ITAA 1997.

Company A would also satisfy the requirements to be an 'eligible Division 166 company' on the basis of the indirect ownership held by Company C and Company E.

Company C and Company E both satisfy the requirements to be a 'widely held company' under subsection 995-1(1) of the ITAA 1997. This is because shares in each of them are listed for quotation in the official list of an approved stock exchange.

Company C and Company E, via their relevant wholly-owned subsidiaries, together hold more than 50% of the stapled securities. The holders of the stapled securities have the right to receive the income and capital of Trust Z and the right to exercise voting power in Trust Z.

Company C and Company E would therefore have the right to receive dividends that Company A may pay and distributions of capital of Company A, indirectly through the interposed entities, being Company D (for Company C) and Company F and Company G (for Company E), Trust Z and Company B.

It is assumed for the purposes of this Ruling that throughout the income years ending 30 June 2015 and 30 June 2016, the direct and indirect shareholdings in Company A as set out in the Relevant Facts will remain the same. Company C and Company E will therefore, between them, beneficially own, indirectly, dividend stakes and capital stakes pursuant to subsections 166-235(4) and 166-235(6) of the ITAA 1997 that carry rights to receive more than 50% of any dividends that Company A may pay or more than 50% of any distribution of capital of Company A. Therefore, Company A will satisfy the requirements to be an 'eligible Division 166 company' on this separate ground.

Question 2

Summary

Company A will satisfy the conditions of section 165-12 of the ITAA 1997, as modified by Division 166 of the ITAA 1997, for each tax loss made in the income years ended 30 June 2011 to 30 June 2014 because, pursuant to subsection 166-5(3) of the ITAA 1997, there will be substantial continuity of ownership (as defined in section 166-145 of the ITAA 1997) of Company A. Company C and Company E (indirectly through interposed entities) will together have more than 50% of the voting power in Company A, and rights to more than 50% of Company A's dividends and capital distributions, at each of the relevant test times in the test periods ending on 30 June 2015 and 30 June 2016, respectively.

Detailed reasoning

Subdivision 166-A of the ITAA 1997 modifies how the COT applies to a widely held and an eligible Division 166 company. Subsection 166-5(3) of the ITAA 1997 provides that a company is taken to have met the conditions in section 165-12 of the ITAA 1997 if there is 'substantial continuity of ownership' of the company as between the start of the 'test period', the end of each income year in that period and the end of each 'corporate change' in that period.

Conversely, a company is taken to have failed to meet the conditions in section 165-12 of the ITAA 1997 if there is no substantial continuity of ownership of the company at those same times in the test period.

A company's 'test period' is the period consisting of the loss year, the income year and any intervening period (subsection 166-5(2) of the ITAA 1997).

Company A expects to be in a position to claim a deduction for tax losses it incurred in the income years ended 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014 in the income years ending 30 June 2015 and 30 June 2016. It has been assumed for the purposes of this Ruling that there will be no 'corporate change' (as defined in subsection 166-175(1) of the ITAA 1997) in Company A at any time during the test periods ending on 30 June 2015 and 30 June 2016, respectively. Therefore, to satisfy the requirements of section 165-12 of the ITAA 1997 as modified by subsection 166-5(3) of the ITAA 1997, Company A must demonstrate that there is substantial continuity of ownership of Company A as between the start of the test period (1 July 2010) and each of the following times:

Section 166-145 of the ITAA 1997 provides that there is substantial continuity of ownership of a company if:

• there are persons (none of them companies or trustees) who had more than 50% of the voting power in the company at the start of the test period and more than 50% of the voting power in the company immediately after the other time in the test period;

• there are persons (none of them companies) who had rights to more than 50% of the company's dividends at the start of the test period and rights to more than 50% of the company's dividends immediately after the other time in the test period; and

• there are persons (none of them companies) who had rights to more than 50% of the company's capital distributions at the start of the test period and rights to more than 50% of the company's capital distributions immediately after the other time in the test period.

In determining whether each of the conditions in section 166-145 of the ITAA 1997 is satisfied, subsection 166-145(5) of the ITAA 1997 requires the company to apply the alternative test for that condition (contained in subsections 165-150(2), 165-155(2) and 165-160(2) of the ITAA 1997).

Concessional tracing rules

Subdivision 166-E of the ITAA 1997 affects how section 166-145 is applied. Subdivision 166-E contains a number of concessional tracing rules which make it easier to establish that there is substantial continuity of ownership of a company. These tracing rules are subject to various integrity rules.

Section 166-240 of the ITAA 1997 contains the concessional tracing rule relating to stakes held by widely held companies. Where a company is a widely held company for the whole of the income year in which the 'ownership test time' (defined in subsection 166-145(5) of the ITAA 1997) occurs, section 166-240 treats the widely held company as a person (other than a company) that owns the relevant stake in a tested company where the stake is between 10% and 50% (inclusive). Voting, dividend and capital stakes are counted separately.

In determining whether the concessional tracing rule in section 166-240 will apply, shares in the company that made tax losses (tested company) and interests in interposed entities can only be taken into account if they are the same shares or interests and are held by the same persons at all relevant test times (section 166-272 of the ITAA 1997). The requirements in section 166-272 will be satisfied as Company B, Company C, Company D, Company E, Company F, Company G and Trust Z have each held the same shares or interests, directly and indirectly, in Company A at all times throughout the test period and it has been assumed for the purposes of the Ruling that they will continue to hold these same shares or interests throughout the income years ending 30 June 2015 and 30 June 2016.

However, subsection 166-280(1) of the ITAA 1997 provides that a 'tracing rule' (defined in subsection 995-1(1) of the ITAA 1997 to include the rule in section 166-240 of the ITAA 1997) does not apply to all or part of the voting power in the tested company, or all or some of the rights to dividends of, or capital in, the tested company, if an entity directly or indirectly holds that power or has those rights, and the tested company is sufficiently influenced (within the meaning of paragraph 318(6)(b) of the ITAA 1936) by that entity (the controlling entity).

Subsection 166-280(2) of the ITAA 1997 provides that a 'tracing rule' (such as section 166-240 of the ITAA 1997) does not apply to all or part of the voting power in the tested company if the tested company is a widely held company (which Company A is not), and either of the following is satisfied:

• a natural person, including their associates, controls more than 25% of the total voting power in the tested company; or

• a trustee or company, including their associates, controls more than 50% of the total voting power in the tested company.

Company C (being a widely held company) holds indirectly through interposed entities:

(a) a voting stake that carries rights to between 10% and 50% of the voting power in Company A;

(b) a dividend stake that carries the right to receive between 10% and 50% of any dividends that Company A may pay; and

(c) a capital stake that carries the right to receive between 10% and 50% of any distribution of capital of Company A.

Company E (being a widely held company) holds indirectly through interposed entities:

(a) a voting stake that carries rights to between 10% and 50% of the voting power in Company A;

(b) a dividend stake that carries the right to receive between 10% and 50% of any dividends that Company A may pay; and

(c) a capital stake that carries the right to receive between 10% and 50% of any distribution of capital of Company A.

Accordingly, subsection 166-240(2) of the ITAA 1997 will apply at each ownership test time to treat Company C and Company E as each being a person (other than a company) that:

• controls, or is able to control, the voting power in Company A that is carried by their respective voting stake at that time; and

• has the right to receive (whether directly or indirectly), for its own benefit, any dividends Company A may pay in respect of their respective dividend stake at that time; and

• has the right to receive (whether directly or indirectly), for its own benefit, any distributions of capital of Company A in respect of their respective capital stake at that time.

Further tracing through Company C and Company E is not required in respect of their respective voting stakes, dividend stakes and capital stakes in Company A.

As it is assumed for the purposes of this Ruling that Company C and Company E are not a 'controlling entity' of Company A for the purposes of subsection 166-280(1) of the ITAA 1997 (and it has been established that subsection 166-280(2) is not relevant to Company A), section 166-280 will not apply to exclude the availability of the tracing concession.

More than 50% of the voting power in the company

The first condition to establish that there is substantial continuity of ownership of a company is, under subsection 166-145(2) of the ITAA 1997, that the same persons (none of them companies or trustees) had more than 50% of the voting power in the company at all relevant test times.

This requires that it is the case, or it is reasonable to assume, that there are persons (none of them companies or trustees) who (between them) at a particular time control, or are able to control (whether directly, or indirectly through one or more interposed entities), the voting power in the company (subsection 165-150(2) of the ITAA 1997).

As discussed above in response to Question 1, Company C and Company E have a voting stake in Company A pursuant to subsection 166-235(2) of the ITAA 1997, because there are one or more entities interposed between Company A and Company C and Company E, respectively, and Company C and Company E each controls, or is able to control, voting power in Company A indirectly through the interposed entities. At all times since at least 1 July 2010, Company C and Company E have together held a voting stake that carries more than 50% of the voting rights in Company A. Accordingly, it is the case that there are persons (Company C and Company E by virtue of subsection 166-240(2) of the ITAA 1997) who between them control, or are able to control, indirectly through interposed entities, the voting power in Company A at the relevant test times identified earlier.

The condition in subsection 166-145(2) of the ITAA 1997 is met.

More than 50% of the company's dividends

The second condition to establish that there is substantial continuity of ownership of a company is, under subsection 166-145(3) of the ITAA 1997, that the same persons (none of them companies) have rights to more than 50% of the company's dividends at all relevant test times.

This requires that it is the case, or it is reasonable to assume, that there are persons (none of them companies) who (between them) at a particular time have the right to receive for their own benefit (whether directly or indirectly) more than 50% of any dividends that the company may pay (subsection 165-155(2) of the ITAA 1997).

As discussed above in response to Question 1, Company C and Company E have a dividend stake in Company A pursuant to subsection 166-235(4) of the ITAA 1997, because there are one or more entities interposed between Company A and Company C and Company E, respectively, and Company C and Company E each has the right to receive, for its own benefit and indirectly through the interposed entities, all or any dividends that Company A may pay. At all times since at least 1 July 2010, Company C and Company E have together held a dividend stake that carries the right to receive more than 50% of any dividends that Company A may pay. Accordingly, it is the case that there are persons (Company C and Company E by virtue of subsection 166-240(2) of the ITAA 1997) who between them have the right to receive for their own benefit, indirectly, more than 50% of any dividends that Company A may pay at the relevant test times identified earlier.

More than 50% of the company's capital distributions

The third condition to establish that there is substantial continuity of ownership of a company is, under subsection 166-145(4) of the ITAA 1997, that the same persons (none of them companies) have rights to more than 50% of the company's capital distributions at all relevant test times.

This requires that it is the case, or it is reasonable to assume, that there are persons (none of them companies) who (between them) at a particular time have the right to receive for their own benefit (whether directly or indirectly) more than 50% of any distribution of capital of the company (subsection 165-160(2) of the ITAA 1997).

As discussed above in response to Question 1, Company C and Company E have a capital stake in Company A pursuant to subsection 166-235(6) of the ITAA 1997, because there are one or more entities interposed between Company A and Company C and Company E, respectively, and Company C and Company E each has the right to receive, for its own benefit and indirectly through the interposed entities, all or any of a distribution of capital of Company A. At all times since at least 1 July 2010, Company C and Company E have together held a capital stake that carries the right to receive more than 50% of any distribution of capital of Company A. Accordingly, it is the case that there are persons (Company C and Company E by virtue of subsection 166-240(2) of the ITAA 1997) who between them have the right to receive for their own benefit, indirectly, more than 50% of any distribution of capital of Company A at the relevant test times identified earlier.

The condition in subsection 166-145(4) of the ITAA 1997 is met.

Conclusion

There will be substantial continuity of ownership of Company A under section 166-145 of the ITAA 1997 since Company C and Company E will together have more than 50% of the voting power in, and have rights to more than 50% of the dividends and capital distributions of, Company A at all relevant test times for the test periods beginning on 1 July 2010 (the start of the loss year) and ending on 30 June 2015 and 30 June 2016, respectively.

Therefore, in accordance with subsection 166-5(3) of the ITAA 1997, Company A is taken to have met the conditions in section 165-12 of the ITAA 1997 for the income years ending 30 June 2015 and 30 June 2016 in respect of the tax losses Company A made in the income years ended 30 June 2011 to 30 June 2014.