Edited version of your written advice

Authorisation Number: 1051225050518

Date of advice: 22 May 2017

Ruling

Subject: Request for Private Binding Ruling

Question 1

Does Company A satisfy, for each applicable test period ending on xx xx 2016, the conditions of section 165-12 of the Income Tax Assessment Act 1997 (ITAA 1997) as modified, where relevant, by Division 166 of the ITAA 1997, for each tax loss listed in the relevant facts and circumstances of this ruling?

Answer

Yes.

This ruling applies for the following periods:

Income year ended xx xx 2016

The scheme commences on:

DDMMYY

Relevant facts and circumstances

Company A

Company A is a private company that operates in Australia and is a resident of Australia for income tax purposes.

Company A has at all times since xx xx 20xx been a wholly owned subsidiary of Company B. Company B is a Foreign Jurisdiction resident for tax purposes and is listed on the Foreign Jurisdiction Stock Exchange. Company B entered into an agreement with Company C prior to 20xx such that Company C was beneficially entitled to the voting, capital and dividend distributions of Company A. Company C is also a resident of the Foreign Jurisdiction for income tax purposes and is, and always has been, a 100% subsidiary of Company B.

Any capital losses arising because of the happening of CGT events in relation to shares in Company A would be disregarded under Division 855 of the ITAA 1997.

The number of shares on issue in Company A, all held by Company B, increased significantly in 20xx due to an issue of additional equity.

Ownership of Company B

Company B shares were at all relevant times in the relevant period held by at least 47% of 'Small Shareholders', being are shareholders holding less than 10% of the issued shares in Company B. In addition, Entity D held between 5% and 17% of issued shares in Company B at relevant dates in the relevant period. At the times when Entity D held less than 10% of issued shares in Company B it was included as a 'Small Shareholder', but at all relevant times Entity D and the Small Shareholders held more than 50% of the total shares in Company B between them.

On xx xx 20xx, a number of additional shares were issued in Company B. As such, there was a 'corporate change' that 'ended' on this date for the purposes of Division 166 of the ITAA 1997.

Tax Losses of Company A

The income tax return of Company A for the income year ended xx xx 2016 disclosed $x of carry forward tax losses. These tax losses were in respect of multiple income years (loss years).

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 36-A

Income Tax Assessment Act 1997 Subdivision 165-A

Income Tax Assessment Act 1997 section 165-10

Income Tax Assessment Act 1997 section 165-12

Income Tax Assessment Act 1997 Subdivision 165-D

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 Division 166

Income Tax Assessment Act 1997 Subdivision 166-A

Income Tax Assessment Act 1997 section 166-5

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 paragraph 166-5(3)(a)

Income Tax Assessment Act 1997 paragraph 166-5(3)(b)

Income Tax Assessment Act 1997 section 166-145

Income Tax Assessment Act 1997 section 166-175

Income Tax Assessment Act 1997 Subdivision 166-E

Income Tax Assessment Act 1997 section 166-220

Income Tax Assessment Act 1997 section 166-230

Income Tax Assessment Act 1997 subsection 166-230(1)

Income Tax Assessment Act 1997 subsection 166-230(2)

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 section 166-272

Income Tax Assessment Act 1997 subsection 166-272(1)

Income Tax Assessment Act 1997 subsection 166-272(2)

Income Tax Assessment Act 1997 subsection 166-272(8)

Income Tax Assessment Act 1997 paragraph 166-272(8)(b)

Income Tax Assessment Act 1997 section 166-275

Income Tax Assessment Act 1997 Division 855

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

Income Tax Assessment Regulations 1997 Schedule 5

Reasons for decision

All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated

Summary

Company A satisfies, for each applicable test period ending on xx xx 2016, the conditions of section 165-12 as modified, where relevant, by Division 166, for each tax loss listed in the relevant facts and circumstances of this ruling.

Detailed reasoning

Background

Prior-year tax losses are generally deductible, for companies and other entities, under Subdivision 36-A. However, a company cannot deduct a tax loss unless it meets one or more conditions referred to in section 165-10, which states:

165-10 To deduct a tax loss

A company cannot deduct a *tax loss unless either:

(a) it meets the conditions in section 165-12 (which is about the company maintaining the same owners); or …

(b) it meets the condition in section 165-13 (which is about the company satisfying the same business test).

Note: In the case of a widely held or eligible Division 166 company, Subdivision 166-A modifies how this Subdivision applies, unless the company chooses otherwise.

Broadly, the conditions in section 165-12 relate to ownership of various rights associated with a company's shares over an 'ownership test period'. However, Subdivision 166-A modifies how Subdivision 165-A (including section 165-12) operates in relation to a 'widely held company' or 'eligible Division 166 company'. Relevantly, section 166-5 states:

166-5 How Subdivision 165-A applies to a widely held or eligible Division 166 company

(1) This Subdivision modifies the way Subdivision 165-A applies to a company that is:

(a) a *widely held company at all times during the income year; or

(b) an *eligible Division 166 company at all times during the income year; or

(c) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.

Does Division 166 operate to modify the conditions in section 165-12?

Subdivision 166-A will modify the way Subdivision 165-A, including section 165-12, applies to Company A if the company is a 'widely held company' or 'eligible Division 166 company' for the entire income year (in this case being the 2016 income year). The term 'widely held company' is defined by subsection 995-1(1). The relevant portion of the definition is reproduced below:

widely held company means:

(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 …

Company A is not a widely held company as its shares are not listed for quotation on any stock exchange and the company has only one member. Relevantly, Company B itself is a widely held company as its shares are listed for quotation in the official list of the Foreign Jurisdiction Stock Exchange (being an 'approved stock exchange' as listed in Schedule 5 to the Income Tax Assessment Regulations 1997).

The term 'eligible Division 166 company' is defined by subsection 995-1(1), so far as it is relevant, as:

eligible Division 166 company means 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 …

The terms 'voting stake', 'dividend stake' and 'capital stake' are each defined in section 166-235, which states:

166-235 Voting, dividend and capital stakes

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.

Note: These definitions are also relevant when considering the concessional tracing rules in Subdivision 166-E as considered below.

Relevantly, Company B holds a voting stake, dividend stake and capital stake in Company A as the sole registered holder of all shares in that company. The shareholders in Company B would also hold indirect voting stakes, dividend stakes and capital stakes in Company A pursuant to subsection 166-235(2), subsection 166-235(4) and subsection 166-235(6).

Company A is therefore an 'eligible Division 166 company' for the 2016 income year as:

● It was not a widely held company;

● Voting stakes that carry rights to more than 50% of the voting power in the company were beneficially owned indirectly by a widely held company (Company B, through Company C);

● Dividend stakes that carry rights to receive more than 50% of any dividends that the company may pay were beneficially owned indirectly by a widely held company (Company B, through Company C); and

● Capital stakes that carry rights to receive more than 50% of any distribution of capital of the company were beneficially owned indirectly by a widely held company (Company B, through Company C).

Consequently, subsection 166-5(1) applies such that the conditions in section 165-12 are modified by Division 166.

How does Division 166 modify the conditions in section 165-12?

A company is taken to have satisfied the conditions in section 165-12 for a particular tax loss in the circumstances outlined in subsection 166-5(3), which states:

Substantial continuity of ownership

(3) The company is taken to have met the conditions in section 165-12 (which is about the company maintaining the same owners) if there is *substantial continuity of ownership of the company as between the start of the *test period and:

(a) the end of each income year in that period; and

(b) the *end of each *corporate change in that period.

Consequently, Company A can satisfy the conditions in section 165-12 if there is 'substantial continuity of ownership' of the company as between the start of the 'test period' and certain other times in that 'test period' listed in paragraph 166-5(3)(a) and paragraph 166-5(3)(b).

The term 'test period' is defined in subsection 166-5(2) as:

Meaning of test period

(2) The company's test period is the period consisting of the *loss year, the income year and any intervening period.

The start of the test period is therefore the start of the loss year for the relevant tax loss that the company is seeking to deduct.

As Company A is seeking to meet the conditions of section 165-12 for a number of prior-year tax losses in relation to the 2016 income year, there needs to be 'substantial continuity of ownership' of the company as between the many different times across multiple test periods (including the End of the Corporate Change that happened in the period).

The Substantial Continuity of Ownership Test

The 'substantial continuity of ownership' test itself is contained in section 166-145, which relevantly states:

166-145 The ownership tests: substantial continuity of ownership

(1) There is substantial continuity of ownership of the company as between the start of the *test period and another time in the test period if (and only if) the conditions in this section are met.

Note: Section 166-165, and Subdivision 166-E, affect how this section is applied.

Voting power

(2) There must be 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. Also, those persons must have had *more than 50% of the voting power in the company immediately after the other time in the test period.

Rights to dividends

(3) There must be persons (none of them companies) who had rights to *more than 50% of the company's dividends at the start of the *test period. Also, those persons must have had rights to *more than 50% of the company's dividends immediately after the other time in the test period.

Rights to capital distributions

(4) There must be 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. Also, those persons must have had rights to *more than 50% of the company's capital distributions immediately after the other time in the test period.

When to apply the test

(5) To work out whether a condition in this section was satisfied at a time (the ownership test time), apply the alterative test for that condition.

Note: For the alternative test, see subsections 165-150(2), 165-155(2) and 165-160(2). …

Therefore, the substantial continuity of ownership test broadly involves determining whether persons, other than companies, have 'more than 50% of the voting power', rights to 'more than 50% of the company's dividends' and rights to 'more than 50% of the company's capital distributions' at various times (referred to as 'ownership test times'). The relevant tests, being the 'alternative test' for each term pursuant to subsection 166-145(5), are contained in subsection 165-150(2), subsection  165-155(2) and subsection  165-160(2) (of Subdivision 165-D) respectively. Those subsections state:

165-150 Who has more than 50% of the voting power in the company

…

The alternative test

(2) Applying the alternative test: if 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, those persons have more than 50% of the voting power in the company at that time.

165-155 Who has rights to more than 50% of the company's dividends

…

The alternative test

(2) Applying the alternative test: if 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, those persons have rights to more than 50% of the company's dividends at that time.

165-160 Who has rights to more than 50% of the company's capital distributions

…

The alternative test

(2) Applying the alternative test: if 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, those persons have rights to more than 50% of the company's capital distributions at that time.

Note: For the purposes of this ruling, voting power in a company and the rights referred to in ss165-155(2) and ss165-160(2) will be collectively referred to as 'stakeholder rights'.

The conditions in section 166-145 and the tests in Subdivision 165-D both specifically exclude considering persons that are companies. As a result, stakeholder rights must be traced through companies to find other types of entities that hold those rights indirectly.

In the present case, the substantial continuity of ownership test cannot be satisfied on the basis of Company B directly holding all of the shares and stakeholder rights in Company A. Rather, the conditions in section 166-145 and the tests in Subdivision 165-D would look through Company B to that company's ordinary shareholders (and if these ordinary shareholders were companies then their own shareholders would need to be considered).

Concessional Tracing Rules

Section 166-220 states:

166-220 Application of this Subdivision

This Subdivision applies to a company (the tested company) that is:

(a) a *widely held company at all times during the income year; or

(b) an *eligible Division 166 company at all times during the income year; or

(c) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.

As concluded above, Company A (being 'the tested company' for the purposes of section 166-220) is an eligible Division 166 company at all times in the 2016 income year and consequently may receive the benefit of concessional tracing rules in Subdivision 166-E.

However, section 166-275 also makes it clear that the concessional tracing rules will not apply to a particular voting, dividend or capital stake in a manner that would make the company fail to satisfy the conditions in section 165-12. Section 166-275 states:

166-275 Rules in this Subdivision intended to be concessional

A company is taken to have met the conditions in section 165-12, paragraph 165-35(a) or section 165-123, or a changeover time or an alteration time is taken not to have occurred in respect of a company, (as the case requires), if:

(a) a *tracing rule modifies how the ownership tests in section 166-145 apply to the tested company in respect of a *voting stake, a *dividend stake or a *capital stake; and

(b) the company fails the tests (whether at the time of applying the tracing rule or at another time); and

(c) the company believes, on reasonable grounds, that if the tracing rule did not modify how the tests apply to the company in respect of that stake, it would not fail the tests.

Example: 11 people own shareholdings of 9% in the listed company. Under section 166-225, one notional shareholder is deemed to hold all of those shareholdings. 2 of the people sell their shareholdings so that 9 of the original 11 people now own shareholdings of 11%. Without the rule in this section, the company would fail the ownership tests (as the rule in section 166-225 no longer applies).

A 'tracing rule' is defined by subsection 995-1(1) to include the concessional tracing rules in section 166-230 and section 166-240. Therefore, section 166-275 will apply where one of the concessional tracing rules (discussed below) in section 166-230 or section 166-240 modify how the ownership tests in section 166-145 apply to a voting, dividend or capital stake in such a way that Company A fails those tests.

The legislative example makes it clear that section 166-275 may apply in cases where entities have shareholdings that vary between under and over 10% of a relevant company. For example, section 166-275 may be relevant when considering the treatment of Entity D for the purposes of the tests in section 166-145 as its shareholding in Company B varies between under and over 10% for some of the test periods.

The concessional tracing rule in section 166-230

Section 166-230 provides concessional tracing where entities have indirect stakes of less than 10% in the tested company. Subsection 166-230(1) states:

166-230 Indirect stakes of less than 10% in the tested company

(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if it is the case, or it is reasonable to assume that:

(a) an entity (the stakeholder) indirectly holds any of these stakes in the tested company:

(i) a *voting stake that carries rights to less than 10% of the voting power in the company; or

(ii) a *dividend stake that carries the right to receive less than 10% of any dividends that the company may pay; or

(iii) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the company; and

(b) either:

(i) the stakeholder indirectly holds the stake in the tested company by holding *shares directly in a company (the top interposed entity) that is interposed between the stakeholder and the tested company; or

(ii) the stakeholder indirectly holds the stake in the tested company by holding another interest directly in an entity (the top interposed entity) that is not a company and that is interposed between the stakeholder and the tested company.

Note 1: There might also be other entities interposed between the top interposed entity and the tested company.

Note 2: Other rules might affect this provision: see subsection (3) and sections 166-272, 166-275 and 166-280.

Therefore, the concessional tracing rule in section 166-230 will apply where it is reasonable to assume that:

● an entity (the 'stakeholder') indirectly holds a 'voting stake', 'dividend stake' or 'capital stake' that carries less than 10% of the relevant stakeholder rights (being voting power, rights to receive dividends and rights to receive distributions of capital respectively) in the tested company; and

● holds the relevant stake through holding shares or interests directly in a company or other entity (the 'top interposed entity') that is interposed between the stakeholder and the tested company.

Relevantly, where a Company B shareholder holds less than 10% of the ordinary shares in the company it is reasonable to assume that that entity will also hold a voting stake, dividend stake or capital stake that carries less than 10% of the relevant stakeholder rights in the tested company, being Company A. These stakes in Company A are indirectly held through holding shares directly in a 'top interposed entity', being Company B, for the purposes of subsection 166-230(1). As such, the concessional tracing rule in section 166-230 will be available in relation to Company B shareholders that hold less than 10% of shares in that company.

The concessional tracing rule is contained in subsection 166-230(2), which states:

Top interposed entity deemed to hold stakes directly in the tested company

(2) The tests are applied to the tested company as if, at the *ownership test time:

(a) if the stake is a *voting stake—the top interposed entity controls, or is able to control, the voting power in the tested company that is carried by that stake at that time; and

(b) if the stake is a *dividend stake—the top interposed entity *indirectly had the right to receive, for its own benefit, any *dividends the tested company may pay in respect of that stake at that time; and

(c) if the stake is a *capital stake—the top interposed entity indirectly had the right to receive, for its own benefit, any distributions of capital of the tested company in respect of that stake at that time; and

(d) in any case—the top interposed entity were a person (other than a company).

Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.

For the purposes of the substantial continuity of ownership tests in section 166-145, Company B (being the 'top interposed entity') is therefore taken to:

● have the relevant stakeholder rights in Company A that are held by shareholders that hold less than 10% of the ordinary shares in Company B; and

● be a person other than a company.

The concessional tracing rule in section 166-240

It is relevant to note that Section 166-240 provides concessional tracing where widely held companies have direct and/or indirect stakes the tested company. Section 166-240 relevantly states:

166-240 Stakes held directly and/or indirectly by widely held companies

(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if a *widely held company directly or indirectly (through one or more interposed entities), or both directly and indirectly, holds any of the following:

(a) a *voting stake that carries rights to between 10% and 50% (inclusive) of the voting power in the company;

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

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

Note 1: Other rules might affect this provision: see subsections (3) and (4) and sections 166-272, 166-275 and 166-280.

(2) The tests are applied to the tested company as if, at the *ownership test time:

(a) if the stake is a *voting stake—the *widely held company controls, or is able to control, the voting power in the tested company that is carried by that stake at that time; and

(b) if the stake is a *dividend stake—the widely held company had the right to receive (whether directly or *indirectly), for its own benefit, any *dividends the tested company may pay in respect of that stake at that time; and

(c) if the stake is a *capital stake—the widely held company had the right to receive (whether directly or indirectly), for its own benefit, any distributions of capital of the tested company in respect of that stake at that time; and

(d) in any case—the widely held company were a person (other than a company).

Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.

Therefore, the concessional tracing rule in section 166-240 will apply where a widely held company directly or indirectly holds a voting stake, dividend stake or capital stake that carries between 10% and 50% of the relevant stakeholder rights. In this case, section 166-240 may apply to shareholders in Company B that indirectly hold stakes carrying between 10% and 50% of the relevant stakeholder rights in Company A if those shareholders are widely held companies. Particularly, section 166-240 may apply in relation to large shareholders of Company B, such as Entity D, unless the particular shareholder is not a widely held company.

The same shares or interests rule in section 166-272

In certain circumstances, where concessional tracing rules apply under Subdivision 166-E, section 166-272 can treat conditions in section 166-145 as not being satisfied. Subsection 166-272(1) and subsection 166-272(2), relevantly state:

166-272 Same shares or interests to be held

Application

(1) This section modifies how the ownership tests in section 166-145 are applied to a *voting stake, a *dividend stake or a *capital stake in the tested company held by one of the following entities (the stakeholder):

(a) a top interposed entity mentioned in section 166-230 (which is about indirect stakes of less than 10%);

(b) a *widely held company mentioned in section 166-240; …

(whether directly, or *indirectly through one or more interposed entities).

Exactly the same shares or interests must continue to be held

(2) For the purpose of determining whether the tested company has satisfied a condition …:

(a) a condition that has to be satisfied is not satisfied; …

unless, at all relevant times:

(c) the only *shares in the tested company that are taken into account are exactly the same shares and are held by the same persons; and

(d) the only interests (including shares) in any other entity that is interposed between the stakeholder and the tested company that are taken into account are exactly the same interests and are held by the same persons.

Subsection 166-272(2) may apply as Company A and Company B have both issued large quantities of additional shares in some of the relevant test periods meaning that different shares need to be taken into account to satisfy the relevant conditions in section 166-145. The effect of subsection 166-272(2) applying would be that the conditions in section 166-145 would not be satisfied.

However, subsection 166-272(8) can counteract the effect of subsection 166-272(2) in some circumstances. Subsection 166-272(8) states:

Conditions in section 166-145 may be treated as having been satisfied in certain circumstances

(8) If any of the conditions in section 166-145 have not been satisfied, those conditions are taken to have been satisfied if:

(a) they would have been satisfied except for the operation of subsection (2) of this section; and

(b) the tested company has information from which it would be reasonable to conclude that less than 50% of:

(i) the *tax loss …

…has been reflected in deductions, capital losses, or reduced assessable income, that occurred, or could occur in future, because of the happening of any *CGT event in relation to any *direct equity interests or *indirect equity interests held in the tested company by the stakeholder, or an entity interposed between the stakeholder and the tested company, during the *test period.

In this case, the Commissioner accepts that Company A has information from which it would be reasonable to conclude that less than 50% of the tax losses have been reflected in relevant deductions, capital losses or reduced assessable income that occurred, or could occur in the future, because of the happening of any CGT event pursuant to paragraph 166-272(8)(b). Amongst other factors, any capital losses arising because of the happening of a CGT event to shares in Company A would be disregarded under Division 855.

Consequently, subsection 166-272(8) would apply to counteract any application of subsection 166-272(2). Accordingly, section 166-272 will have no material effect in determining whether or not the conditions in section 166-145 are satisfied.

Does Company A satisfy the conditions in section 165-12?

The ordinary shareholders of Company B will hold indirect stakeholder rights in Company A in the same proportions as their direct shareholder rights in Company B.

The approximate stakeholder rights in Company A taken to be held by Company B at various times pursuant to subsection 166-230(2) can be approximated on the basis of the Small Shareholders in Company B described in the facts and circumstances. Likewise, the stakeholder rights held by Entity D in Company A (through their share ownership in Company B) can easily be identified.

At all relevant times more than 50% of stakeholder rights in Company A were taken to be held by Company B (pursuant to subsection 166-230(2)) and Entity D between them.

It is also reasonable to assume that Company B would hold in excess of 50% of the stakeholder rights in Company A as at the end of the corporate change (pursuant to subsection 166-230(2)) and that Entity D would have had held some stakeholder rights on that date.

Depending on the circumstances, Entity D's stakeholder rights in Company A may be treated under Division 166 as being held, at each relevant ownership test time, by either:

● Entity D itself (e.g. through the operation of section 166-240);

● Company B (e.g. through the operation of section 166-230); or

● The underlying persons, other than companies, with interests in Entity D (e.g. through the operation of section 166-275).

Regardless of how Entity D's stakeholder rights are treated under Division 166, the Commissioner considers that at all relevant ownership test times it is 'reasonable to assume' that the same persons other than companies (including Company B which is treated as a person other than a company under ss166-230(2)) between them:

● had the ability to control the voting power in Company A for the purposes of ss165-150(2) and s166-145;

● had the right to receive for their own benefit (directly or indirectly) more than 50% of any dividends that Company A may have pay for the purposes of ss165-155(2) and s166-145; and

● had the right to receive for their own benefit (directly or indirectly) more than 50% of any distribution of capital of Company A for the purposes of ss165-160(2) and s166-145.

Therefore, and for the purposes of section 166-145, these same persons have 'more than 50% of the voting power', rights to 'more than 50% of the company's dividends' and rights to 'more than 50% of the company's capital distributions' at all relevant ownership test times.

As a consequence, all of the conditions in section 166-145 are met for any given pair of ownership test times meaning that, for each tax loss, there was 'substantial continuity of ownership' in Company A between the start of the test period and all other relevant ownership test times in the test period. As a result, Company A is taken to have satisfied the conditions in section 165-12 for the tax losses specified in the relevant facts and circumstances pursuant to subsection 166-5(3).

Conclusion

Company A satisfies, for each applicable test period ending on xx xx 2016, the conditions of section 165-12 as modified, where relevant, by Division 166, for each tax loss listed in the relevant facts and circumstances of this ruling.