ATO Interpretative Decision

ATO ID 2008/120 (Withdrawn)

Income Tax

• The ATOID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.
  This document has changed over time. View its history.

Issue

Will a capital loss made on the disposal of a CGT asset by a non-resident company to another non-resident company that is a member of the same 'linked group', be disregarded by the operation of Subdivision 170-D of the Income Tax Assessment Act 1997 (ITAA 1997) if the asset is 'taxable Australian property'?

Decision

Yes. Subdivision 170-D of the ITAA 1997 will apply in accordance with section 170-255 of the ITAA 1997.

Facts

Company A is a non-resident of Australia for taxation purposes.

Company S is an 80% owned subsidiary of Company A and is also a non-resident of Australia for taxation purposes. The other 20% shareholding in Company S is owned by unrelated persons.

Company A disposed of an Australian land holding to Company S resulting in CGT event A1 happening for the purposes of subsection 104-10(1) of the ITAA 1997.

The land was 'taxable Australian property' for the purposes of section 855-15 of the ITAA 1997.

The capital proceeds were less than the land's reduced cost base at the time of the CGT event and Company A made a capital loss in accordance with subsection 104-10(4) of the ITAA 1997.

Reasons for Decision

Subsection 170-255(1) of the ITAA 1997 provides that Subdivision 170-D of the ITAA 1997 will apply if:

(a)

an event (the deferral event ) happens involving a company (the originating company) and another entity; and

(b)

one or more of the following apply:

(i)

the deferral event is a *CGT event that would have resulted in the originating company making a *capital loss (except a capital loss that would be disregarded under a provision of this Act other than this Subdivision);

(ii)

...;

(iii)

...; and

(c)

if subparagraph (b)(i) applies -- the CGT event is one of the following:

(i)

CGT events A1 and B1 (a disposal case );

(ii)

CGT events D1, D2, D3 and F1 (a creation case ); and

(d)

one of the following applies:

(i)

...;

(ii)

...;

(iii)

if the deferral event is a CGT event A1, B1 or F1 -- the asset or the subject of the lease, as the case may be, was taxable Australian property immediately before the deferral event;

(iv)

...;

(v)

...; and

(e)

at the time of the deferral event, the originating company is a member of a *linked group and one of the following applies:

(i)

the other entity is a company that is not a connected entity of the originating company and is a member of that linked group;

(ii)

...;

(iii)

...

* denotes a term defined in section 995-1 of the ITAA 1997.

For Subdivision 170-D of the ITAA 1997 to apply, paragraphs 170-255(1)(a) to (e) of the ITAA 1997 must be satisfied.

The disposal by Company A of its Australian land to Company S is a deferral event for the purposes of paragraph 170-255(1)(a) of the ITAA 1997.

The deferral event was a CGT event that would otherwise have resulted in Company A making a capital loss for the purposes of subparagraph 170-255(1)(b)(i) of the ITAA 1997.

The disposal by Company A of its Australian land to Company S results in CGT event A1 happening for the purposes of subparagraph 170-255(1)(c)(i) of the ITAA 1997.

The deferral event is a CGT event A1 and the asset was 'taxable Australian property' immediately before the deferral event for the purposes of subparagraph 170-255(1)(d)(iii) of the ITAA 1997.

Company A and Company S were linked at the time of the CGT event for the purposes of subsection 170-260(2) of the ITAA 1997.

At the time of the deferral event, Company A was a member of a linked group and Company S was not a connected entity of Company A, but was a member of that linked group for the purpose of subparagraph 170-255(1)(e)(i) of the ITAA 1997.

As each of paragraphs 170-255(1)(a) to (e) of the ITAA 1997 are satisfied then section 170-270 of Subdivision 170-D of the ITAA 1997 applies to disregard the relevant capital loss.

Year of income:  Year ended 30 June 2008

Legislative References:
Income Tax Assessment Act 1997
   subsection 104-10(1)
   subsection 104-10(4)
   Subdivision 170-D
   section 170-255
   subsection 170-255(1)
   paragraph 170-255(1)(a)
   paragraph 170-255(1)(b)
   subparagraph 170-255(1)(b)(i)
   paragraph 170-255(1)(c)
   subparagraph 170-255(1)(c)(i)
   paragraph 170-255(1)(d)
   subparagraph 170-255(1)(d)(iii)
   paragraph 170-255(1)(e)
   subparagraph 170-255(1)(e)(i)
   subsection 170-260(2)
   section 170-270
   section 855-15

Related ATO Interpretative Decisions
ATO ID 2003/264
ATO ID 2003/265
ATO ID 2003/266
ATO ID 2003/267

Keywords
Capital gains tax
Capital losses
Non resident companies
Losses and Capital Gains Tax CoE
Taxable Australian property

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  12 September 2008

ISSN: 1445-2782