Contents
Chapter 3—Specialist liability rules
Part 3‑5—Corporate taxpayers and corporate distributions
Division 164—Non‑share capital accounts for companies
Guide to Division 164 1
164‑1 What this Division is about
Operative provisions
164‑5 Object
164‑10 Non‑share capital account
164‑15 Credits to non‑share capital account
164‑20 Debits to non‑share capital account
Division 165—Income tax consequences of changing ownership or control of a company
Guide to Division 165 8
165‑1 What this Division is about
Subdivision 165‑A—Deducting tax losses of earlier income years
Guide to Subdivision 165‑A
165‑5 What this Subdivision is about
Operative provisions
165‑10 To deduct a tax loss
165‑12 Company must maintain the same owners
165‑13 Alternatively, the company must satisfy the same business test
165‑15 The same people must control the voting power, or the company must satisfy the same business test
165‑20 When company can deduct part of a tax loss
Subdivision 165‑B—Working out the taxable income and tax loss for the income year of the change
Guide to Subdivision 165‑B
165‑23 What this Subdivision is about
165‑25 Summary of this Subdivision
165‑30 Flow chart showing the application of this Subdivision
When a company must work out its taxable income and tax loss under this Subdivision
165‑35 On a change of ownership, unless the company satisfies the same business test
165‑37 Who has more than a 50% stake in the company during a period
165‑40 On a change of control of the voting power in the company, unless the company satisfies the same business test
Working out the company’s taxable income
165‑45 First, divide the income year into periods
165‑50 Next, calculate the notional loss or notional taxable income for each period
165‑55 How to attribute deductions to periods
165‑60 How to attribute assessable income to periods
165‑65 How to calculate the company’s taxable income for the income year
Working out the company’s tax loss
165‑70 How to calculate the company’s tax loss for the income year
Special rules that apply if the company is in partnership
165‑75 How to calculate the company’s notional loss or notional taxable income for a period when the company was a partner
165‑80 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if both entities have the same income year
165‑85 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if the entities have different income years
165‑90 Company’s full year deductions include a share of partnership’s full year deductions
Subdivision 165‑CA—Applying net capital losses of earlier income years
Guide to Subdivision 165‑CA
165‑93 What this Subdivision is about
Operative provisions
165‑96 When a company cannot apply a net capital loss
Subdivision 165‑CB—Working out the net capital gain and the net capital loss for the income year of the change
Guide to Subdivision 165‑CB
165‑99 What this Subdivision is about
When a company must work out its net capital gain and net capital loss under this Subdivision
165‑102 On a change of ownership, or of control of voting power, unless the company satisfies the same business test
Working out the company’s net capital gain and net capital loss
165‑105 First, divide the income year into periods
165‑108 Next, calculate the notional net capital gain or notional net capital loss for each period
165‑111 How to work out the company’s net capital gain
165‑114 How to work out the company’s net capital loss
Subdivision 165‑CC—Change of ownership or control of company that has an unrealised net loss
Guide to Subdivision 165‑CC
165‑115 What this Subdivision is about
165‑115AA...........Special rules to save compliance costs
Operative provisions
165‑115A Application of Subdivision
165‑115B What happens when the company makes a capital loss or becomes entitled to a deduction in respect of a CGT asset after a changeover time
165‑115BAWhat happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock
165‑115BB Order of application of assets: residual unrealised net loss
165‑115C Changeover time—change in ownership of company
165‑115D Changeover time—change in control of company
165‑115E What is an unrealised net loss
165‑115F Notional gains and losses
Subdivision 165‑CD—Reductions after alterations in ownership or control of loss company
Guide to Subdivision 165‑CD
165‑115GA................What this Subdivision is about
165‑115GB..............When adjustments must be made
165‑115GC...............How adjustments are calculated
165‑115H How this Subdivision applies
Operative provisions
165‑115J Object of Subdivision
165‑115K Application and interpretation
165‑115L Alteration time—alteration in ownership of company
165‑115M.....Alteration time—alteration in control of company
165‑115N Alteration time—declaration by liquidator or administrator
165‑115P Notional alteration time—disposal of interests in company within 12 months before alteration time
165‑115Q Notional alteration time—disposal of interests in company earlier than 12 months before alteration time
165‑115R When company is a loss company at first or only alteration time in income year
165‑115S When company is a loss company at second or later alteration time in income year
165‑115T Reduction of certain amounts included in company’s overall loss at alteration time
165‑115U Adjusted unrealised loss
165‑115V Notional losses
165‑115W............Calculation of trading stock decrease
165‑115X Relevant equity interest
165‑115Y Relevant debt interest
165‑115Z What constitutes a controlling stake in a company
165‑115ZAReductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time
165‑115ZB.....Adjustment amounts for the purposes of section 165‑115ZA
165‑115ZC.......................Notices to be given
165‑115ZDAdjustment (or further adjustment) for interest realised at a loss after global method has been used
Subdivision 165‑C—Deducting bad debts
Guide to Subdivision 165‑C
165‑117 What this Subdivision is about
Operative provisions
165‑119 Application of Subdivision
165‑120 To deduct a bad debt
165‑123 Company must maintain the same owners
165‑126 Alternatively, the company must satisfy the same business test
165‑129 Same people must control the voting power, or the company must satisfy the same business test
165‑132 When tax losses resulting from bad debts cannot be deducted
Subdivision 165‑D—Tests for finding out whether the company has maintained the same owners
The primary and alternative tests
165‑150 Who has more than 50% of the voting power in the company
165‑155 Who has rights to more than 50% of the company’s dividends
165‑160 Who has rights to more than 50% of the company’s capital distributions
165‑165 Rules about tests for a condition or occurrence of a circumstance
165‑175 Tests can be satisfied by a single person
Rules affecting the operation of the tests
165‑180 Arrangements affecting beneficial ownership of shares
165‑185 Shares treated as not having carried rights
165‑190 Shares treated as always having carried rights
165‑200 Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units
165‑202 Shares held by government entities and charities etc.
165‑203 Companies where no shares have been issued
165‑205 Death of share owner
165‑207 Trustees of family trusts
165‑208 Companies in liquidation etc.
165‑209 Dual listed companies
Subdivision 165‑E—The same business test
165‑210 The test
165‑212D Restructure of MDOs etc.
165‑212E Entry history rule does not apply for the purposes of the same business test
Subdivision 165‑F—Special provisions relating to ownership by non‑fixed trusts
165‑215 Special alternative to change of ownership test for Subdivision 165‑A
165‑220 Special alternative to change of ownership test for Subdivision 165‑B
165‑225 Special way of dividing the income year under Subdivision 165‑B
165‑230 Special alternative to change of ownership test for Subdivision 165‑C
165‑235 Information about non‑fixed trusts with interests in company
165‑240 Notices where requirements of section 165‑235 are met
165‑245 When an entity has a fixed entitlement to income or capital of a company
Subdivision 165‑G—Other special provisions
165‑250 Control of companies in liquidation etc.
165‑255 Incomplete periods
Division 166—Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company
Guide to Division 166 135
166‑1 What this Division is about
Subdivision 166‑AA—The object of this Division
166‑3 The object of this Division
Subdivision 166‑A—Deducting tax losses of earlier income years
166‑5 How Subdivision 165‑A applies to a widely held or eligible Division 166 company
166‑15 Companies can choose that this Subdivision is not to apply to them
Subdivision 166‑B—Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change
166‑20 How Subdivisions 165‑B and 165‑CB apply to a widely held or eligible Division 166 company
166‑25 How to work out the taxable income, tax loss, net capital gain and net capital loss
166‑35 Companies can choose that this Subdivision is not to apply to them
Subdivision 166‑C—Deducting bad debts
166‑40 How Subdivision 165‑C applies to a widely held or eligible Division 166 company
166‑50 Companies can choose that this Subdivision is not to apply to them
Subdivision 166‑CA—Changeover times and alteration times
166‑80 How Subdivision 165‑CC or 165‑CD applies to a widely held or eligible Division 166 company
166‑90 Companies can choose that this Subdivision is not to apply to them
Subdivision 166‑D—Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners
Guide to Subdivision 166‑D
166‑135 What this Subdivision is about
The ownership tests: substantial continuity of ownership
166‑145 The ownership tests: substantial continuity of ownership
166‑165 Relationship with rules in Division 165
Corporate change in a company
166‑175 Corporate change in a company
Subdivision 166‑E—Concessional tracing rules
Guide to Subdivision 166‑E
166‑215 What this Subdivision is about
Application of this Subdivision
166‑220 Application of this Subdivision
Stakes of less than 10% in the tested company
166‑225 Direct stakes of less than 10% in the tested company
166‑230 Indirect stakes of less than 10% in the tested company
166‑235 Voting, dividend and capital stakes
Stakes held directly and/or indirectly by widely held companies
166‑240 Stakes held directly and/or indirectly by widely held companies
166‑245 Stakes held by other entities
When identity of foreign stakeholders is not known
166‑255 Bearer shares in foreign listed companies
166‑260 Depository entities holding stakes in foreign listed companies
Other rules relating to voting power and rights
166‑265 Persons who actually control voting power or have rights are taken not to control power or have rights
166‑270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights
166‑272 Same shares or interests to be held
When the rules in this Subdivision do not apply
166‑275 Rules in this Subdivision intended to be concessional
166‑280 Controlled test companies
Division 170—Treatment of certain company groups for income tax purposes
Subdivision 170‑A—Transfer of tax losses within certain wholly‑owned groups of companies
Guide to Subdivision 170‑A
170‑1 What this Subdivision is about
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
170‑25 Tax treatment of consideration for transferred tax loss
Conditions for transfer
170‑30 Companies must be in existence and members of the same wholly‑owned group etc.
170‑32 Tax loss incurred by the loss company because of a transfer under Subdivision 707‑A
170‑33 Alternative test of relations between the loss company and other companies
170‑35 The loss company
170‑40 The income company
170‑42 If the income company has become the head company of a consolidated group or MEC group
170‑45 Maximum amount that can be transferred
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
Australian permanent establishments of foreign financial entities
170‑75 Treatment like Australian branches of foreign banks
Subdivision 170‑B—Transfer of net capital losses within certain wholly‑owned groups of companies
Guide to Subdivision 170‑B
170‑101 What this Subdivision is about
170‑105 Basic principles for transferring a net capital loss
Effect of transferring a net capital loss
170‑110 When a company can transfer a net capital loss
170‑115 Who can apply transferred loss
170‑120 Gain company is taken to have made transferred loss
170‑125 Tax treatment of consideration for transferred tax loss
Conditions for transfer
170‑130 Companies must be in existence and members of the same wholly‑owned group etc.
170‑132 Net capital loss made by the loss company because of a transfer under Subdivision 707‑A
170‑133 Alternative test of relations between the loss company and other companies
170‑135 The loss company
170‑140 The gain company
170‑142 If the gain company has become the head company of a consolidated group or MEC group
170‑145 Maximum amount that can be transferred
170‑150 Transfer by written agreement
170‑155 Losses must be transferred in order they are made
170‑160 Gain company cannot transfer transferred net capital loss
Effect of agreement to transfer more than can be transferred
170‑165 Agreement transfers as much as can be transferred
170‑170 Amendment of assessments
Australian permanent establishments of foreign financial entities
170‑174 Treatment like Australian branches of foreign banks
Subdivision 170‑C—Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly‑owned groups of companies
Guide to Subdivision 170‑C
170‑201 What this Subdivision is about
Operative provisions
170‑205 Object of Subdivision
170‑210 Transfer of tax loss: direct and indirect interests in the loss company
170‑215 Transfer of tax loss: direct and indirect interests in the income company
170‑220 Transfer of net capital loss: direct and indirect interests in the loss company
170‑225 Transfer of net capital loss: direct and indirect interests in the gain company
Subdivision 170‑D—Transactions by a company that is a member of a linked group
Guide to Subdivision 170‑D
170‑250 What this Subdivision is about
Operative provisions
170‑255 Application of Subdivision
170‑260 Linked group
170‑265 Connected entity
170‑270 Immediate consequences for originating company
170‑275 Subsequent consequences for originating company
170‑280 What happens if certain events happen in respect of the asset
Division 175—Use of a company’s tax losses or deductions to avoid income tax
Guide to Division 175 232
175‑1 What this Division is about
Subdivision 175‑A—Tax benefits from unused tax losses
175‑5 When Commissioner can disallow deduction for tax loss
175‑10 First case: income or capital gain injected into company because of available tax loss
175‑15 Second case: someone else obtains a tax benefit because of tax loss available to company
Subdivision 175‑B—Tax benefits from unused deductions
175‑20 Income or capital gain injected into company because of available deductions
175‑25 Deduction injected into company because of available income or capital gain
175‑30 Someone else obtains a tax benefit because of a deduction, income or capital gain available to company
175‑35 Tax loss resulting from disallowed deductions
Subdivision 175‑CA—Tax benefits from unused net capital losses of earlier income years
175‑40 When Commissioner can disallow net capital loss of earlier income year
175‑45 First case: capital gain injected into company because of available net capital loss
175‑50 Second case: someone else obtains a tax benefit because of net capital loss available to company
Subdivision 175‑CB—Tax benefits from unused capital losses of the current year
175‑55 When Commissioner can disallow capital loss of current year
175‑60 Capital gain injected into company because of available capital loss
175‑65 Capital loss injected into company because of available capital gain
175‑70 Someone else obtains a tax benefit because of capital loss or gain available to company
175‑75 Net capital loss resulting from disallowed capital losses
Subdivision 175‑C—Tax benefits from unused bad debt deductions
175‑80 When Commissioner can disallow deduction for bad debt
175‑85 First case: income or capital gain injected into company because of available bad debt
175‑90 Second case: someone else obtains a tax benefit because of bad debt deduction available to company
Subdivision 175‑D—Common rules
175‑95 When a person has a shareholding interest in the company
175‑100 Commissioner may disallow excluded losses etc. of insolvent companies
Division 180—Information about family trusts with interests in companies
Guide to Division 180 249
180‑1 What this Division is about
Subdivision 180‑A—Information relevant to Division 165
180‑5 Information about family trusts with interests in companies
180‑10 Notice where requirements of section 180‑5 are met
Subdivision 180‑B—Information relevant to Division 175
180‑15 Information about family trusts with interests in companies
180‑20 Notice where requirements of section 180‑15 are met
Division 195—Special types of company
Subdivision 195‑A—Pooled development funds (PDFs)
Guide to Subdivision 195‑A
195‑1 What this Subdivision is about
Working out a PDF’s taxable income and tax loss
195‑5 Deductibility of PDF tax losses
195‑10 PDF cannot transfer tax loss
195‑15 Tax loss for year in which company becomes a PDF
Working out a PDF’s net capital gain and net capital loss
195‑25 Applying a PDF’s net capital losses
195‑30 PDF cannot transfer net capital loss
195‑35 Net capital loss for year in which company becomes a PDF
Subdivision 195‑B—Limited partnerships
Guide to Subdivision 195‑B
195‑60 What this Subdivision is about
Operative provisions
195‑65 Tax losses cannot be transferred to a VCLP, an ESVCLP, an AFOF or a VCMP
195‑70 Previous tax losses can be deducted after ceasing to be a VCLP, an ESVCLP, an AFOF or a VCMP
195‑75 Determinations to take account of income years of less than 12 months
Division 197—Tainted share capital accounts
Guide to Division 197 264
197‑1 What this Division is about
Subdivision 197‑A—What transfers into a company’s share capital account does this Division apply to?
197‑5 Division generally applies to an amount transferred to share capital account from another account
197‑10 Exclusion for amounts that could be identified as share capital
197‑15 Exclusion for amounts transferred under debt/equity swaps
197‑20 Exclusion for amounts transferred leading to there being no shares with a par value—non‑Corporations Act companies
197‑25 Exclusion for transfers from option premium reserves
197‑30 Exclusion for transfers made in connection with demutualisations of non‑insurance etc. companies
197‑35 Exclusion for transfers made in connection with demutualisations of insurance etc. companies
197‑37 Exclusion for transfers made in connection with demutualisations of private health insurers
197‑38 Exclusion for transfers connected with demutualisations of friendly society health or life insurers
197‑40 Exclusion for post‑demutualisation transfers relating to life insurance companies
Subdivision 197‑B—Consequence of transfer: franking debit arises
197‑45 A franking debit arises in relation to the transfer
Subdivision 197‑C—Consequence of transfer: tainting of share capital account
197‑50 The share capital account becomes tainted (if it is not already tainted)
197‑55 Choosing to untaint a tainted share capital account
197‑60 Choosing to untaint—liability to untainting tax
197‑65 Choosing to untaint—further franking debits may arise
197‑70 Due date for payment of untainting tax
197‑75 General interest charge for late payment of untainting tax
197‑80 Notice of liability to pay untainting tax
197‑85 Evidentiary effect of notice of liability to pay untainting tax
Part 3‑6—The imputation system
Division 200—Guide to Part 3‑6
Guide to Division 200 282
200‑1 What this Division is about
200‑5 The imputation system
200‑10 Franking a distribution
200‑15 The franking account
200‑20 How a distribution is franked
200‑25 A corporate tax entity must not give its members credit for more tax than the entity has paid
200‑30 Benchmark rule
200‑35 Effect of receiving a franked distribution
200‑40 An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members
200‑45 Special rules for franking by some entities
Division 201—Objects and application of Part 3‑6
201‑1 Objects
201‑5 Application of this Part
Division 202—Franking a distribution
Subdivision 202‑A—Franking a distribution
Guide to Subdivision 202‑A
202‑1 What this Subdivision is about
Operative provisions
202‑5 Franking a distribution
Subdivision 202‑B—Who can frank a distribution?
Guide to Subdivision 202‑B
202‑10 What this Subdivision is about
Operative provisions
202‑15 Franking entities
202‑20 Residency requirement when making a distribution
Subdivision 202‑C—Which distributions can be franked?
Guide to Subdivision 202‑C
202‑25 What this Subdivision is about
202‑30 Frankable distributions
Operative provisions
202‑35 Object
202‑40 Frankable distributions
202‑45 Unfrankable distributions
202‑47 Distributions of certain ADI profits following restructure
Subdivision 202‑D—Amount of the franking credit on a distribution
Guide to Subdivision 202‑D
202‑50 What this Subdivision is about
202‑55 What is the maximum franking credit for a frankable distribution?
Operative provisions
202‑60 Amount of the franking credit on a distribution
202‑65 Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution
Subdivision 202‑E—Distribution statements
Guide to Subdivision 202‑E
202‑70 What this Subdivision is about
Operative provisions
202‑75 Obligation to give a distribution statement
202‑80 Distribution statement
202‑85 Changing the franking credit on a distribution by amending the distribution statement
Division 203—Benchmark rule
Guide to Division 203 299
203‑1 What this Division is about
203‑5 Benchmark rule
203‑10 Benchmark franking percentage
Operative provisions
203‑15 Object
203‑20 Application of the benchmark rule
203‑25 Benchmark rule
203‑30 Setting a benchmark franking percentage
203‑35 Franking percentage
203‑40 Franking periods—where the entity is not a private company
203‑45 Franking period—private companies
203‑50 Consequences of breaching the benchmark rule
203‑55 Commissioner’s powers to permit a departure from the benchmark rule
Division 204—Anti‑streaming rules
Subdivision 204‑A—Objects and application
204‑1 Objects
204‑5 Application
Subdivision 204‑B—Linked distributions
Guide to Subdivision 204‑B
204‑10 What this Subdivision is about
Operative provisions
204‑15 Linked distributions
Subdivision 204‑C—Substituting tax‑exempt bonus share for franked distributions
Guide to Subdivision 204‑C
204‑20 What this Subdivision is about
Operative provisions
204‑25 Substituting tax‑exempt bonus shares for franked distributions
Subdivision 204‑D—Streaming distributions
Guide to Subdivision 204‑D
204‑26 What this Subdivision is about
Operative provisions
204‑30 Streaming distributions
204‑35 When does a franking debit arise if the Commissioner makes a determination under paragraph 204‑30(3)(a)
204‑40 Amount of the franking debit
204‑41 Amount of the exempting debit
204‑45 Effect of a determination about distributions to favoured members
204‑50 Assessment and notice of determination
204‑55 Right to review where a determination made
Subdivision 204‑E—Disclosure requirements
Guide to Subdivision 204‑E
204‑65 What this Subdivision is about
Operative provisions
204‑70 Application of this Subdivision
204‑75 Notice to the Commissioner
204‑80 Commissioner may require information where the Commissioner suspects streaming
Division 205—Franking accounts, franking deficit tax liabilities and the related tax offset
Guide to Division 205 325
205‑1 What this Division is about
205‑5 Franking accounts, franking deficit tax liabilities and the related tax offset
Operative provisions
205‑10 Each entity that is or has been a corporate tax entity has a franking account
205‑15 Franking credits
205‑20 Paying a PAYG instalment or income tax
205‑25 Residency requirement for an event giving rise to a franking credit or franking debit
205‑30 Franking debits
205‑35 Refund of income tax
205‑40 Franking surplus and deficit
205‑45 Franking deficit tax
205‑50 Deferring franking deficit
205‑70 Tax offset arising from franking deficit tax liabilities
Division 207—Effect of receiving a franked distribution
Guide to Division 207 344
207‑5 Overview
Subdivision 207‑A—Effect of receiving a franked distribution generally
Guide to Subdivision 207‑A
207‑10 What this Subdivision is about
Operative provisions
207‑15 Applying the general rule
207‑20 General rule—gross‑up and tax offset
Subdivision 207‑B—Franked distribution received through certain partnerships and trustees
Guide to Subdivision 207‑B
207‑25 What this Subdivision is about
Gross‑up and tax offset
207‑30 Applying this Subdivision
207‑35 Gross‑up—distribution made to, or flows indirectly through, a partnership or trustee
207‑37 Attributable franked distribution—trusts
207‑45 Tax offset—distribution flows indirectly to an entity
Key concepts
207‑50 When a franked distribution flows indirectly to or through an entity
207‑55 Share of a franked distribution
207‑57 Share of the franking credit on a franked distribution
207‑58 Specifically entitled to an amount of a franked distribution
207‑59 Franked distributions within class treated as single franked distribution
Subdivision 207‑C—Residency requirements for the general rule
Guide to Subdivision 207‑C
207‑60 What this Subdivision is about
207‑65 Satisfying the residency requirement
Operative provisions
207‑70 Gross‑up and tax offset under section 207‑20
207‑75 Residency requirement
Subdivision 207‑D—No gross‑up or tax offset where distribution would not be taxed
Guide to Subdivision 207‑D
207‑80 What this Subdivision is about
Operative provisions
207‑85 Applying this Subdivision
207‑90 Distribution that is made to an entity
207‑95 Distribution that flows indirectly to an entity
Subdivision 207‑E—Exceptions to the rules in Subdivision 207‑D
Guide to Subdivision 207‑E
207‑105 What this Subdivision is about
Operative provisions
207‑110 Effect of non‑assessable income on gross up and tax offset
Exempt institutions
207‑115 Which exempt institutions are eligible for a refund?
207‑117 Residency requirement
207‑119 Entity not treated as exempt institution eligible for refund in certain circumstances
207‑120 Entity may be ineligible because of a distribution event
207‑122 Entity may be ineligible if distribution is in the form of property other than money
207‑124 Entity may be ineligible if other money or property also acquired
207‑126 Entity may be ineligible if distributions do not match trust share amounts
207‑128 Reinvestment choice
207‑130 Controller’s liability
207‑132 Treatment of benefits provided by an entity to a controller
207‑134 Entity’s present entitlement disregarded in certain circumstances
207‑136 Review of certain decisions
Subdivision 207‑F—No gross‑up or tax offset where the imputation system has been manipulated
Guide to Subdivision 207‑F
207‑140 What this Subdivision is about
Operative provisions
207‑145 Distribution that is made to an entity
207‑150 Distribution that flows indirectly to an entity
207‑155 When is a distribution made as part of a dividend stripping operation?
207‑157 Distribution washing
207‑160 Distribution that is treated as an interest payment
Division 208—Exempting entities and former exempting entities
Guide to Division 208 395
208‑5 What is an exempting entity?
208‑10 Former exempting entities
208‑15 Distributions by exempting entities and former exempting entities
Subdivision 208‑A—What are exempting entities and former exempting entities?
208‑20 Exempting entities
208‑25 Effective ownership of entity by prescribed persons
208‑30 Accountable membership interests
208‑35 Accountable partial interests
208‑40 Prescribed persons
208‑45 Persons who are taken to be prescribed persons
208‑50 Former exempting companies
Subdivision 208‑B—Franking with an exempting credit
Guide to Subdivision 208‑B
208‑55 What this Subdivision is about
Operative provisions
208‑60 Franking with an exempting credit
Subdivision 208‑C—Amount of the exempting credit on a distribution
Guide to Subdivision 208‑C
208‑65 What this Subdivision is about
Operative provisions
208‑70 Amount of the exempting credit on a distribution
Subdivision 208‑D—Distribution statements
Guide to Subdivision 208‑D
208‑75 Guide to Subdivision 208‑D
Operative provisions
208‑80 Additional information to be included by a former exempting entity or exempting entity
Subdivision 208‑E—Distributions to be franked with exempting credits to the same extent
Guide to Subdivision 208‑E
208‑85 What this Subdivision is about
Operative provisions
208‑90 All frankable distributions made within a franking period must be franked to the same extent with an exempting credit
208‑95 Exempting percentage
208‑100 Consequences of breaching the rule in section 208‑90
Subdivision 208‑F—Exempting accounts and franking accounts of exempting entities and former exempting entities
Guide to Subdivision 208‑F
208‑105 What this Subdivision is about
Operative provisions
208‑110 Exempting account
208‑115 Exempting credits
208‑120 Exempting debits
208‑125 Exempting surplus and deficit
208‑130 Franking credits arising because of status as exempting entity or former exempting entity
208‑135 Relationships that will give rise to a franking credit under item 5 of the table in section 208‑130
208‑140 Membership of the same effectively wholly‑owned group
208‑145 Franking debits arising because of status as exempting entity or former exempting entity
208‑150 Residency requirement
208‑155 Eligible continuing substantial member
208‑160 Distributions that are affected by a manipulation of the imputation system
208‑165 Amount of the exempting credit or franking credit arising because of a distribution franked with an exempting credit
208‑170 Where a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 affects part of the distribution
208‑175 When does a distribution franked with an exempting credit flow indirectly to an entity?
208‑180 What is an entity’s share of the exempting credit on a distribution?
208‑185 Minister may convert exempting surplus to franking credit of former exempting entity previously owned by the Commonwealth
Subdivision 208‑G—Tax effects of distributions by exempting entities
Guide to Subdivision 208‑G
208‑190 What this Subdivision is about
Operative provisions
208‑195 Division 207 does not generally apply
208‑200 Distributions to exempting entities
208‑205 Distributions to employees acquiring shares under eligible employee share schemes
208‑215 Eligible employee share schemes
Subdivision 208‑H—Tax effect of a distribution franked with an exempting credit
Guide to Subdivision 208‑H
208‑220 What this Subdivision is about
Operative provisions
208‑225 Division 207 does not generally apply
208‑230 Distributions to exempting entities and former exempting entities
208‑235 Distributions to employees acquiring shares under eligible employee share schemes
208‑240 Distributions to certain individuals
Division 210—Venture capital franking
Guide to Division 210 444
210‑1 Purpose of venture capital franking
210‑5 How is this achieved?
210‑10 What is a venture capital credit?
210‑15 What does the PDF have to do to distribute the credits?
210‑20 Limits on venture capital franking
Subdivision 210‑A—Franking a distribution with a venture capital credit
Guide to Subdivision 210‑A
210‑25 What this Subdivision is about
Operative provisions
210‑30 Franking a distribution with a venture capital credit
Subdivision 210‑B—Participating PDFs
Guide to Subdivision 210‑B
210‑35 What this Subdivision is about
Operative provisions
210‑40 What is a participating PDF
Subdivision 210‑C—Distributions that are frankable with a venture capital credit
Guide to Subdivision 210‑C
210‑45 What this Subdivision is about
Operative provisions
210‑50 Which distributions can be franked with a venture capital credit?
Subdivision 210‑D—Amount of the venture capital credit on a distribution
Guide to Subdivision 210‑D
210‑55 What this Subdivision is about
Operative provisions
210‑60 Amount of the venture capital credit on a distribution
Subdivision 210‑E—Distribution statements
Guide to Subdivision 210‑E
210‑65 What this Subdivision is about
Operative provisions
210‑70 Additional information to be included when a distribution is franked with a venture capital credit
Subdivision 210‑F—Rules affecting the allocation of venture capital credits
Guide to Subdivision 210‑F
210‑75 What this Subdivision is about
Operative provisions
210‑80 Draining the venture capital surplus when a distribution frankable with venture capital credits is made
210‑81 Distributions to be franked with venture capital credits to the same extent
210‑82 Consequences of breaching the rule in section 210‑81
Subdivision 210‑G—Venture capital sub‑account
Guide to Subdivision 210‑G
210‑85 What this Subdivision is about
210‑90 The venture capital sub‑account
210‑95 Venture capital deficit tax
Operative provisions
210‑100 Venture capital sub‑account
210‑105 Venture capital credits
210‑110 Determining the extent to which a franking credit is reasonably attributable to a particular payment of tax
210‑115 Participating PDF may elect to have venture capital credits arise on its assessment day
210‑120 Venture capital debits
210‑125 Venture capital debit where CGT limit is exceeded
210‑130 Venture capital surplus and deficit
210‑135 Venture capital deficit tax
210‑140 Effect of a liability to pay venture capital deficit tax on franking deficit tax
210‑145 Effect of a liability to pay venture capital deficit tax on the franking account
210‑150 Deferring venture capital deficit
Subdivision 210‑H—Effect of receiving a distribution franked with a venture capital credit
Guide to Subdivision 210‑H
210‑155 What this Subdivision is about
210‑160 The significance of a venture capital credit
210‑165 Recipients for whom the venture capital credit is not significant
Operative provisions
210‑170 Tax offset for certain recipients of distributions franked with venture capital credits
210‑175 Amount of the tax offset
210‑180 Application of Division 207 where the recipient is entitled to a tax offset under section 210‑170
Division 214—Administering the imputation system
Guide to Division 214 467
214‑1 Purpose of the system
214‑5 Key features
Subdivision 214‑A—Franking returns
Guide to Subdivision 214‑A
214‑10 What this Subdivision is about
Operative provisions
214‑15 Notice to give a franking return—general notice
214‑20 Notice to a specific corporate tax entity
214‑25 Content and form of a franking return
214‑30 Franking account balance
214‑35 Venture capital sub‑account balance
214‑40 Meaning of franking tax
214‑45 Effect of a refund on franking returns
214‑50 Evidence
Subdivision 214‑B—Franking assessments
Guide to Subdivision 214‑B
214‑55 What this Subdivision is about
Operative provisions
214‑60 Commissioner may make a franking assessment
214‑65 Commissioner taken to have made a franking assessment on first return
214‑70 Part‑year assessment
214‑75 Validity of assessment
214‑80 Objections
214‑85 Evidence
Subdivision 214‑C—Amending franking assessments
Guide to Subdivision 214‑C
214‑90 What this Subdivision is about
Operative provisions
214‑95 Amendments within 3 years of the original assessment
214‑100 Amended assessments are treated as franking assessments
214‑105 Further return as a result of a refund affecting a franking deficit tax liability
214‑110 Later amendments—on request
214‑115 Later amendments—failure to make proper disclosure
214‑120 Later amendments—fraud or evasion
214‑125 Further amendment of an amended particular
214‑135 Amendment on review etc.
214‑140 Notice of amendments
Subdivision 214‑D—Collection and recovery
Guide to Subdivision 214‑D
214‑145 What this Subdivision is about
Operative provisions
214‑150 Due date for payment of franking tax
214‑155 General interest charge
214‑160 Refunds of amounts overpaid
Subdivision 214‑E—Records, information and tax agents
Guide to Subdivision 214‑E
214‑170 What this Subdivision is about
Operative provisions
214‑175 Record keeping
214‑180 Power of Commissioner to obtain information
Division 215—Consequences of the debt/equity rules
Subdivision 215‑A—Application of the imputation system to non‑share equity interests
215‑1 Application of the imputation system to non‑share equity interests
Subdivision 215‑B—Non‑share dividends that are unfrankable to some extent
Guide to Subdivision 215‑B
215‑5 What this Subdivision is about
215‑10 Certain non‑share dividends by ADIs unfrankable
215‑15 Non‑share dividends are unfrankable if profits are unavailable
215‑20 Working out the available frankable profits
215‑25 Anticipating available frankable profits
Division 216—Cum dividend sales and securities lending arrangements
Subdivision 216‑A—Circumstances where a distribution to a member of a corporate tax entity is treated as having been made to someone else
216‑1 When a distribution made to a member of a corporate tax entity is treated as having been made to someone else
216‑5 First situation (cum dividend sales)
216‑10 Second situation (securities lending arrangements)
216‑15 Distribution closing time
Subdivision 216‑B—Statements to be made where there is a cum dividend sale or securities lending arrangement
216‑20 Cum dividend sale—statement by securities dealer
216‑25 Cum dividend sale—statement by party
216‑30 Securities lending arrangements—statement by borrower
Division 218—Application of imputation rules to co‑operative companies
218‑5 Application of imputation rules to co‑operative companies
Division 219—Imputation for life insurance companies
Guide to Division 219 497
219‑1 What this Division is about
Subdivision 219‑A—Application of imputation rules to life insurance companies
219‑10 Application of imputation rules to life insurance companies
Subdivision 219‑B—Franking accounts of life insurance companies
219‑15 Franking credits
219‑30 Franking debits
219‑40 Residency requirement
219‑45 Assessment day
219‑50 Amount attributable to shareholders’ share of income tax liability
219‑55 Adjustment resulting from an amended assessment
219‑70 Tax offset under section 205‑70
219‑75 Working out franking credits and franking debits where a tax offset under section 205‑70 is applied
Division 220—Imputation for NZ resident companies and related companies
Guide to Division 220 511
220‑1 What this Division is about
Subdivision 220‑A—Objects of this Division
220‑15 Objects
220‑20 What is an NZ resident?
Subdivision 220‑B—NZ company treated as Australian resident for imputation system if company chooses
220‑25 Application of provisions of Part 3‑6 outside this Division
220‑30 What is an NZ franking company?
220‑35 Making an NZ franking choice
220‑40 When is an NZ franking choice in force?
220‑45 Revoking an NZ franking choice
220‑50 Cancelling an NZ franking choice
Subdivision 220‑C—Modifications of other Divisions of this Part
Franking NZ franking companies’ distributions
220‑100 Residency requirement for franking
220‑105 Unfrankable distributions by NZ franking companies
220‑110 Maximum franking credit under section 202‑60
NZ franking companies’ franking accounts etc.
220‑205 Franking credit for payment of NZ franking company’s withholding tax liability
220‑210 Effect of franked distribution to NZ franking company or flowing indirectly to NZ franking company
220‑215 Effect on franking account if NZ franking choice ceases to be in force
Franking accounts of NZ franking company and some of its 100% subsidiaries
220‑300 NZ franking company’s franking account affected by franking accounts of some of its 100% subsidiaries
Effect of NZ franking company making distribution that is non‑assessable and non‑exempt
220‑350 Providing for a franking credit to arise
Effects of supplementary dividend from NZ franking company
220‑400 Gross‑up and tax offset for distribution from NZ franking company reduced by supplementary dividend
220‑405 Franked distribution and supplementary dividend flowing indirectly
220‑410 Franking credit reduced if tax offset reduced
Rules about exempting entities
220‑500 Publicly listed post‑choice NZ franking company and its 100% subsidiaries are not exempting entities
220‑505 Post‑choice NZ franking company is not automatically prescribed person
220‑510 Parent company’s status as prescribed person sets status of all other members of same wholly‑owned group
NZ franking companies’ exempting accounts
220‑605 Effect on exempting account if NZ franking choice ceases to be in force
Tax effect of distribution franked by NZ franking company with an exempting credit
220‑700 Tax effect of distribution franked by NZ franking company with an exempting credit
Joint and several liability for NZ resident company’s unmet franking liabilities
220‑800 Joint and several liability for NZ resident company’s franking tax etc.
Chapter 3—Specialist liability rules
Part 3‑5—Corporate taxpayers and corporate distributions
Division 164—Non‑share capital accounts for companies
Guide to Division 164
164‑1 What this Division is about
A company that issues non‑share equity interests will have a notional account called a non‑share capital account. This account records contributions to the company in relation to those non‑share equity interests and returns made by the company of those contributions.
A non‑share distribution that represents a return of contributions is not taxed as a dividend (subject to the anti‑avoidance provisions dealing with dividend substitution). In certain circumstances a company may use its share capital account as the source for such distributions.
Table of sections
Operative provisions
164‑5 Object
164‑10 Non‑share capital account
164‑15 Credits to non‑share capital account
164‑20 Debits to non‑share capital account
Operative provisions
164‑5 Object
(1) This Division provides for the *non‑share capital account through which a company records contributions made to it in respect of *non‑share equity interests and returns by it of those contributions.
(2) This allows a *non‑share distribution to be characterised as either:
(a) a *non‑share dividend; or
(b) a *non‑share capital return.
164‑10 Non‑share capital account
(1) A company has a non‑share capital account if:
(a) the company issues a *non‑share equity interest in the company on or after 1 July 2001; or
(b) the company has issued a non‑share equity interest in the company before 1 July 2001 that is still in existence on 1 July 2001; or
(c) a *debt interest in the company changes at a particular time (the change time) to an *equity interest in the company because of subsection 974‑110(1) or (2); or
(d) the following conditions are satisfied in relation to an interest in the company:
(i) immediately before subsection 974‑75(4) ceases to have effect, the interest is taken to be a debt interest in the company because of that subsection;
(ii) the interest is an equity interest in the company at the time (the change time) that is immediately after that cessation;
(iii) subsection 974‑75(6) does not apply to the interest in relation to the income year that includes the change time; or
(e) the following conditions are satisfied in relation to an interest in the company:
(i) subsection 974‑75(6) applies to the interest in relation to a particular income year;
(ii) that subsection does not apply to the interest in relation to the next income year;
(iii) the interest is an equity interest in the company at the time (the change time) that is the start of that next income year.
(2) The account continues in existence even if the company ceases to have any *non‑share equity interests on issue.
(3) The balance of the account cannot fall below nil.
(4) The only credits and debits that may be made to the account are those provided for in sections 164‑15 and 164‑20.
164‑15 Credits to non‑share capital account
(1) If the company issues a *non‑share equity interest in the company on or after 1 July 2001, there is a credit to the *non‑share capital account equal to:
where:
amount received is the *market value, when it is provided, of the consideration the company receives for the issue of the interest.
share capital account credit is the amount of any credit made to the company’s *share capital account in respect of the issue of the interest.
Note: The issue of a non‑share equity interest can give rise to a credit to the company’s share capital account if the interest consists, for example, of a stapled security that includes a share in the company’s capital.
(2) If paragraph 164‑10(1)(c), (d) or (e) applies in relation to a particular interest in the company, there is a credit to the *non‑share capital account at the change time referred to in that paragraph of an amount equal to:
where:
amount received is the *market value, when it was provided, of the consideration the company received for the issue of the interest.
amount returned is so much of the amount received as has been returned to a holder of the interest before the change time.
share capital account credit is the amount of any credit made to the company’s *share capital account in respect of the issue of the interest.
(3) If the company has a *non‑share capital account at the beginning of 1 July 2001 because of a *non‑share equity interest the company issued before 1 July 2001, there is a credit to the non‑share capital account on that day for each non‑share equity interest in the company that:
(a) was issued before 1 July 2001; and
(b) is still in existence on 1 July 2001.
(4) The amount of the credit under subsection (3) is:
where:
amount received is the *market value, when it is provided, of the consideration the company receives for the issue of the interest.
return of amount received is the sum of the amounts paid before 1 July 2001 by way of return, in whole or in part, of the amount received.
share capital account credit is the sum of any amounts credited before 1 July 2001 to the company’s *share capital account in respect of the issue of the interest.
(5) To avoid doubt, if:
(a) it appears that a credit to the company’s *non‑share capital account has arisen under this section because an interest in the company appears to be, or have become, an *equity interest at a time in a particular income year; and
(b) because subsection 974‑75(6) or 974‑110(1A) is subsequently found to apply in relation to the interest and that income year, the interest was not in fact, or did not in fact become, an equity interest at that time;
the credit referred to in paragraph (a) is taken never to have arisen.
164‑20 Debits to non‑share capital account
(1) The company may debit the whole or a part of a *non‑share distribution against the company’s *non‑share capital account:
(a) to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a *non‑share equity interest in the company; or
(b) to the extent to which:
(i) the distribution is made in connection with a reduction in the *market value of a non‑share equity interest in the company; and
(ii) the amount of the distribution is equal to the amount of the reduction in market value.
(2) The total of the amounts debited to the account in respect of a particular *non‑share equity interest must not exceed the total of the amounts credited to the account in respect of the interest.
(3) If:
(a) an *equity interest in the company changes at a particular time (the change time) to a *debt interest in the company because of subsection 974‑110(1) or (2); or
(b) an equity interest in the company changes to a debt interest in the company, with effect from a time (the change time) that is the start of a particular income year, because of subsection 974‑110(1A); or
(c) the following conditions are satisfied in relation to an interest in the company:
(i) subsection 974‑75(6) does not apply to the interest in relation to a particular income year;
(ii) the interest is an equity interest in the company at the end of that income year;
(iii) subsection 974‑75(6) applies to the interest from the time (the change time) that is the start of the next income year;
there is, or is taken to have been, a debit to the *non‑share capital account at the change time equal to:
where:
credits in relation to the interest is the sum of all the credits that have been made to the *non‑share capital account in relation to the interest before the change time.
debits in relation to the interest is the sum of all the debits that have been made to the *non‑share capital account in relation to the interest before the change time.
(4) To avoid doubt, if:
(a) it appears that a debit to the company’s *non‑share capital account has arisen because an interest in the company appears to be, or have become, a *debt interest at a time in a particular income year; and
(b) because subsection 974‑75(6) or 974‑110(1A) is subsequently found not to apply in relation to the interest and that income year, the interest was not in fact, or did not in fact become, a debt interest at that time;
the debit referred to in paragraph (a) is taken never to have arisen.
Division 165—Income tax consequences of changing ownership or control of a company
Table of Subdivisions
Guide to Division 165
165‑A Deducting tax losses of earlier income years
165‑B Working out the taxable income and tax loss for the income year of the change
165‑CA Applying net capital losses of earlier income years
165‑CB Working out the net capital gain and the net capital loss for the income year of the change
165‑CC Change of ownership or control of company that has an unrealised net loss
165‑CD Reductions after alterations in ownership or control of loss company
165‑C Deducting bad debts
165‑D Tests for finding out whether the company has maintained the same owners
165‑E The same business test
165‑F Special provisions relating to ownership by non‑fixed trusts
Guide to Division 165
165‑1 What this Division is about
A change in the ownership or control of a company can affect:
• whether it can deduct its tax losses of earlier income years; and
• how it calculates its taxable income and tax loss for the income year of the change; and
• whether it can deduct debts owed to it that are written off as bad.
Subdivision 165‑A—Deducting tax losses of earlier income years
Guide to Subdivision 165‑A
165‑5 What this Subdivision is about
A company cannot deduct a tax loss unless:
(a) it has the same owners and the same control throughout the period from the start of the loss year to the end of the income year; or
(b) it satisfies the same business test by carrying on the same business, entering into no new kinds of transactions and conducting no new kinds of business.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see section 415‑35.
Table of sections
Operative provisions
165‑10 To deduct a tax loss
165‑12 Company must maintain the same owners
165‑13 Alternatively, the company must satisfy the same business test
165‑15 The same people must control the voting power, or the company must satisfy the same business test
165‑20 When company can deduct part of a tax loss
Operative provisions
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
Note: See section 165‑215 for a special alternative to these conditions.
(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.
165‑12 Company must maintain the same owners
Ownership test period
(1) In determining whether section 165‑10 prevents a company from deducting a *tax loss, the ownership test period is the period from the start of the *loss year to the end of the income year.
Note: See section 165‑255 for the rule about incomplete test periods.
Voting power
(2) There must be persons who had *more than 50% of the voting power in the company at all times during the *ownership test period.
Note: See section 165‑150 to work out who had more than 50% of the voting power.
Rights to dividends
(3) There must be persons who had rights to *more than 50% of the company’s dividends at all times during the *ownership test period.
Note: See section 165‑155 to work out who had rights to more than 50% of the company’s dividends.
Rights to capital distributions
(4) There must be persons who had rights to *more than 50% of the company’s capital distributions at all times during the *ownership test period.
Note: See section 165‑160 to work out who had rights to more than 50% of the company’s capital distributions.
When to apply the primary test
(5) To work out whether a condition in this section was satisfied at all times during the *ownership test period, apply the primary test for that condition unless subsection (6) requires the alternative test to be applied.
Note: For the primary test, see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
When to apply the alternative test
(6) Apply the alternative test for that condition if one or more other companies beneficially owned *shares or interests in shares in the company at any time during the *ownership test period.
Note: For the alternative test, see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
Conditions in subsections (2), (3) and (4) may be treated as having been satisfied in certain circumstances
(7) If any of the conditions in subsections (2), (3) and (4) have not been satisfied, those conditions are taken to have been satisfied if:
(a) they would have been satisfied except for the operation of section 165‑165; and
(b) the company has information from which it would be reasonable to conclude that less than 50% of 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 in the company during the *ownership test period.
(7A) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the *ownership test period, the conditions in subsections (3) and (4) are taken to have been satisfied by the company.
Time of happening of CGT event
(8) The happening of a *CGT event in relation to a *direct equity interest or *indirect equity interest in the company that results in the failure of the company to satisfy a condition in subsection (2), (3) or (4) is taken, for the purposes of paragraph (7)(b), to have occurred during the *ownership test period.
165‑13 Alternatively, the company must satisfy the same business test
(1) This section sets out the condition that a company must meet to be able to deduct the *tax loss if:
(a) the company fails to meet a condition in subsection 165‑12(2), (3) or (4); or
(b) it is not practicable to show that the company meets the conditions in those subsections.
Note Other provisions may treat the company as meeting, or failing to meet, the conditions in subsections 165‑12(2), (3) and (4).
(2) The company must satisfy the *same business test for the income year (the same business test period). Apply the test to the *business the company carried on immediately before the time (the test time) shown in the relevant item of the table.
Test time |
Item | If: | The test time is: |
1 | It is practicable to show there is a period that meets these conditions: (a) the period starts at the start of the *ownership test period or, if the company came into being during the *loss year, at the time the company came into being; (b) the company would meet the conditions in subsections 165‑12(2), (3) and (4) if the period were the ownership test period for the purposes of this Act | The latest time that it is practicable to show is in the period |
2 | Item 1 does not apply and the company was in being throughout the *loss year | The start of the loss year |
3 | Item 1 does not apply and the company came into being during the *loss year | The end of the loss year |
For the same business test: see Subdivision 165‑E.
165‑15 The same people must control the voting power, or the company must satisfy the same business test
(1) Even if a company meets the conditions in section 165‑12 or 165‑13, it cannot deduct the *tax loss if:
(a) for some or all of the part of the *ownership test period that started at the end of the *loss year, a person controlled, or was able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities); and
(b) for some or all of the *loss year, that person did not control, and was not able to control, that voting power (directly, or indirectly in that way); and
(c) that person began to control, or became able to control, that voting power (directly, or indirectly in that way) for the purpose of:
(i) getting some benefit or advantage in relation to how this Act applies; or
(ii) getting such a benefit or advantage for someone else;
or for purposes including that purpose.
Note: A person can still control the voting power in a company that is in liquidation etc.: see section 165‑250.
(2) However, that person’s control of the voting power, or ability to control it, does not prevent the company from deducting the *tax loss if the company satisfies the *same business test for the income year (the same business test period).
(3) Apply the *same business test to the *business that the company carried on immediately before the time (the test time) when the person began to control that voting power, or became able to control it.
For the same business test: see Subdivision 165‑E.
165‑20 When company can deduct part of a tax loss
(1) If section 165‑10 (which is about deducting a tax loss) prevents a company from deducting a *tax loss, the company can deduct the part of the tax loss that was incurred during a part of the loss year.
(2) However, the company can do this only if, assuming that part of the *loss year had been treated as the whole of the loss year for the purposes of section 165‑10, the company would have been entitled to deduct the *tax loss.
Subdivision 165‑B—Working out the taxable income and tax loss for the income year of the change
Guide to Subdivision 165‑B
165‑23 What this Subdivision is about
A company that has not had the same ownership and control during the income year, and has not satisfied the same business test, works out its taxable income and tax loss under this Subdivision.
Table of sections
165‑25 Summary of this Subdivision
165‑30 Flow chart showing the application of this Subdivision
When a company must work out its taxable income and tax loss under this Subdivision
165‑35 On a change of ownership, unless the company satisfies the same business test
165‑37 Who has more than a 50% stake in the company during a period
165‑40 On a change of control of the voting power in the company, unless the company satisfies the same business test
Working out the company’s taxable income
165‑45 First, divide the income year into periods
165‑50 Next, calculate the notional loss or notional taxable income for each period
165‑55 How to attribute deductions to periods
165‑60 How to attribute assessable income to periods
165‑65 How to calculate the company’s taxable income for the income year
Working out the company’s tax loss
165‑70 How to calculate the company’s tax loss for the income year
Special rules that apply if the company is in partnership
165‑75 How to calculate the company’s notional loss or notional taxable income for a period when the company was a partner
165‑80 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if both entities have the same income year
165‑85 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if the entities have different income years
165‑90 Company’s full year deductions include a share of partnership’s full year deductions
165‑25 Summary of this Subdivision
(1) The company calculates its taxable income for the income year in this way:
Method statement
Step 1. Divide the income year into periods: each change in ownership or control is a dividing point between periods.
Step 2. Treat each period as if it were an income year and work out the notional loss or notional taxable income for that period.
Step 3. Work out the taxable income for the year of the change by adding up:
each notional taxable income; and
any full year amounts (amounts of assessable income not taken into account at Step 2);
and then subtracting any full year deductions (deductions not taken into account at Step 2).
Note: Do not take into account any notional loss.
(2) As well as a taxable income, the company will have a tax loss. It is the total of:
• each notional loss; and
• excess full year deductions of particular kinds.
(3) Special rules apply if the company was in partnership at some time during the income year.
For the special rules that apply if the company was in partnership: see sections 165‑75 to 165‑90.
165‑30 Flow chart showing the application of this Subdivision
Note: If the company was a partner during the income year, special rules apply to calculating a notional loss or notional taxable income.
When a company must work out its taxable income and tax loss under this Subdivision
165‑35 On a change of ownership, unless the company satisfies the same business test
A company must calculate its taxable income and *tax loss under this Subdivision unless:
(a) there are persons who had *more than a 50% stake in the company during the whole of the income year; or
Note: See section 165‑220 for a special alternative to the condition in this paragraph.
(b) there is only part of the income year (a part that started at the start of the income year) during which the same persons had *more than a 50% stake in the company, but the company satisfies the *same business test for the rest of the income year (the same business test period); or
(c) the company was a *designated infrastructure project entity during the whole of the income year.
Note: See subsection 415‑35(7) if there is only part of the income year during which the company was a designated infrastructure project entity.
For the purposes of paragraph (b), apply the *same business test to the *business that the company carried on immediately before the time (the test time) when that part ended.
Note 1: For the same business test, see Subdivision 165‑E.
Note 2: In the case of a widely held or eligible Division 166 company, Subdivision 166‑B modifies how this Subdivision applies, unless the company chooses otherwise.
165‑37 Who has more than a 50% stake in the company during a period
(1) If:
(a) there are persons who had *more than 50% of the voting power in the company during the whole of a period (the ownership test period) consisting of the income year or a part of it; and
(b) there are persons who had rights to *more than 50% of the company’s dividends during the whole of the ownership test period; and
(c) there are persons who had rights to *more than 50% of the company’s capital distributions during the whole of the ownership test period;
those persons had more than a 50% stake in the company during the ownership test period.
(2) To work out whether a condition in subsection (1) was satisfied during the *ownership test period, apply the primary test for that condition unless subsection (3) requires the alternative test to be applied.
For the primary tests: see subsections 165‑150(1), 165‑155(1)
and 165‑160(1).
(3) Apply the alternative test for that condition if one or more other companies beneficially owned *shares, or interests in shares, in the company at any time during the *ownership test period.
For the alternative tests: see subsections 165‑150(2), 165‑155(2)
and 165‑160(2).
Conditions in subsection (1) may be treated as having been satisfied in certain circumstances
(4) If any of the conditions in subsection (1) have not been satisfied, those conditions are taken to have been satisfied if:
(a) they would have been satisfied except for the operation of section 165‑165; and
(b) the company has information from which it would be reasonable to conclude that less than 50% of the *notional loss for the *ownership test period 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 in the company during that period.
(4A) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the *ownership test period, the conditions in paragraphs (1)(b) and (c) are taken to have been satisfied by the company.
Time of happening of CGT event
(5) The happening of a *CGT event in relation to a *direct equity interest or *indirect equity interest in the company that results in the failure of the company to satisfy a condition in subsection (1) is taken, for the purposes of paragraph (4)(b), to have occurred during the *ownership test period.
165‑40 On a change of control of the voting power in the company, unless the company satisfies the same business test
(1) A company must calculate its taxable income and tax loss under this Subdivision if, during the income year, a person begins to control, or becomes able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities) for the purpose, or for purposes including the purpose, of:
(a) getting some benefit or advantage in relation to how this Act applies; or
(b) getting such a benefit or advantage for someone else.
Note: A person can still control the voting power in a company that is in liquidation etc.: see section 165‑250.
(2) However, that person’s control of the voting power, or ability to control it, does not require the company to calculate its taxable income under this Subdivision if the company satisfies the *same business test for the rest of the income year (the same business test period).
(3) Apply the *same business test to the *business that the company carried on immediately before the time (the test time) when the person began to control that voting power, or became able to control it.
For the same business test: see Subdivision 165‑E.
Working out the company’s taxable income
165‑45 First, divide the income year into periods
(1) Divide the income year into periods as follows.
(2) The first period starts at the start of the income year. Each later period starts immediately after the end of the previous period.
(3) The last period ends at the end of the income year. Each period (except the last) ends at the earlier of:
(a) the latest time that would result in persons having *more than a 50% stake in the company during the whole of the period; or
(b) the earliest time when a person begins to control, or becomes able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities) for the purpose, or for purposes including the purpose, of:
(i) getting some benefit or advantage to do with how this Act applies; or
(ii) getting such a benefit or advantage for someone else.
Note: See section 165‑255 for the rule about incomplete periods.
(4) However, what would otherwise be 2 or more successive periods are treated as a single period if the company satisfies the *same business test for all of them, considered as a single period (the same business test period). Apply the same business test to the *business the company carried on immediately before the end of the first of the periods (the test time).
Note 1: For the same business test, see Subdivision 165‑E.
Note 2: See section 165‑225 for a special alternative to subsections (3) and (4) of this section.
165‑50 Next, calculate the notional loss or notional taxable income for each period
(1) The company has a *notional loss for a period if the deductions attributed to the period under section 165‑55 exceed the assessable income attributed to the period under section 165‑60. The notional loss is the amount of the excess.
For a period during which the company was in partnership,
the notional loss is worked out under section 165‑75.
(2) On the other hand, if that assessable income exceeds those deductions, the company has a notional taxable income for the period, equal to the excess.
For a period during which the company was in partnership,
the notional taxable income is worked out under section 165‑75.
(3) If the company has a *notional loss for none of the periods in the income year, this Subdivision has no further application, and the company’s taxable income for the income year is calculated in the usual way.
The usual way of working out taxable income is set out in section 4‑15.
165‑55 How to attribute deductions to periods
(1) The company’s deductions for the income year are attributed to periods in the income year as follows.
(2) The following deductions are attributed to each period in proportion to the length of the period:
(a) deductions for the decline in value of a *depreciating asset;
See Division 40.
(b) deductions for *exploration or prospecting, or *mining capital expenditure, in connection with mining or quarrying;
See section 40‑80 and Subdivisions 40‑H and 40‑I.
(c) deductions for expenditure, deductions for which are spread over 2 or more income years, but not:
(i) deductions for exploration or prospecting, or capital expenditure, in connection with mining or quarrying; or
See Subdivision 40‑I.
(ii) *full year deductions (see subsection (5));
(d) deductions for expenditure of capital monies in connection with an Australian *film.
See former section 124ZAFA of the Income Tax Assessment Act 1936.
(3) All other deductions (except *full year deductions) are attributed to periods as if each period were an income year.
(4) *Full year deductions are not attributed to any of the periods. They are brought in at a later stage of the process of calculating the company’s taxable income for the income year.
(5) These are full year deductions:
(a) deductions for bad debts under section 8‑1 (about general deductions) or section 25‑35 (about bad debts);
(b) deductions for losses on debt/equity swaps under section 63E of the Income Tax Assessment Act 1936;
(c) deductions, so far as they are allowable under Division 8 (which is about deductions) because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III of the Income Tax Assessment Act 1936 applies to the company in relation to the income year;
(fa) deductions for payments of pensions, gratuities or retiring allowances under section 25‑50;
(fb) deductions for gifts under Division 30;
(f) deductions for *tax losses of earlier income years.
See Division 36.
(6) However, a deduction for the balance of capital expenditure is not a full year deduction if the deduction results from the disposal, loss, lapse, termination of use or destruction of the property.
165‑60 How to attribute assessable income to periods
(1) The company’s assessable income for the income year is attributed to periods in the income year as follows.
(2) The following amounts are attributed to periods so far as they are reasonably attributable to those periods:
(a) amounts included in the company’s assessable income under section 97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936; or
(b) amounts included in the company’s assessable income under section 98A (Non‑resident beneficiaries assessable in respect of certain income) of the Income Tax Assessment Act 1936.
(2A) However, so much of an amount included in the company’s assessable income under section 97 or 98A of the Income Tax Assessment Act 1936 as is a *capital gain that forms part of a *net capital gain is not attributed to a period.
(3) The following items of assessable income are attributed to each period in proportion to the length of the period:
(a) insurance recoveries for loss of livestock or trees;
See section 385‑130.
(b) amounts included in assessable income as a result of elections relating to the forced disposal of livestock;
See Subdivision 385‑E and section 385‑160.
(c) recoupment of mains electricity connection expenditure.
See items 1.16 and 2.5 in section 20‑30, which lists deductions for which recoupments are assessable under Subdivision 20‑A.
(4) An amount included in the company’s assessable income under section 385‑135 (Election to defer including profit on second wool clip) is attributed to the period when the wool would ordinarily have been shorn.
(5) An amount included in the company’s assessable income that is a *dividend under:
(a) section 65 (Payments to associated persons); or
(c) section 109 (Excessive payments to shareholders and associates);
of the Income Tax Assessment Act 1936 is attributed to the period when the amount was paid or credited, whichever occurred first.
(6) All other items of assessable income (except *full year amounts) are attributed to periods as if each period were an income year.
(6A) A *net capital gain is not attributed to a period.
Note: This is because Subdivision 165‑CB provides for how the company must work out its net capital gain for the income year.
(7) Full year amounts are amounts referred to in paragraphs (2)(a) and (b), so far as they are not reasonably attributable to a period, but do not include any part of a *capital gain that forms part of a *net capital gain. Full year amounts are brought in at a later stage of the process of calculating the company’s taxable income for the income year.
165‑65 How to calculate the company’s taxable income for the income year
(1) The company’s taxable income for the income year is calculated as follows.
(2) Add up the *notional taxable incomes (if any) worked out under section 165‑50 or 165‑75.
Note: A notional loss for a period is not taken into account, but counts towards the company’s tax loss for the income year.
(3) Add the *full year amounts referred to in subsection 165‑60(7) (if any) and any *net capital gain of the company for the income year.
(4) Subtract the company’s *full year deductions of these kinds:
(a) deductions for bad debts under section 8‑1 (about general deductions) or section 25‑35 (about bad debts);
(c) deductions, so far as they are allowable under Division 8 (which is about deductions) because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III of the Income Tax Assessment Act 1936 applies to the company in relation to the income year;
unless they exceed the total of the *notional taxable incomes and the *full year amounts. (If they equal or exceed that total, the company does not have a taxable income for the income year.)
(5) If an amount remains, subtract from it the company’s other *full year deductions, in the order shown in subsection 165‑55(5), unless they exceed the amount remaining. (If they equal or exceed that amount, the company does not have a taxable income for the income year.)
(6) If an amount remains, it is the company’s taxable income for the income year.
Working out the company’s tax loss
165‑70 How to calculate the company’s tax loss for the income year
(1) The company’s tax loss for the income year is calculated as follows.
(2) Total the *notional losses worked out under section 165‑50 or 165‑75.
(3) Add to the total in subsection (2) the amount (if any) by which the company’s *full year deductions of these kinds:
(a) deductions for bad debts under section 8‑1 (about general deductions) or section 25‑35 (about bad debts);
(c) deductions, so far as they are allowable under Division 8 (which is about deductions) because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III of the Income Tax Assessment Act 1936 applies to the company in relation to the income year;
exceed the total of:
(d) the *notional taxable incomes (if any); and
To work out the notional taxable income: see section 165‑50.
(e) the *full year amounts referred to in section 165‑60 (if any); and
(f) any *net capital gain of the company for the income year.
(4) If the company *derived exempt income, subtract its *net exempt income (worked out under section 36‑20).
(5) Any amount remaining is the company’s tax loss for the income year, which is called a loss year.
Note: The meanings of tax loss and loss year are modified by section 36‑55 for a corporate tax entity that has an amount of excess franking offsets.
To find out how much of the tax loss can be deducted in later income years: see Subdivision 165‑A.
To find out how to deduct it: see section 36‑17.
Special rules that apply if the company is in partnership
165‑75 How to calculate the company’s notional loss or notional taxable income for a period when the company was a partner
(1) This section applies if at any time during a period the company was a partner in one or more partnerships.
(2) The company has a *notional loss for the period if the total (the loss total) of:
(a) the deductions attributed to the period under section 165‑55; and
(b) the *company’s share of each *notional loss (if any) of a partnership for the period;
exceeds the total (the income total) of:
(c) the assessable income attributed to the period under section 165‑60; and
(d) the *company’s share of each *notional net income (if any) of a partnership for the period.
The notional loss is the amount of the excess.
Note: A notional loss is taken into account in working out the company’s tax loss under section 165‑70.
(3) On the other hand, if the income total exceeds the loss total, the company has a notional taxable income for the period, equal to the excess.
Note: A notional taxable income is taken into account in working out the company’s taxable income under section 165‑65.
(4) If the company has a *notional taxable income for all periods in the income year, this Subdivision has no further application, and the company’s taxable income for the income year is calculated in the usual way.
Note: The usual way of working out taxable income is set out in section 4‑15.
165‑80 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if both entities have the same income year
(1) This section applies if at any time during a period the company is a partner in a partnership that has an income year that starts and ends when the company’s income year starts and ends.
(2) The partnership’s notional loss or notional net income for the period is calculated in the same way as the *notional loss or *notional taxable income of a company.
(3) The company’s share is calculated by dividing:
• the company’s interest in the partnership’s net income or partnership loss of the income year;
by
• the amount of that net income or partnership loss;
and expressing the result as a percentage.
(4) However, if the partnership had neither a net income nor a partnership loss, the company’s share is a percentage that is fair and reasonable having regard to the extent of the company’s interest in the partnership.
165‑85 How to calculate the company’s share of a partnership’s notional loss or notional net income for a period if the entities have different income years
(1) This section applies if at any time during a period the company is a partner in a partnership that has an income year that starts and ends at a different time from when the company’s income year starts and ends.
(2) So much of the partnership’s net income or partnership loss of an income year as was *derived during the period is a notional net income or notional loss of the partnership for the period. (For the purposes of this subsection, the partnership’s net income or partnership loss is calculated without taking account of the partnership’s *full year deductions for that income year.)
Note: The partnership’s full year deductions are dealt with in section 165‑90.
(3) The company’s share is calculated by dividing:
• the company’s interest in the partnership’s net income or partnership loss of that income year;
by
• the amount of that net income or partnership loss;
and expressing the result as a percentage.
165‑90 Company’s full year deductions include a share of partnership’s full year deductions
(1) This section applies if at any time during the income year the company is a partner in a partnership that has one or more *full year deductions for the income year of the partnership that corresponds to the income year of the company.
(2) The partnership’s *full year deductions are treated as full year deductions of the company, but only to the extent of the *company’s share.
(3) If the partnership’s income year is the same as the company’s, the company’s share is calculated by dividing:
• the company’s interest in the partnership’s net income or partnership loss of the income year;
by
• the amount of that net income or partnership loss;
and expressing the result as a percentage.
(4) However, if the partnership had neither a net income nor a partnership loss, the company’s share is a percentage that is fair and reasonable having regard to the extent of the company’s interest in the partnership.
(5) If the partnership’s income year does not start and end at the same time as the company’s income year, the company’s share is a percentage that is fair and reasonable having regard to all relevant circumstances.
Subdivision 165‑CA—Applying net capital losses of earlier income years
Guide to Subdivision 165‑CA
165‑93 What this Subdivision is about
In working out its net capital gain for an income year, a company cannot apply a net capital loss for an earlier income year unless:
(a) it has the same owners and the same control from the start of the loss year to the end of the income year; or
(b) it satisfies the same business test by carrying on the same business, entering into no new kinds of transactions and conducting no new kinds of business.
Table of sections
Operative provisions
165‑96 When a company cannot apply a net capital loss
Operative provisions
165‑96 When a company cannot apply a net capital loss
(1) In working out its *net capital gain for the *current year, a company cannot apply a *net capital loss it has for an earlier income year if Subdivision 165‑A would prevent it from deducting the loss for the current year if:
(a) the loss were a *tax loss of the company for that earlier income year; and
(b) section 165‑20 (about deducting part of a tax loss) were disregarded.
Note 1: A company’s net capital gain for an income year is usually worked out under section 102‑5.
Note 2: Subdivision 165‑A deals with the deductibility of a company’s tax loss for an earlier income year if there has been a change in the ownership or control of the company in the period from the start of the loss year to the end of the income year.
Note 3: Subdivision 165‑F may affect the application of Subdivision 165‑A.
(2) If subsection (1) prevents the company from applying the *net capital loss, it can apply the part of the loss that it made during a part of that earlier income year, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the net capital loss.
Subdivision 165‑CB—Working out the net capital gain and the net capital loss for the income year of the change
Guide to Subdivision 165‑CB
165‑99 What this Subdivision is about
A company that has not had the same ownership and control during the income year, and has not satisfied the same business test, works out its net capital gain and net capital loss under this Subdivision.
Table of sections
When a company must work out its net capital gain and net capital loss under this Subdivision
165‑102 On a change of ownership, or of control of voting power, unless the company satisfies the same business test
Working out the company’s net capital gain and net capital loss
165‑105 First, divide the income year into periods
165‑108 Next, calculate the notional net capital gain or notional net capital loss for each period
165‑111 How to work out the company’s net capital gain
165‑114 How to work out the company’s net capital loss
When a company must work out its net capital gain and net capital loss under this Subdivision
165‑102 On a change of ownership, or of control of voting power, unless the company satisfies the same business test
A company must calculate its *net capital gain and *net capital loss for the income year under this Subdivision if:
(a) it must calculate its taxable income and *tax loss for the income year under Subdivision 165‑B; or
Note: Subdivision 165‑F may affect the application of Subdivision 165‑B.
(b) it would be required to calculate them under that Subdivision but for subsection 165‑50(3) (about cases where that Subdivision would make no difference to the taxable income).
Note: In the case of a widely held or eligible Division 166 company, Subdivision 166‑B modifies how this Subdivision applies, unless the company chooses otherwise.
Working out the company’s net capital gain and net capital loss
165‑105 First, divide the income year into periods
Divide the income year into periods according to section 165‑45 (which is about working out the company’s taxable income under Subdivision 165‑B).
165‑108 Next, calculate the notional net capital gain or notional net capital loss for each period
(1) The company has a notional net capital gain for a period if the total of the *capital gains it made during the period exceeds the total of the *capital losses it made during the period. The notional net capital gain is the amount of the excess.
(2) On the other hand, if the total of those losses exceeds the total of those gains, the company has a notional net capital loss for the period, equal to the excess.
(3) If the company has a *notional net capital loss for none of the periods in the income year, this Subdivision has no further application, and the company’s *net capital gain for the income year is calculated in the usual way.
The usual way of working out the net capital gain is set out in section 102‑5.
Trust’s capital gain attributed to company beneficiary
(4) If some or all (the attributable amount) of an amount included in the company’s assessable income for the income year under:
(a) section 97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936; or
(b) section 98A (Non‑resident beneficiaries assessable in respect of certain income) of that Act;
is attributable to a *capital gain that the trust made at a particular time during the period, this section applies to the attributable amount as if it were a *capital gain made by the company at that time.
165‑111 How to work out the company’s net capital gain
The company’s net capital gain for the income year is worked out in this way:
Working out the company’s net capital gain
Step 1. Add up the *notional net capital gains (if any) worked out under section 165‑108.
Note: A notional net capital loss for a period is not taken into account, but counts towards the company’s net capital loss for the income year.
Step 2. Add to the Step 1 amount so much of each amount included in the company’s assessable income for the income year under:
(a) section 97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936; or
(b) section 98A (Non‑resident beneficiaries assessable in respect of certain income) of that Act;
as is attributable to a *capital gain that the trust made outside the income year.
Note: This is relevant only if the trust has an income year that starts and ends at a different time from when the company’s income year starts and ends.
Step 3. If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, the company has no net capital gain for the income year.)
Note: To apply net capital losses: see section 102‑15.
Step 4. If the Step 3 amount is more than zero, it is the company’s net capital gain.
Note : For exceptions and modifications to these rules: see section 102‑30.
165‑114 How to work out the company’s net capital loss
The company’s net capital loss for the income year is worked out in this way:
Working out the company’s net capital loss
Step 1. Add up the *notional net capital losses (if any) worked out under section 165‑108.
Step 2. If the Step 1 amount is more than zero, it is the company’s net capital loss.
Note: For exceptions and modifications to these rules: see section 102‑30.
Subdivision 165‑CC—Change of ownership or control of company that has an unrealised net loss
Guide to Subdivision 165‑CC
165‑115 What this Subdivision is about
If a change occurs in the ownership or control of a company that has an unrealised net loss, the company cannot, to the extent of the unrealised net loss, have capital losses taken into account, or deduct revenue losses, in respect of CGT events that happen to CGT assets that it owned at the time of the change, unless it satisfies the same business test.
165‑115AA Special rules to save compliance costs
(1) A company is exempt from these rules if, at the time of the change in ownership or control, it (together with certain related entities) has a net asset value of not more than $6,000,000 under the test in section 152‑15 (for small business CGT relief).
(2) In working out whether it has an unrealised net loss, a company can choose to work out the *market value of each of its assets individually, or of all of its assets together.
(3) If a company works out the *market value of each of its assets individually, it may choose to exclude every asset that it acquired for less than $10,000, in which case:
(a) unrealised losses and gains on the excluded assets will not be taken into account in calculating the company’s unrealised net loss; and
(b) losses on the excluded assets will be allowed without the company being subject to the same business test.
Table of sections
Operative provisions
165‑115A Application of Subdivision
165‑115B What happens when the company makes a capital loss or becomes entitled to a deduction in respect of a CGT asset after a changeover time
165‑115BAWhat happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock
165‑115BBOrder of application of assets: residual unrealised net loss
165‑115C Changeover time—change in ownership of company
165‑115D Changeover time—change in control of company
165‑115E What is an unrealised net loss
165‑115F Notional gains and losses
Operative provisions
165‑115A Application of Subdivision
Application
(1) This Subdivision applies to a company if:
(a) a changeover time has occurred or occurs in relation to the company after the commencement time; and
(b) at the changeover time the company had an unrealised net loss (see section 165‑115E); and
(c) either of the following applies:
(i) the company makes a *capital loss, or apart from this Subdivision would be entitled to a deduction, in respect of a *CGT event that happens to a *CGT asset referred to in subsection (1A);
(ii) the company makes a *trading stock loss in respect of a CGT asset referred to in subsection (1A) that is an item of *trading stock; and
(d) the company would not, at the changeover time, satisfy the maximum net asset value test under section 152‑15.
CGT assets in respect of which Subdivision applies
(1A) The *CGT assets for the purposes of paragraph 165‑115A(1)(c) are:
(a) any CGT asset that the company owned at the changeover time; and
(b) any CGT asset that the company did not own at the changeover time but had owned at a previous time, where:
(i) a deferral event referred to in subsection 170‑255(1) happened before the changeover time; and
(ii) the deferral event involved the company as the originating company referred to in that subsection; and
(iii) the deferral event would have resulted in the company making a *capital loss, or becoming entitled to a deduction, in respect of the CGT asset except for section 170‑270; and
(iv) the company is not taken to have made a capital loss at or before the changeover time, or to have become entitled to a deduction at that time, under section 170‑275 in respect of the asset.
Company may choose to disregard CGT assets acquired for less than $10,000
(1B) A company may choose, for the purposes of the application of this Subdivision to it in respect of a particular changeover time, that every *CGT asset that has been acquired by it for less than $10,000 is to be disregarded.
However, the choice does not affect the application of the *global method of working out whether the company has an unrealised net loss (see subsection 165‑115E(2)).
Time for making choice
(1C) A choice under subsection (1B) must be made on or before:
(a) the day on which the company lodges its *income tax return for the income year in which the relevant changeover time occurred; or
(b) such later day as the Commissioner allows.
Trading stock loss
(1D) A company is taken to have made a trading stock loss in respect of an asset that is an item of *trading stock if, and only if:
(a) one of the following applies:
(i) the company *disposes of the item;
(ii) the item stops being trading stock (within the meaning of section 70‑80);
(iii) the item is revalued under Division 70; and
(b) if subparagraph (a)(i) or (ii) applies—the item’s *market value at the time when it is disposed of or stops being trading stock is less than:
(i) in respect of an item that has been valued under Division 70—its latest value under the Division; or
(ii) otherwise—its cost at that time; and
(c) if subparagraph (a)(iii) applies—the item’s value under the revaluation is less than:
(i) in respect of an item that has previously been valued under Division 70—its latest value under that Division before the revaluation; or
(ii) otherwise—its cost at the time of the revaluation.
The difference worked out under paragraph (b) or (c), as the case may be, constitutes the amount of the *trading stock loss.
Commencement time
(2) For the purposes of this Subdivision, the commencement time of a company is:
(a) if the company was in existence at 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999—that time; or
(b) if the company came into existence after that time—the time when it came into existence.
Reference time
(2A) For the purposes of the application of this Subdivision to a company in relation to a particular time (the test time), the reference time is:
(a) if no changeover time occurred in respect of the company before the test time—the commencement time; or
(b) otherwise—the time immediately after the last changeover time that occurred in respect of the company before the test time.
Asset owned at more than one changeover time
(3) If:
(a) 2 or more changeover times have occurred or occur in relation to a company; and
(b) the company owned a particular asset at more than one of those changeover times;
this Subdivision applies to the company in respect of that asset only in relation to the later or latest of those changeover times.
Note: For changeover time see sections 165‑115C and 165‑115D.
165‑115B What happens when the company makes a capital loss or becomes entitled to a deduction in respect of a CGT asset after a changeover time
Where capital loss or deduction is equal to or less than residual unrealised net loss
(1) If the *capital loss or deduction referred to in subparagraph 165‑115A(1)(c)(i) is equal to or less than the company’s residual unrealised net loss at the time of the occurrence of the event that resulted in the capital loss or entitled the company to the deduction:
(a) the capital loss is taken to have been a *net capital loss; or
(b) the deduction is taken to have been a *tax loss;
of the company for the income year immediately before the income year in which the changeover time occurred.
Where capital loss or deduction is greater than residual unrealised net loss
(2) If the *capital loss or deduction referred to in subparagraph 165‑115A(1)(c)(i) is greater than the company’s residual unrealised net loss at the time of the occurrence of the event that resulted in the capital loss or entitled the company to the deduction:
(a) the part of the capital loss that is equal to the residual unrealised net loss is taken to have been a *net capital loss; or
(b) the part of the deduction that is equal to the residual unrealised net loss is taken to have been a *tax loss;
of the company for the income year immediately before the income year in which the changeover time occurred.
Company does not meet certain conditions in relation to net capital loss or tax loss
(3) The company is taken not to have met, at the changeover time, the conditions in subsections 165‑12(2), (3) and (4) in relation to the *net capital loss or the *tax loss. The changeover time is the test time for applying section 165‑13 to the company.
Need to meet same business test
(4) The effect of subsection (3) is that the company cannot apply the *net capital loss (see section 165‑10 as it applies because of section 165‑96), or deduct the *tax loss (see section 165‑10), unless it meets the condition in section 165‑13 (the same business test).
Consequences for net capital loss
(5) The *net capital loss cannot be applied against *capital gains made in an income year before the income year in which the company made the capital loss referred to in subparagraph 165‑115A(1)(c)(i).
Consequences for tax loss
(6) The *tax loss cannot be deducted from assessable income *derived in an income year before the income year in which the company would have been entitled to the deduction referred to in subparagraph 165‑115A(1)(c)(i).
Note: For changeover time see sections 165‑115C and 165‑115D.
165‑115BA What happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock
Application
(1) This section applies to the company if, after the changeover time, the company makes a *trading stock loss in respect of an item of *trading stock as mentioned in subparagraph 165‑115A(1)(c)(ii).
Where trading stock loss is equal to or less than residual unrealised net loss
(2) If the *trading stock loss is equal to or less than the company’s residual unrealised net loss at the time of the occurrence of the trading stock loss, the amount of the trading stock loss is to be included in the company’s assessable income.
Where trading stock loss is greater than unrealised net loss
(3) If the *trading stock loss is greater than the company’s residual unrealised net loss at the time of the occurrence of the trading stock loss, the part of the trading stock loss that is equal to the residual unrealised net loss is to be included in the company’s assessable income.
No increase in assessable income if company satisfies the same business test
(4) Neither subsection (2) nor (3) applies to the company if the company meets the condition in section 165‑13 (the same business test).
Assumptions for purposes of same business test
(5) In determining whether the company meets the condition in section 165‑13, assume:
(a) that the *trading stock loss (if subsection (2) applies) or the part of the trading stock loss (if subsection (3) applies) is a *net capital loss of the company for the income year immediately before the income year in which the changeover time occurred; and
(b) that the company failed, at the changeover time, to meet the condition in subsections 165‑12(2), (3) and (4) in relation to the net capital loss referred to in paragraph (a); and
(c) that the changeover time is the test time; and
(d) that the same business test period is the income year in which the loss occurred.
165‑115BB Order of application of assets: residual unrealised net loss
Order in which assets are to be applied
(1) In applying subsection 165‑115B(2) or 165‑115BA(3) in respect of assets that the company owned at the changeover time:
(a) the company’s *capital losses are taken to have been made, the company is taken to have become entitled to deductions and the company is taken to have made *trading stock losses in the order in which the events that resulted in the capital losses, deductions or trading stock losses occurred; and
(b) if 2 or more such events occurred at the same time, they are taken to have occurred in such order as the company determines.
Residual unrealised net loss
(2) The company’s residual unrealised net loss, at the time of an event (the relevant event) that resulted in the company making a *capital loss, becoming entitled to a deduction or making a *trading stock loss, in respect of an asset, is the amount worked out using the following formula:
where:
previous capital losses, deductions or trading stock losses means the total of the following:
(a) capital losses that the company made, deductions to which the company became entitled, or *trading stock losses that the company made, as a result of events earlier than the relevant event in respect of assets that the company owned at the *changeover time;
(b) each reduction that section 715‑105 (as applying to the company as the *head company of a *consolidated group or *MEC group) makes in respect of such an asset because an entity ceased before the time of the relevant event to be a *subsidiary member of the group (but counting only the greater or greatest such reduction if 2 or more are made for the same asset);
or nil if there are none.
unrealised net loss means the company’s unrealised net loss at the last changeover time that occurred before the relevant event.
Note: For changeover time see sections 165‑115C and 165‑115D.
165‑115C Changeover time—change in ownership of company
(1) A time (the test time) is a changeover time in respect of a company if:
(a) persons who had *more than 50% of the voting power in the company at the reference time do not have more than 50% of that voting power immediately after the test time; or
(b) persons who had rights to *more than 50% of the company’s dividends at the reference time do not have rights to more than 50% of those dividends immediately after the test time; or
(c) persons who had rights to *more than 50% of the company’s capital distributions at the reference time do not have rights to more than 50% of those distributions immediately after the test time.
Note 1: See section 165‑150 to work out who had more than 50% of the voting power in the company.
Note 2: See section 165‑155 to work out who had rights to more than 50% of the company’s dividends.
Note 3: See section 165‑160 to work out who had rights to more than 50% of the company’s capital distributions.
Note 4: For reference time see subsection 165‑115A(2A).
(2) To work out whether paragraph (1)(a), (b) or (c) applied at a particular time, apply the primary test unless subsection (3) requires the alternative test to be applied.
Note: For the primary test see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
(3) Apply the alternative test if one or more other companies beneficially owned *shares or interests in shares in the company at any time during the period from the reference time to the *test time.
Note: For the alternative test see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
(4) A *test time that would, apart from this subsection, be a changeover time in respect of the company because of the application of subsection (1) is taken not to be a changeover time if:
(a) that subsection would not have applied except for the operation of section 165‑165; and
(b) the company has information from which it would be reasonable to conclude that less than 50% of the company’s unrealised net loss at the test time 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 in the company during the period from the reference time to the test time.
(4A) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the period from the reference time to the *test time, the test time is taken not to be a *changeover time in respect of the company because of the application of paragraphs (1)(b) and (c).
(5) The happening of any *CGT event in relation to a *direct equity interest or *indirect equity interest in the company that results in the time of the happening of the event being a changeover time in respect of the company is taken, for the purposes of paragraph (4)(b), to have occurred during the period referred to in that paragraph.
165‑115D Changeover time—change in control of company
(1) A time (the test time) is also a changeover time in respect of a company if, at the test time:
(a) a person or persons who did not control, and were not able to control, the voting power in the company at the reference time began to control, or became able to control, that voting power immediately after the test time; and
(b) that person or those persons so began, or became able, to control that voting power for the purpose of:
(i) getting some benefit or advantage in relation to how this Act applies; or
(ii) getting such a benefit or advantage for someone else;
or for purposes including that purpose.
Note: A person can still control the voting power in a company that is in liquidation etc.: see section 165‑250.
(2) In this section:
control of the voting power in a company means control of that voting power either directly, or indirectly through one or more interposed entities.
165‑115E What is an unrealised net loss
(1) The question whether a company has an unrealised net loss at a particular time (the relevant time) is worked out in this way (the individual asset method), unless the company chooses to work it out using the *global method (set out in subsection (2)).
Method statement
Step 1. Work out under section 165‑115F in respect of each *CGT asset that the company owned at the relevant time any notional capital gain or notional revenue gain or any notional capital loss or notional revenue loss that the company has at that time in respect of the asset.
The sum of the notional capital gains is the company’s unrealised capital gain at the relevant time.
The sum of the notional capital losses is the company’s unrealised capital loss at the relevant time.
The sum of the notional revenue gains is the company’s unrealised revenue gain at the relevant time.
The sum of the notional revenue losses is the company’s unrealised revenue loss at the relevant time.
Step 2. Add up the unrealised capital gain and the unrealised revenue gain at the relevant time. The total is the unrealised gross gain at that time.
Step 3. Add up the unrealised capital loss and the unrealised revenue loss at the relevant time. The total is the unrealised gross loss at that time.
Step 4. If the unrealised gross loss at the relevant time exceeds the unrealised gross gain at that time, the excess is the company’s preliminary unrealised net loss at that time.
Step 5. Add up the company’s preliminary unrealised net loss and any *capital loss, deduction or share of a deduction disregarded under section 170‑270 in relation to an asset referred to in paragraph 165‑115A(1A)(b). The total is the company’s unrealised net loss at the relevant time.
(2) The global method of working out whether the company has an unrealised net loss at the relevant time is as follows:
Method statement
Step 1. Work out the total *market value of all *CGT assets that the company owned at the relevant time (including those it *acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.
Step 2. Work out the total of the *cost bases of those *CGT assets at the relevant time.
Note: If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection (3) of this section.
Step 3. If the step 2 amount exceeds the step 1 amount, the excess is the company’s preliminary unrealised net loss at the relevant time.
Step 4. Add up the company’s preliminary unrealised net loss and any *capital loss, deduction or share of a deduction disregarded under section 170‑270 in relation to an asset referred to in paragraph 165‑115A(1A)(b). The total is the company’s unrealised net loss at the relevant time.
(3) If:
(a) a *CGT asset that the company owned at the relevant time was also *trading stock or a *revenue asset at that time; and
(b) the asset’s *cost base at the relevant time is less than the amount that would be compared under section 165‑115F with the asset’s *market value in working out a notional revenue gain or notional revenue loss that the company has at the relevant time in respect of the asset;
then, for the purposes of step 2 of the method statement in subsection (2) of this section, the amount that would be so compared is to be taken into account instead of that cost base.
(4) A choice to use the *global method must be made on or before:
(a) the day on which the company lodges its *income tax return for the income year in which the relevant time occurred; or
(b) such later day as the Commissioner allows.
165‑115F Notional gains and losses
(1) This section applies for the purpose of calculating whether a company has at a particular time (the relevant time) a notional capital gain, a notional capital loss, a notional revenue gain or a notional revenue loss in respect of a *CGT asset that it owned at that time.
(2) The calculation is to be made on the assumption that the company disposed of the asset at its *market value at the relevant time.
(3) In relation to an asset other than an item of *trading stock:
(a) if the company would make a *capital gain in respect of the disposal of the asset—the company has at the relevant time in respect of the asset a notional capital gain equal to the amount of the capital gain; or
(b) if an amount (other than a capital gain) would be included in the company’s assessable income in respect of the disposal of the asset—the company has at the relevant time in respect of the asset a notional revenue gain equal to the amount so included; or
(c) if the company would make a *capital loss in respect of the disposal of the asset—the company has at the relevant time in respect of the asset a notional capital loss equal to the amount of the capital loss; or
(d) if the company would be entitled to a deduction in respect of the disposal of the asset—the company has at the relevant time in respect of the asset a notional revenue loss equal to the amount of the deduction.
(4) In relation to an asset that is an item of *trading stock:
(a) if the item’s *market value at the relevant time exceeds:
(i) in respect of an item that has been valued under Division 70—the item’s latest valuation under that Division; or
(ii) otherwise—the *cost of the item at the relevant time;
the company has at the relevant time in respect of the article a notional revenue gain equal to the excess; or
(b) if the item’s market value at the relevant time is less than:
(i) in respect of an item that has been valued under Division 70—the item’s latest valuation under that Division; or
(ii) otherwise—the *cost of the item at the relevant time;
the company has at the relevant time in respect of the article a notional revenue loss equal to the difference.
(5) A company may choose that this section is to apply to the company at the relevant time in respect of an asset to which subsection (6) applied at that time as if references to the *market value of the asset were references to its *written down value.
(6) This subsection applies to an asset at the relevant time if:
(a) the asset is a *depreciating asset (not a building or structure) for whose decline in value the company has deducted or can deduct an amount; and
(b) the expenditure incurred by the company to *acquire the asset was less than $1,000,000 (the expenditure can include the giving of property: see section 103‑5); and
(c) it would be reasonable for the company to conclude that the *market value of the asset at that time was not less than 80% of its *written down value at that time.
Subdivision 165‑CD—Reductions after alterations in ownership or control of loss company
Guide to Subdivision 165‑CD
165‑115GA What this Subdivision is about
This Subdivision prevents multiple recognition of a company’s losses when significant equity and debt interests that entities (not individuals) have in the company are realised.
165‑115GB When adjustments must be made
(1) The operation of this Subdivision is triggered at an alteration time, which is when:
(a) an alteration takes place in the ownership or control of the company; or
(b) a liquidator or administrator of the company declares that shares or financial instruments are worthless (CGT event G3).
(2) An alteration time is the trigger for making reductions and other adjustments to the reduced cost base of significant equity and debt interests in the company that are owned by an entity (not an individual) that, alone or with its associates, has a controlling stake in the company and either:
(a) has a *direct equity interest or *indirect equity interest of at least 10% in the company; or
(b) is owed a debt of at least $10,000 by the company or by another entity that has a significant equity or debt interest in the company.
Deductions that relate to such interests held as trading stock or otherwise on revenue account are also reduced.
(3) Adjustments may also be made when such an entity’s interests in the company are partly realised within 12 months before an alteration time or if, under an arrangement, such interests are realised partly within that period or at the alteration time and partly at an earlier time.
(4) However, entities in which there are no interests in respect of which the company’s losses have been, or can be, duplicated are not affected by this Subdivision.
165‑115GC How adjustments are calculated
(1) Adjustments are based on the overall loss of the company. This comprises its realised losses and unrealised losses on CGT assets.
(2) Special rules, directed at saving compliance costs, apply to determine whether unrealised losses have to be counted at an alteration time and, if so, how to work them out.
(3) The company may not have to calculate its unrealised losses if the alteration time is not also a changeover time for the purposes of Subdivision 165‑CC (about change of ownership or control of a company that has an unrealised net loss), and the company has no realised losses.
(4) The company does not have to count unrealised losses at an alteration time if (together with certain related entities) it has a net asset value of not more than $6,000,000 under the test in section 152‑15 (for small business CGT relief).
(5) In working out its unrealised losses on CGT assets, the company can choose to work out the *market value of each of its assets individually, or of all of its assets together.
(6) If the company works out the *market value of each of its assets individually, unrealised losses on assets acquired for less than $10,000 do not have to be calculated at any time.
(7) Amounts (whether realised or unrealised) counted at a previous alteration time are not counted again at a later alteration time. (This does not apply to unrealised losses worked out by reference to the *market value of all the company’s assets together.)
(8) However, if unrealised amounts are not counted at a previous alteration time (for example, because of the $10,000 exclusion, or because you satisfy the maximum net asset value test in section 152‑15) and are not required to be taken into account in adjustments made at that time, they may be counted at a later time as part of a realised loss.
(9) A formula is provided for making adjustments in straightforward cases if applying the formula gives a reasonable result having regard to the object of the Subdivision. Otherwise, reasonable adjustments must be made having regard to a number of stated factors.
(10) To help entities to make the adjustments, any entity that, in its own right, has a controlling stake in the company is required to provide a written notice to its associates setting out relevant information. In limited circumstances, the company itself may have to provide a written notice to entities that, to its knowledge, have a significant equity or debt interest in it.
165‑115H How this Subdivision applies
(1) This Subdivision provides for certain taxation consequences for an entity (not an individual) that had a significant equity or debt interest in a loss company immediately before an alteration time occurred in respect of the company.
(2) The following flowchart explains how to work out whether this Subdivision applies to an entity.
(3) If this Subdivision applies to an entity, reductions are made to:
(a) the reduced cost base of the entity’s equity or debt (see subsection 165‑115ZA(3)); or
(b) any deduction to which the entity is entitled in respect of the disposal of the equity or debt (see subsection 165‑115ZA(4)); or
(c) deductions in respect of, and the cost of, any of the equity or debt that is trading stock (see subsection 165‑115ZA(5)).
Example: The following is an example of how this Subdivision operates:
Facts: Alpha Co acquired 80% of the shares in Beta Co on 5 May 1998 for $1,000.
Gamma Co owns 20% of the shares in Beta Co.
On 6 February 2000, Alpha Co disposed of its shares for $600.
At the beginning of the 1999‑2000 income year, Beta Co had an unapplied net capital loss of $500 from the 1998‑99 income year. This loss was fully reflected in the market value of shares in Beta Co.
Alpha Co and Gamma Co are not associated in any way.
Result:
Step 1: An alteration time occurred in respect of Beta Co as a result of the change in ownership that occurred when Alpha Co sold its shares.
Step 2: Beta Co was a loss company at the alteration time because it had an unapplied net capital loss from an earlier income year.
Step 3: Alpha Co had a relevant equity interest in Beta Co immediately before the alteration time because it had a controlling stake and significant interest (80% equity interest). Gamma Co did not have a relevant equity interest in Beta Co because it did not have a controlling stake.
Step 4: Because Alpha Co had a relevant equity interest in Beta Co, the reduced cost bases of its shares in Beta Co are reduced by 80% of Beta Co’s net capital loss:
Alpha Co does not make a capital gain on the disposal of its shares in Beta Co because the capital proceeds ($600) are less than the cost bases ($1,000).
Nor did Alpha Co make a capital loss on the disposal of its shares in Beta Co because the capital proceeds ($600) are not less than the reduced cost bases as further reduced by this Subdivision ($600).
The net capital loss in Beta Co is not duplicated on the sale of Alpha Co’s shares in Beta Co.
Step 5. There are no notice requirements in this simple case. If Gamma Co and Alpha Co were associates (so that Gamma Co had a relevant equity interest in Beta Co), Alpha Co would need to provide the following information to Gamma Co:
(a) the alteration time: 6 February 2000;
(b) Beta Co’s overall loss at the alteration time: $500;
(c) details of the overall loss: a net capital loss of $500 for the 1998‑99 income year.
Table of sections
Operative provisions
165‑115J Object of Subdivision
165‑115K Application and interpretation
165‑115L Alteration time—alteration in ownership of company
165‑115M Alteration time—alteration in control of company
165‑115N Alteration time—declaration by liquidator or administrator
165‑115P Notional alteration time—disposal of interests in company within 12 months before alteration time
165‑115Q Notional alteration time—disposal of interests in company earlier than 12 months before alteration time
165‑115R When company is a loss company at first or only alteration time in income year
165‑115S When company is a loss company at second or later alteration time in income year
165‑115T Reduction of certain amounts included in company’s overall loss at alteration time
165‑115U Adjusted unrealised loss
165‑115V Notional losses
165‑115W Calculation of trading stock decrease
165‑115X Relevant equity interest
165‑115Y Relevant debt interest
165‑115Z What constitutes a controlling stake in a company
165‑115ZAReductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time
165‑115ZBAdjustment amounts for the purposes of section 165‑115ZA
165‑115ZCNotices to be given
165‑115ZDAdjustment (or further adjustment) for interest realised at a loss after global method has been used
Operative provisions
165‑115J Object of Subdivision
The main object of this Subdivision is to make appropriate adjustments (under section 165‑115ZA) to the tax values of significant equity and debt interests held directly or indirectly by entities other than individuals in a *loss company whose ownership or control alters.
The purpose of the adjustments is to prevent the duplication of the company’s realised and unrealised losses when any of those interests are *disposed of or otherwise realised. This happens because the company’s losses are reflected in the values of the interests.
165‑115K Application and interpretation
Application
(1) This Subdivision applies if:
(a) an alteration time occurs in respect of a company; and
(b) the company is a *loss company at the alteration time; and
(c) one or more entities had relevant equity interests or relevant debt interests in the company immediately before the alteration time.
Note 1: For alteration time, see sections 165‑115L, 165‑115M, 165‑115N, 165‑115P and 165‑115Q.
Note 2: For relevant equity interests and relevant debt interests, see sections 165‑115X and 165‑115Y.
Alteration time before commencement time to be disregarded
(2) An alteration time does not include a time before the commencement time.
Commencement time
(3) The commencement time for a company is:
(a) if the company was in existence at 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999—that time; or
(b) if the company came into existence after that time—the time when it came into existence.
Certain alteration times to be disregarded
(4) If:
(a) a time (the test time) would, apart from this subsection, be an alteration time in relation to a company; and
(b) the company does not have any losses of the kinds referred to in paragraphs 165‑115R(3)(a), (b), (c) and (d) and 165‑115S(3)(a) and (b); and
(c) the test time is not a changeover time in relation to the company under Subdivision 165‑CC; and
(d) if the test time were such a changeover time, it would be reasonable for the company to conclude that it would not have an unrealised net loss at that time under section 165‑115E;
the test time is taken not to be an alteration time in relation to the company.
Application to CGT events other than disposals
(5) This Subdivision applies to a *CGT event (other than a *disposal) happening in relation to a CGT asset (for example, an interest in a company that is constituted by an equity or debt):
(a) in the same way as it applies to a disposal of a CGT asset; and
(b) as if the asset had been disposed of at the time when the CGT event happens.
165‑115L Alteration time—alteration in ownership of company
(1) A time (the test time) is an alteration time in respect of a company if:
(a) persons who had *more than 50% of the voting power in the company at the reference time do not have more than 50% of that voting power immediately after the test time; or
(b) persons who had rights to *more than 50% of the company’s dividends at the reference time do not have rights to more than 50% of those dividends immediately after the test time; or
(c) persons who had rights to *more than 50% of the company’s capital distributions at the reference time do not have rights to more than 50% of those distributions immediately after the test time.
Note 1: See section 165‑150 to work out who had more than 50% of the voting power in the company.
Note 2: See section 165‑155 to work out who had rights to more than 50% of the company’s dividends.
Note 3: See section 165‑160 to work out who had rights to more than 50% of the company’s capital distributions.
(2) The reference time is:
(a) if no alteration time occurred in respect of the company before the *test time—the commencement time; or
(b) otherwise—the time immediately after the last alteration time.
(3) To work out whether paragraph (1)(a), (b) or (c) applied at a particular time, apply the primary test unless subsection (4) requires the alternative test to be applied.
Note: For the primary test see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
(4) Apply the alternative test if one or more other companies beneficially owned *shares or interests in shares in the company at any time during the period from the reference time to the *test time.
Note: For the alternative test see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
(5) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the period from the reference time to the *test time, the test time is taken not to be an *alteration time in respect of the company because of the application of paragraphs (1)(b) and (c).
165‑115M Alteration time—alteration in control of company
(1) A time (the test time) is also an alteration time in respect of a company if, at the test time:
(a) a person or persons who did not control, and were not able to control, the voting power in the company at the reference time began to control, or became able to control, that voting power immediately after the test time; and
(b) that person or those persons so began, or became able, to control that voting power for the purpose of:
(i) getting some benefit or advantage in relation to how this Act applies; or
(ii) getting such a benefit or advantage for someone else;
or for purposes including that purpose.
Note: A person can still control the voting power in a company that is in liquidation etc.: see section 165‑250.
(2) The reference time is:
(a) if no alteration time occurred in respect of the company before the *test time—the commencement time; or
(b) otherwise—the time immediately after the last alteration time.
(3) In this section:
control of the voting power in a company means control of that voting power either directly, or indirectly through one or more interposed entities.
165‑115N Alteration time—declaration by liquidator or administrator
If a liquidator or administrator makes a declaration referred to in section 104‑145 in relation to a company, the time of the declaration is also an alteration time in respect of the company.
165‑115P Notional alteration time—disposal of interests in company within 12 months before alteration time
(1) This section applies if:
(a) an alteration time occurs in respect of a *loss company; and
(b) an entity *disposed of an interest in the company (an equity) or a debt (a debt) at a time (the disposal time) within 12 months before the alteration time but not earlier than the commencement time; and
(c) immediately before the disposal time, the entity had a relevant equity interest or a relevant debt interest in the company that included the equity or debt, or would have had such an interest if any previous disposals of interests or debts by the entity had not occurred; and
(d) immediately before the alteration time, the entity had a relevant equity interest or a relevant debt interest in the company, or would have had such an interest if any previous disposals of interests or debts by the entity had not occurred.
(2) The references in paragraphs (1)(c) and (d) to previous *disposals of interests or debts by the entity are references to:
(a) previous disposals within the period referred to in paragraph (1)(b); and
(b) previous disposals before that period if those previous disposals and any one or more of the following:
(i) the disposal of the equity or debt;
(ii) a disposal referred to in paragraph (a);
(iii) a disposal at the alteration time;
occurred as part of an *arrangement.
(3) The time immediately before the *disposal of the equity or debt is taken to have been an alteration time (a notional alteration time) in respect of the company.
(4) The entity:
(a) is taken to have had, immediately before the notional alteration time, a relevant equity interest in the company constituted by the equity or a relevant debt interest in the company constituted by the debt, as the case may be; and
(b) is taken not to have had, immediately before the notional alteration time, any other relevant equity interest or relevant debt interest in the company.
(5) No entity (other than the entity referred to in paragraph (1)(b)) is taken to have had a relevant equity interest or a relevant debt interest in the company immediately before the notional alteration time.
(6) In applying this Subdivision in relation to the company in respect of a time after a notional alteration time, the notional alteration time is taken not to have occurred.
Note: For relevant equity interests and relevant debt interests, see sections 165‑115X and 165‑115Y.
165‑115Q Notional alteration time—disposal of interests in company earlier than 12 months before alteration time
(1) This section applies if:
(a) an alteration time occurs in respect of a *loss company; and
(b) an entity that *disposed of an interest in the company (the later equity) or a debt (the later debt) at, or within 12 months before, the alteration time also disposed of an interest in the company (the earlier equity) or a debt (the earlier debt) at a time (the earlier disposal time) earlier than 12 months before the alteration time but not earlier than the commencement time; and
(c) the disposal of the later equity or later debt and the disposal of the earlier equity or earlier debt occurred as part of an *arrangement; and
(d) immediately before the earlier disposal time, the entity had a relevant equity interest or a relevant debt interest in the company that included the earlier equity or earlier debt, or would have had such an interest if any previous disposals of interests or debts by the entity had not occurred; and
(e) immediately before the alteration time, the entity had a relevant equity interest or a relevant debt interest in the company, or would have had such an interest if any previous disposals of interests or debts by the entity had not occurred.
(2) The references in paragraphs (1)(d) and (e) to previous *disposals of interests or debts by the entity are references to:
(a) previous disposals within the period referred to in paragraph (1)(b); and
(b) previous disposals before that period if those previous disposals and any one or more of the following:
(i) the disposal of the equity or debt;
(ii) a disposal referred to in paragraph (a);
(iii) a disposal at the alteration time;
occurred as part of an *arrangement.
(3) The time immediately before the *disposal of the earlier equity or earlier debt is taken to have been an alteration time (a notional alteration time) in respect of the company.
(4) The entity:
(a) is taken to have had, immediately before the notional alteration time, a relevant equity interest in the company constituted by the earlier equity or a relevant debt interest in the company constituted by the earlier debt, as the case may be; and
(b) is taken not to have had, immediately before the notional alteration time, any other relevant equity interest or relevant debt interest in the company.
(5) No entity (other than the entity referred to in paragraph (1)(b)) is taken to have had a relevant equity interest or a relevant debt interest in the company immediately before the notional alteration time.
(6) In applying this Subdivision in relation to the company in respect of a time after a notional alteration time, the notional alteration time is taken not to have occurred.
Note: For relevant equity interests and relevant debt interests, see sections 165‑115X and 165‑115Y.
165‑115R When company is a loss company at first or only alteration time in income year
Application
(1) The question whether a company is a loss company at the first or only alteration time in a particular income year is to be worked out in this way.
Assumed income year
(2) Assume that the period that started at the beginning of the income year and ended at the alteration time is an income year and apply paragraphs (3)(a), (b), (c) and (d) on that assumption.
What is a loss company
(3) The company is a loss company at the alteration time if:
(a) at the beginning of the income year it had a *tax loss or tax losses for an earlier income year or earlier income years; or
(b) at the beginning of the income year it had a *net capital loss or net capital losses for an earlier income year or earlier income years; or
(c) it has a tax loss for the income year, calculated as if the income year were a period for the purposes of Subdivision 165‑B; or
(d) it has a net capital loss for the income year, calculated as if the income year were a period for the purposes of Subdivision 165‑CB; or
(e) it has an adjusted unrealised loss at the alteration time.
Note: For adjusted unrealised loss, see section 165‑115U.
How losses are to be calculated
(4) In applying subsection (3):
(a) a *tax loss or *net capital loss that was taken into account in working out under this section whether the company was a *loss company at an alteration time in a previous income year is to be disregarded; and
(b) Subdivision 170‑D is to be disregarded.
Overall loss
(5) The sum of:
(a) the amount or amounts of any *tax loss or tax losses referred to in paragraph (3)(a); and
(b) the amount or amounts of any *net capital loss or net capital losses referred to in paragraph (3)(b); and
(c) the amount of any tax loss referred to in paragraph (3)(c); and
(d) the amount of any net capital loss referred to in paragraph (3)(d); and
(e) the amount of any adjusted unrealised loss referred to in paragraph (3)(e);
is the *loss company’s overall loss at the alteration time.
Note: The loss company’s overall loss is relevant for the purposes of subsections 165‑115ZB(3) and (6).
Certain losses to be disregarded
(6) A reference in a paragraph of subsection (3) and in the corresponding paragraph of subsection (5) to a particular loss is a reference only to a loss to the extent to which it represents an outlay or loss of any of the economic resources of the company.
Note: Where the income tax law allows, as all or part of a loss, an amount for the decline in value of a depreciating asset that exceeds the actual economic depreciation or depletion of the asset concerned, the excess is not to be regarded for the purposes of this subsection as representing an outlay or loss of economic resources of the company.
(6A) Subsection (6) does not apply to paragraphs (3)(e) and (5)(e) if the company has chosen to use the *global method of working out whether it has an adjusted unrealised loss at the alteration time.
Amounts of losses may be reduced
(7) The amounts referred to in paragraphs (5)(a) to (d) may be reduced under section 165‑115T.
165‑115S When company is a loss company at second or later alteration time in income year
Application
(1) The question whether a company is a loss company at an alteration time (the current alteration time) that is the second or a later alteration time in the same income year is to be worked out in this way.
Assumed income year
(2) Assume that the period that started immediately after the last alteration time and ended at the current alteration time is an income year and apply paragraphs (3)(a) and (b) on that assumption.
What is a loss company
(3) The company is a loss company at the current alteration time if:
(a) it has a *tax loss for the income year, calculated as if the income year were a period for the purposes of Subdivision 165‑B; or
(b) it has a *net capital loss for the income year, calculated as if the income year were a period for the purposes of Subdivision 165‑CB; or
(c) it has an adjusted unrealised loss at the current alteration time.
Note: For adjusted unrealised loss, see section 165‑115U.
How losses are to be calculated
(4) In applying subsection (3), Subdivision 170‑D is to be disregarded.
Overall loss
(5) The sum of:
(a) the amount of any *tax loss referred to in paragraph (3)(a); and
(b) the amount of any *net capital loss referred to in paragraph (3)(b); and
(c) the amount of any adjusted unrealised loss referred to in paragraph (3)(c);
is the *loss company’s overall loss at the current alteration time.
Note: The loss company’s overall loss is relevant for the purposes of subsections 165‑115ZB(3) and (6).
Certain losses to be disregarded
(6) A reference in a paragraph of subsection (3) and in the corresponding paragraph of subsection (5) to a particular loss is a reference only to a loss to the extent to which it represents an outlay or loss of any of the economic resources of the company.
Note: Where the income tax law allows, as all or part of a loss, an amount for the decline in value of a depreciating asset that exceeds the actual economic depreciation or depletion of the asset concerned, the excess is not to be regarded for the purposes of this subsection as representing an outlay or loss of economic resources of the company.
(6A) Subsection (6) does not apply to paragraphs (3)(c) and (5)(c) if the company has chosen to use the *global method of working out whether it has an adjusted unrealised loss at the current alteration time.
Amounts of losses may be reduced
(7) The amounts referred to in paragraphs (5)(a) and (b) may be reduced under section 165‑115T.
165‑115T Reduction of certain amounts included in company’s overall loss at alteration time
(1) In working out under section 165‑115R or 165‑115S whether a company was a *loss company at an alteration time (the current alteration time), if a loss (the realised loss) referred to in paragraph 165‑115R(3)(a), (b), (c) or (d) or 165‑115S(3)(a) or (b) that the company had at the current alteration time reflected an amount of a notional revenue loss, a trading stock decrease or a notional capital loss included in an adjusted unrealised loss, that the company had at a previous alteration time, the realised loss is taken to be reduced by that amount.
Note 1: For notional revenue loss and notional capital loss see section 165‑115V.
Note 2: For trading stock decrease see section 165‑115W.
(2) Subsection (1) does not apply to an adjusted unrealised loss that the company had at a previous alteration time if the company has chosen to use the *global method of working out whether it has an adjusted unrealised loss at that previous time.
165‑115U Adjusted unrealised loss
(1) The question whether a company has an adjusted unrealised loss at an alteration time (the relevant alteration time) is worked out in this way (the individual asset method), unless the company chooses to work it out using the *global method (set out in subsection (1B)).
Method statement
Step 1. Work out under section 165‑115V or 165‑115W in respect of each *CGT asset that the company owned at the relevant alteration time any notional capital loss, notional revenue loss or trading stock decrease that the company has at that time in respect of the asset.
To the extent that a notional capital loss or a notional revenue loss in respect of an asset at the relevant alteration time reflected an amount that was counted at an earlier alteration time, do not count it again at the relevant alteration time.
Step 2. Add up the notional capital losses and the notional revenue losses that the company had at the relevant alteration time. The total is the company’s nominal unrealised loss at that time.
Step 3. Add up the trading stock decreases that the company had at the relevant alteration time. The total is the company’s overall trading stock decrease at that time.
Step 4. The sum of the company’s nominal unrealised loss and overall trading stock decrease at the relevant time is the company’s adjusted unrealised loss at that time.
Note: Certain alteration times are disregarded (see subsections 165‑115K(2) and (4)).
(1A) Step 1 in the method statement in subsection (1) does not apply to an amount that was counted at an earlier alteration time if the company has chosen to use the *global method of working out whether it has an adjusted unrealised loss at that earlier time.
(1B) The global method of working out whether the company has an adjusted unrealised loss at the relevant alteration time is as follows:
Method statement
Step 1. Work out the total *market value of all *CGT assets that the company owned at the relevant alteration time (including those it *acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.
Step 2. Work out the total of the *cost bases of those *CGT assets at the relevant time.
Note: If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection (1C) of this section.
Step 3. If the step 2 amount exceeds the step 1 amount, the excess is the company’s adjusted unrealised loss at the relevant time.
(1C) If:
(a) a *CGT asset that the company owned at the relevant alteration time was also *trading stock or a *revenue asset at that time; and
(b) the asset’s *cost base at the relevant alteration time is less than the amount that, if the relevant alteration time were a changeover time, would be compared under section 165‑115F with the asset’s *market value in working out a notional revenue gain or notional revenue loss that the company would have at the changeover time in respect of the asset;
then, for the purposes of step 2 of the method statement in subsection (1B) of this section, the amount that would be so compared is to be taken into account instead of that cost base.
(1D) A choice to use the *global method must be made on or before:
(a) the day on which the company lodges its *income tax return for the income year in which the relevant alteration time occurred; or
(b) such later day as the Commissioner allows.
(2) However, the company does not have an adjusted unrealised loss at the relevant alteration time if the company would, at that time, satisfy the maximum net asset value test under section 152‑15.
165‑115V Notional losses
(1) This section applies for the purpose of calculating whether a company has at an alteration time a notional capital loss or a notional revenue loss in respect of a *CGT asset that it owned at that time.
(2) However, a company does not have a notional capital loss or a notional revenue loss at an alteration time in respect of a CGT asset that it *acquired for less than $10,000.
(3) The calculation is to be made on the assumption that the company disposed of the asset at its *market value at the alteration time.
(4) If the company would make a *capital loss in respect of the disposal of the asset, the company has at the alteration time in respect of the asset a notional capital loss equal to the amount of the capital loss.
(5) If the company would be entitled to a deduction in respect of the disposal of the asset, the company has at the alteration time in respect of the asset a notional revenue loss equal to the amount of the deduction.
(6) A company may choose that this section is to apply to the company at the alteration time in respect of an asset to which subsection (7) applied at that time as if the reference in subsection (3) to the *market value of the asset were a reference to its *written down value.
(7) This subsection applies to an asset at the alteration time if:
(a) the asset is a *depreciating asset (not a building or structure) for whose decline in value the company has deducted or can deduct an amount; and
(b) the expenditure incurred by the company to *acquire the asset was less than $1,000,000 (the expenditure can include the giving of property: see section 103‑5); and
(c) it would be reasonable for the company to conclude that the *market value of the asset at the alteration time was not less than 80% of its *written down value at that time.
165‑115W Calculation of trading stock decrease
(1) The question whether there is a trading stock decrease in relation to a company at an alteration time for a *CGT asset of the company that was an item of *trading stock at that time is worked out in this way.
Method statement
Step 1. Work out whether the item’s *market value immediately before the alteration time was less than:
(a) if there was no earlier alteration time in the income year in which that alteration time occurred—the item’s value under subsection 70‑40(1) at the start of that income year or its cost if subsection 70‑40(2) applies; or
(b) if there was an earlier alteration time or there were earlier alteration times in that income year—the item’s market value immediately before that earlier alteration time or the later or latest of those earlier alteration times, as the case may be, or its cost if the company did not own it at that time.
Step 2. If the item’s *market value immediately before the alteration time was less than:
(a) the item’s value or cost referred to in paragraph (a) in step 1; or
(b) its market value or cost (as applicable) in paragraph (b) in step 1;
as the case requires, the difference is the trading stock decrease for the item.
To the extent (if any) to which the difference reflects an amount counted at an earlier alteration time, do not count that amount again.
Note: Certain alteration times are disregarded (see subsections 165‑115K(2) and (4)).
(1A) Step 2 in the method statement in subsection (1) does not apply to an amount counted at an earlier alteration time if the company has chosen to use the *global method of working out whether it has an adjusted unrealised loss at that earlier time.
(2) However, a company does not have a trading stock decrease at an alteration time in respect of an item of *trading stock that it *acquired for less than $10,000.
165‑115X Relevant equity interest
(1) An entity (not an individual) has a relevant equity interest in a *loss company at a particular time if:
(a) at that time the entity has a controlling stake in the loss company (see section 165‑115Z); and
(b) at that time the entity has an interest (an equity) that gives, or interests (each of which is also called an equity) that between them give, the entity:
(i) the control of, or the ability to control, 10% or more of the voting power in the loss company (either directly, or indirectly through one or more interposed entities); or
(ii) the right to receive (either directly, or indirectly through one or more interposed entities) 10% or more of any dividends that the loss company may pay; or
(iii) the right to receive (either directly, or indirectly through one or more interposed entities) 10% or more of any distribution of capital of the loss company; and
(c) the equity or each equity is either:
(i) an interest (including a *share or shares, or an option or right to acquire a share or shares) in the loss company; or
(ii) an interest (including an option or right to acquire an interest) held by the entity directly in another entity that has a relevant equity interest or relevant debt interest in the loss company.
(2) The equity or equities constitute the entity’s relevant equity interest in the *loss company.
(2A) A *widely held company that, apart from this subsection, would have a relevant equity interest in a *loss company at a particular time does not have such an interest at that time.
(2B) Subsection (2A) does not apply if:
(a) an entity has a controlling stake in the loss company (see section 165‑115Z); and
(b) that entity has a direct or indirect interest in, or is owed a debt by, the *widely held company, being an interest or debt in respect of which:
(i) the entity could, if a *CGT event happened in respect of the interest or debt, make a *capital loss (other than a capital loss that would be disregarded) that reflects any part of the loss company’s overall loss; or
(ii) the entity has deducted or can deduct, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(2C) Subsection (2A) does not apply in respect of a particular time if an entity that had a direct or indirect interest in, or was owed a debt by, the *widely held company at an earlier time, and had a controlling stake in the loss company (see section 165‑115Z) at the earlier time:
(a) made a capital loss (other than a capital loss that was disregarded) because a *CGT event happened in respect of the interest or debt, where the capital loss reflected any part of the *loss company’s overall loss; or
(b) has deducted or could have deducted at an earlier time, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(3) An entity (the first entity) that, apart from this subsection, would have a relevant equity interest in a *loss company at a particular time does not have such an interest if, at that time, there is no other entity that has a direct or indirect interest in, or is owed a debt by, the first entity, being an interest or debt in respect of which:
(a) the other entity could, if a *CGT event happened in respect of the interest or debt, make a *capital loss (other than a capital loss that would be disregarded) that reflects any part of the loss company’s overall loss; or
(b) the other entity has deducted or can deduct, or could deduct at a later time:
(i) an amount in respect of the cost of the *acquisition of the interest or debt; or
(ii) a net loss on the *disposal of the interest or debt;
where the deduction reflected, or would reflect, any part of the loss company’s overall loss.
(3A) Subsection (3) does not apply if the first entity is a *widely held company.
(4) Subsection (3) does not apply to the first entity in respect of a particular time if an entity that had a direct or indirect interest in, or was owed a debt by, the first entity at an earlier time:
(a) made a capital loss (other than a capital loss that was disregarded) because a *CGT event happened in respect of the interest or debt, where the capital loss reflected any part of the *loss company’s overall loss; or
(b) has deducted or could have deducted at an earlier time, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(5) An individual is not taken to have a relevant equity interest in a *loss company at any time.
(6) A partnership that consists only of individuals is not taken to have a relevant equity interest in a *loss company at any time.
(7) If section 106‑30, 106‑50 or 106‑60 would treat an act referred to in that section that is done in relation to an interest as having been done by an individual, the interest is not a relevant equity interest.
165‑115Y Relevant debt interest
(1) An entity (not an individual) has a relevant debt interest in a *loss company at a particular time if, at that time:
(a) the entity has a controlling stake in the loss company (see section 165‑115Z); and
(b) the entity is owed by the loss company a debt of not less than $10,000 (a debt) or debts at least one of which is not less than $10,000 (each debt of not less than $10,000 is also called a debt).
(2) An entity (not an individual) also has a relevant debt interest in a *loss company at a particular time if, at that time:
(a) the entity has a controlling stake in the loss company; and
(b) the entity is owed by an entity (the debtor entity) other than the loss company a debt of not less than $10,000 (also a debt) or debts at least one of which is not less than $10,000 (each debt of not less than $10,000 is also called a debt); and
(c) the debtor entity has a relevant equity interest or a relevant debt interest in the loss company.
(3) The total of the debts referred to in subsections (1) and (2) constitutes the entity’s relevant debt interest in the *loss company.
(3A) A *widely held company that, apart from this subsection, would have a relevant debt interest in a *loss company at a particular time does not have such an interest at that time.
(3B) Subsection (3A) does not apply if:
(a) an entity has a controlling stake in the loss company (see section 165‑115Z); and
(b) that entity has a direct or indirect interest in, or is owed a debt by, the *widely held company, being an interest or debt in respect of which:
(i) the entity could, if a *CGT event happened in respect of the interest or debt, make a *capital loss (other than a capital loss that would be disregarded) that reflects any part of the loss company’s overall loss; or
(ii) the entity has deducted or can deduct, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(3C) Subsection (3A) does not apply in respect of a particular time if an entity that had a direct or indirect interest in, or was owed a debt by, the *widely held company at an earlier time, and had a controlling stake in the *loss company (see section 165‑115Z) at the earlier time:
(a) made a *capital loss (other than a capital loss that was disregarded) because a *CGT event happened in respect of the interest or debt, where the capital loss reflected any part of the loss company’s overall loss; or
(b) has deducted or could have deducted at an earlier time, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(4) An entity (the first entity) that, apart from this subsection, would have a relevant debt interest in a *loss company at a particular time does not have such an interest if, at that time, there is no other entity that has a direct or indirect interest in, or is owed a debt by, the first entity, being an interest or debt in respect of which:
(a) the other entity could, if a *CGT event happened in respect of the interest or debt, make a *capital loss (other than a capital loss that would be disregarded) that reflects any part of the loss company’s overall loss; or
(b) the other entity could deduct, or can deduct or could deduct at a later time:
(i) an amount in respect of the cost of the *acquisition of the interest or debt; or
(ii) a net loss on the *disposal of the interest or debt;
where the deduction reflects, or would have reflected, any part of the loss company’s overall loss.
(4A) Subsection (4) does not apply if the first entity is a *widely held company.
(5) Subsection (4) does not apply to the first entity in respect of a particular time if an entity that had a direct or indirect interest in, or was owed a debt by, the first entity at an earlier time:
(a) made a capital loss (other than a capital loss that would be disregarded) at an earlier time because a *CGT event happened in respect of the interest or debt, where the capital loss reflected any part of the *loss company’s overall loss; or
(b) has deducted or could have deducted at an earlier time, or could deduct at a later time, an amount in respect of the cost of the *acquisition, or a net loss on the *disposal, of the interest or debt, where the deduction reflected or would have reflected, or would reflect, as the case may be, any part of the company’s overall loss.
(6) An individual is not taken to have a relevant debt interest in a *loss company at any time.
(7) A partnership that consists only of individuals is not taken to have a relevant debt interest in a *loss company at any time.
(8) If section 106‑30, 106‑50 or 106‑60 would treat an act referred to in that section that is done in relation to a debt as having been done by an individual, the debt is not a relevant debt interest.
165‑115Z What constitutes a controlling stake in a company
(1) An entity has a controlling stake in a company at a particular time if the entity, or the entity and the entity’s *associates between them:
(a) are able at that time to exercise, or control the exercise of, more than 50% of the voting power in the company (either directly, or indirectly through one or more interposed entities); or
(b) have at that time the right to receive (either directly, or indirectly through one or more interposed entities) more than 50% of any dividends that the company may pay; or
(c) have at that time the right to receive (either directly, or indirectly through one or more interposed entities) more than 50% of any distribution of capital of the company.
Note: The effect of subsection (1) is that, if an entity has a controlling stake in a company, each associate of the entity also has a controlling stake in the company.
(2) If:
(a) apart from this subsection, an interest that gives an entity and its *associates (if any):
(i) the ability to exercise, or control the exercise of, any of the voting power in a company; or
(ii) the right to receive dividends that a company may pay; or
(iii) the right to receive a distribution of capital of a company;
would, in the application of paragraph (1)(a), (b) or (c), be counted more than once; and
(b) the interest is both direct and indirect;
only the direct interest is to be counted.
165‑115ZA Reductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time
Application of section
(1) This section applies to an entity (an affected entity) that has a relevant equity interest or a relevant debt interest, or both, in a *loss company immediately before a time (a relevant time) that is an alteration time in respect of the loss company.
Note: This section and section 165‑115ZB can apply differently for a company that has used the global method of working out whether it has an adjusted unrealised loss at an alteration time. See section 165‑115ZD.
Application of section nullified in certain circumstances
(2) However, if:
(a) this section has applied to an entity in respect of a debt owed to the entity; and
(b) Subdivisions 245‑C to 245‑G (which relate to the forgiveness of commercial debts) also applied in respect of the debt at the same time or at a later time;
any reductions or other consequences affecting the entity in respect of the debt under this section are taken not to have occurred or to have been required to occur.
Note: An amendment of an assessment can be made at any time to give effect to this subsection (see subsection 170(10AA) of the Income Tax Assessment Act 1936).
Reduction of reduced cost base
(3) The *reduced cost base of an equity or debt that was *acquired on or after 20 September 1985 is to be reduced immediately before the relevant time by the adjustment amount calculated under section 165‑115ZB.
Reduction of deduction—equity or debt is not trading stock
(4) If an equity or debt is not an item of *trading stock of the affected entity immediately before the relevant time, any amount that the entity can deduct in respect of the disposal of any of the equity or debt is to be reduced by the adjustment amount calculated under section 165‑115ZB.
Reduction of cost—equity or debt is trading stock
(5) If:
(a) an equity or debt is an item of *trading stock of the affected entity immediately before the relevant time; and
(b) the *cost for the purposes of Division 70 of the equity or debt exceeds its *market value immediately before the relevant time;
then, subject to any later application or applications of this Subdivision, the cost of the equity or debt for the purposes of Division 70, and any deduction for an outlay to *acquire it, are reduced by the lesser of the following amounts or, if they are equal, by one of them:
(c) the adjustment amount calculated under section 165‑115ZB;
(d) the amount of the excess referred to in paragraph (b).
Subsection (4) to apply only in respect of certain income years
(6) For the purpose of working out:
(a) deductions under section 8‑1; or
(b) whether an amount is included in assessable income under subsection 70‑35(2); or
(c) whether an amount can be deducted under subsection 70‑35(3);
subsection (5) applies only in respect of income years ending after the later of the following:
(d) the commencement time;
(e) the time 12 months before the relevant time.
Further election to value trading stock
(7) If an election has been made under section 70‑45 to value an item of *trading stock on hand at the end of an income year otherwise than at its *cost and subsection (5) applies in respect of it, a further election may be made under that section to value the item of trading stock at cost.
Previous applications of this section in relation to trading stock to be taken into account
(8) In applying this section to the affected entity in respect of an equity or debt that is *trading stock of the entity, any previous applications of this section to the entity in respect of the equity or debt are to be taken into account.
Cost of equity or debt that becomes trading stock after relevant time
(9) If:
(a) an equity or debt becomes an item of *trading stock of the affected entity after the relevant time; and
(b) had the equity or debt been an item of trading stock of the affected entity at an earlier time that was, or at 2 or more earlier times each of which was, the relevant time for the purposes of a previous application or previous applications of this section, its *cost for the purposes of Division 70 would have exceeded its *market value at the earlier time or at one of the earlier times;
its cost for the purposes of Division 70 is taken to be its market value at the earlier time or the smallest of its market values at the earlier times.
Reduction of proceeds of disposal of trading stock
(10) If:
(a) an equity or debt was an item of *trading stock of the affected entity immediately before a relevant time or became such an item of trading stock after a relevant time; and
(b) the equity or debt is *disposed of by the entity after the relevant time concerned; and
(c) the equity or debt is an item of trading stock of the affected entity at the time of the disposal; and
(d) the proceeds of the disposal exceed the *market value of the equity or debt immediately before the relevant time concerned or the market value of the equity or debt immediately before any previous relevant time;
the proceeds of the disposal are taken to be reduced by so much of the amount or the total of the amounts of any reductions made by any previous application or applications of subsection (5) in relation to the affected entity in respect of the equity or debt as does not exceed the excess amount or the greater or greatest of the excess amounts referred to in paragraph (d).
165‑115ZB Adjustment amounts for the purposes of section 165‑115ZA
(1A) This section has effect for the purposes of:
(a) section 165‑115ZA; and
(b) sections 715‑255 and 715‑270 (about effect of alteration time for head company on membership interests of leaving entity just before leaving time).
Calculation of adjustment amount
(1) An adjustment amount in relation to an equity or debt is to be worked out by the affected entity, and applied by it in making reductions:
(a) if subsection (2) applies—in accordance with subsection (3); or
(b) otherwise—in accordance with subsection (6).
Selection of method of calculation
(2) This subsection applies if:
(a) the affected entity has a relevant equity interest, but does not have a relevant debt interest, in the *loss company immediately before the alteration time and:
(i) all the *shares in the loss company are of the same class and have the same *market value; and
(ii) the equity consists only of a share or shares in the loss company; or
(b) the affected entity has both a relevant equity interest, and a relevant debt interest under subsection 165‑115Y(1), in the loss company immediately before the alteration time and:
(i) all the shares in the loss company are of the same class and have the same market value; and
(ii) the equity consists only of a share or shares in the loss company; and
(iii) the debt consists of a single debt or 2 or more debts of the same kind;
and the reductions that would result from the application of subsection (3) would be reasonable in the circumstances.
Formula method
(3) The adjustment amount to be worked out under this subsection is the amount worked out using the formula:
and the amount so worked out is to be applied in making reductions as follows:
(a) the adjustment amount is to be applied in relation to the *share or shares constituting the equity; and
(b) if there is an amount remaining after making reductions in relation to those shares—the amount remaining is to be applied in relation to any debt or, if there is a debt consisting of 2 or more separate debts, in relation to those debts.
Applying adjustment amount under formula method to shares
(4) If the adjustment amount referred to in subsection (3) is to be applied in relation to an equity consisting of 2 or more *shares:
(a) it is to be applied equally among the shares; and
(b) if there is any amount remaining after the application of part of the adjustment amount to a share, the amount remaining is to be applied to any other share, or equally among any other shares, to the maximum extent possible.
Applying adjustment amount under formula method to debt
(5) If the adjustment amount referred to in subsection (3) or part of it is to be applied in relation to a debt (the overall debt) and the overall debt consists of 2 or more debts (the constituent debts), the amount to be applied in relation to each constituent debt is the amount worked out using the formula:
Non‑formula method
(6) The adjustment amount to be worked out under this subsection is the amount that is appropriate having regard to:
(a) the object of this Subdivision and other matters set out in section 165‑115J; and
(b) the extent of the affected entity’s relevant equity interests or relevant debt interests, as the case may be, in the *loss company immediately before the alteration time; and
(c) when, and under what circumstances, the relevant equity interests or relevant debt interests were *acquired by the affected entity; and
(d) the loss company’s overall loss at the alteration time; and
(e) the extent to which that overall loss has reduced the *market values of the equity or debt; and
(f) to prevent double counting, the extent of any adjustments required under this Subdivision because of any application of this Subdivision to another loss company in which the affected entity has a relevant equity interest or relevant debt interest;
and the amount so worked out is to be applied in making reductions in an appropriate way.
How to work out the extent to which the overall loss has reduced the market value of an equity or debt
(7) To avoid doubt in applying paragraph (6)(e) in relation to an equity or a debt, if factors other than an overall loss altered the *market value of the equity or debt, the extent to which the overall loss reduced that market value is taken to be the extent to which that market value would have been reduced apart from those other factors.
Note 1: For a company’s overall loss see subsections 165‑115R(5) and 165‑115S(5).
Note 2: An example of a factor other than the overall loss is the unrealised value of assets (including assets in respect of which there is an unrealised gain) of the loss company, whether or not generated by outlays or economic losses reflected in the loss for income tax purposes.
165‑115ZC Notices to be given
Application
(1) This section applies when an alteration time occurs in respect of a *loss company.
Note: Section 165‑115ZC of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this section.
Controlling entity
(2) For the purposes of this section, an entity is a controlling entity of a *loss company if:
(a) the entity is not an individual; and
(b) the entity, disregarding any of its *associates, has a controlling stake in the loss company; and
(c) no other entity (except an individual or 2 or more individuals between them) has a controlling stake in the entity.
Foreign resident controlling entity to be disregarded in certain circumstances
(3) If:
(a) apart from this subsection, an entity that is a foreign resident would be a controlling entity of a *loss company; and
(b) there is an entity that is an Australian resident and would be a controlling entity of the loss company if all the foreign residents that held direct or indirect interests in the Australian resident were individuals;
then, for the purposes of this section, the entity referred to in paragraph (a) is taken not to be a controlling entity of the company but the Australian resident is taken to be a controlling entity of the company.
Notice by controlling entity of loss company
(4) An entity that was a controlling entity of the *loss company immediately before the alteration time must, before the end of 6 months after the latest of the following:
(a) the alteration time;
(b) the day on which the New Business Tax System (Miscellaneous) Act (No. 2) 2000 received the Royal Assent;
(c) the time (if any) specified by the Commissioner;
give a written notice, setting out the information mentioned in subsection (6), to each of its *associates that, to the loss company’s knowledge, had a relevant equity interest or relevant debt interest in the loss company immediately before the alteration time.
Penalty: 30 penalty units.
Notice by loss company
(5) If:
(a) there was no controlling entity of the *loss company immediately before the alteration time; or
(b) no entity that was a controlling entity of the loss company immediately before the alteration time told the loss company in writing, within 2 months after the later of the following:
(i) the alteration time;
(ii) the day on which the New Business Tax System (Miscellaneous) Act (No. 2) 2000 received the Royal Assent;
that it had given, or proposed to give, notices to its associates under subsection (4);
the loss company must, before the end of 6 months after the latest of the following:
(c) the alteration time;
(d) the day on which the New Business Tax System (Miscellaneous) Act (No. 2) 2000 received the Royal Assent;
(e) the time (if any) specified by the Commissioner;
give a written notice, setting out the information mentioned in subsection (6), to each entity that, to the loss company’s knowledge, had a relevant equity interest or relevant debt interest in the company immediately before the alteration time.
Penalty: 30 penalty units.
Offences are strict liability
(5A) An offence under subsection (4) or (5) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
Information to be included in notice
(6) The information to be contained in a notice given under subsection (4) or (5) must include:
(a) the time that is the alteration time; and
(b) the amount of the *loss company’s overall loss at that time; and
(c) for each income year for which the loss company had at that time a *tax loss or *net capital loss referred to in subsection 165‑115R(3) or 165‑115S(3)—the type and amount of the loss; and
(d) the amount of any adjusted unrealised loss that the loss company had at that time; and
(e) particulars (for the purpose of assisting the entity to whom the notice is given (the recipient) to comply with the requirements of this Subdivision) of the amounts, proportions, and times of *acquisition, of all relevant equity interests and relevant debt interests in the loss company held by entities through which the recipient had relevant equity interests or relevant debt interests in the loss company.
Entity or loss company not required to give information about matters that are not known to it
(7) An entity or *loss company is not required by this section to set out information in a notice unless:
(a) the information is known to the entity or company; or
(b) the entity or company could reasonably be expected to know the information and can readily obtain it.
Commissioner’s power to specify a later time for giving notice
(7A) The Commissioner may, by written notice given to an entity, or *loss company, that is required to give a notice under subsection (4) or (5), specify a time later than the alteration time as the start of the 6 months mentioned in the subsection.
Commissioner’s power to waive requirement for notice
(7B) The Commissioner may give an entity or *loss company a written declaration that subsection (4) or (5) does not apply to require the entity or company to give a notice relating to the alteration time. If the Commissioner does so, the subsection does not apply in relation to the alteration time.
Considerations relating to Commissioner’s powers
(7C) In deciding whether to specify a time for the purposes of subsection (4) or (5) or declare that the subsection does not apply, the Commissioner must consider:
(a) the consequences of doing so for each entity to which notice must be given under the subsection (apart from any such declaration); and
(b) any other matters that the Commissioner considers relevant.
Obligations of person not affected by failure to give notice
(8) Any failure by an entity or the *loss company to give a notice to a person under this section does not affect any obligation of the person to comply with the requirements of this Subdivision.
165‑115ZD Adjustment (or further adjustment) for interest realised at a loss after global method has been used
(1) This section affects how sections 165‑115ZA and 165‑115ZB apply to an interest (the equity) in, or a debt owed by, a company if, apart from this section, a loss (the realised loss):
(a) would be *realised for income tax purposes by a *realisation event that happens to the equity or debt; or
(b) would be so realised but for Subdivision 170‑D (which defers realisation of capital losses and deductions);
and the company chose to use the *global method of working out whether it had an adjusted unrealised loss at the last alteration time:
(c) that happened for the company before the realisation event; and
(d) immediately before which the equity or debt was, or was part of:
(i) if the company was a *loss company at that alteration time—a relevant equity interest, or a relevant debt interest, that an entity had in the company; or
(ii) otherwise—what would have been such an interest if the company had been a loss company at that alteration time.
Note: If that last alteration time is before the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent, the owner of the equity or debt may choose to apply section 165‑115ZD of the Income Tax (Transitional Provisions) Act 1997 instead of this section.
(2) In addition to any application to the equity or debt, in relation to that last alteration time, that sections 165‑115ZA and 165‑115ZB have apart from this section, those sections apply (and are taken always to have applied) to the equity or debt, in relation to that last alteration time, as if:
(a) the company had an adjusted unrealised loss at that time worked out under this section; and
(b) the company were therefore a *loss company at that time; and
(c) that adjusted unrealised loss were the company’s overall loss at that time.
(3) For the purposes of how sections 165‑115ZA and 165‑115ZB apply because of this section, the adjustment amount under section 165‑115ZB is to be worked out and applied in accordance with subsection 165‑115ZB(6) (the non‑formula method).
Adjusted unrealised loss worked out under this section
(4) The adjusted unrealised loss referred to in paragraph (2)(a) is worked out using this method statement:
Method statement
Step 1. Add up the amount or value of each thing covered by subsection (5). (If the total exceeds the realised loss, reduce the total by the excess.)
Step 2. Reduce the step 1 amount by so much of the realised loss as it is reasonable to conclude is attributable to none of these:
(a) a notional capital loss, or a notional revenue loss, that the company has at that last alteration time in respect of a *CGT asset;
(b) a trading stock decrease in relation to that time for a CGT asset that was *trading stock of the company at that time.
Note: If the equity or debt is a revenue asset, the realised loss is different from the loss referred to in subsection (1): see subsection (9).
(5) This subsection covers each thing covered by an item in the table, except to the extent that:
(a) it is reasonable to conclude that the thing was not attributable to value that is reflected in what would, if that last alteration time had been a *changeover time for the company, be a notional capital gain or notional revenue gain that the company had under section 165‑115F at that changeover time in respect of a *CGT asset; or
(b) the thing has resulted in a reduction of the *reduced cost base of the equity or debt.
Things that might expose an unrealised loss netted off by use of global method |
Item | Thing covered |
1 | A *dividend that the company pays during the period referred to in subsection (6) |
2 | A thing that is taken under this Act to be a dividend and that the company pays during the period referred to in subsection (6) |
3 | A distribution of income or capital to a *member that the company makes during the period referred to in subsection (6) and is not covered by item 1 or 2 |
4 | An amount of income tax to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event that happens, during the period referred to in subsection (6), to a *CGT asset (in its character as a CGT asset, *trading stock or a *revenue asset) that the company owned at that last alteration time and *acquired for not less than $10,000 |
5 | A loss or outgoing to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event of the kind referred to in item 4 |
6 | The difference between: (a) the *capital proceeds (as worked out under subsection (7)) of a *CGT event: (i) that happens, during the period referred to in subsection (6), to a *CGT asset that the company owned at that last alteration time and *acquired for not less than $10,000; and (ii) as a result of which the asset is *acquired by an entity that is an *associate of the company at the time of the CGT event; and (b) the *market value of the asset at the time of the CGT event; but only if those capital proceeds are less than that market value |
(6) The period starts at that last alteration time and ends at the earlier of:
(a) the time of the *realisation event referred to in paragraph (1)(a); or
(b) the time immediately before the earliest time when the equity or debt is no longer, or is no longer part of:
(i) if the company was a *loss company at that last alteration time—a relevant equity interest, or a relevant debt interest, that an entity has in the company; or
(ii) otherwise—what would have been such an interest if the company had been a loss company at that last alteration time.
(7) For the purposes of item 6 of the table in subsection (5), the *capital proceeds of the *CGT event are to be worked out:
(a) under subsection 116‑20(1) only; and
(b) disregarding subsection 103‑10(1) and paragraph 103‑10(2)(a) (about entitlement to receive money or property).
Notices under section 165‑115ZC not affected
(8) To avoid doubt:
(a) a notice need not be given under section 165‑115ZC because of this section; and
(b) this section does not affect the requirements that apply to a notice that otherwise must be given under that section.
If equity or debt is a revenue asset
(9) If the equity or debt is a *revenue asset at the time of the *realisation event, subsection (4) applies on the basis that the realised loss is the total of:
(a) the loss (if any) *realised for income tax purposes by the realisation event happening to the equity or debt in its character as a *CGT asset; and
(b) the loss (if any) realised for income tax purposes by the realisation event happening to the equity or debt in its character as a revenue asset.
Subdivision 165‑C—Deducting bad debts
Guide to Subdivision 165‑C
165‑117 What this Subdivision is about
A company cannot deduct a bad debt unless:
(a) if the debt was incurred in an earlier income year—the company had the same owners and the same control throughout the period from the day on which the debt was incurred to the end of the income year in which it writes off the debt as bad; or
(b) if the debt was incurred in the current year—the company had the same owners and the same control during the income year both before and after the debt was incurred;
or, if there has been a change of ownership or control, the company satisfies the same business test by carrying on the same business, entering into no new kinds of transactions and conducting no new kinds of business.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see section 415‑40.
Table of sections
Operative provisions
165‑119 Application of Subdivision
165‑120 To deduct a bad debt
165‑123 Company must maintain the same owners
165‑126 Alternatively, the company must satisfy the same business test
165‑129 Same people must control the voting power, or the company must satisfy the same business test
165‑132 When tax losses resulting from bad debts cannot be deducted
Operative provisions
165‑119 Application of Subdivision
This Subdivision applies to a debt only to the extent (if any) to which Subdivision 165‑CC does not apply in respect of the debt.
Note: Subdivision 165‑CC applies to certain capital losses or tax losses of a company to the extent to which the capital loss or tax loss does not exceed the company’s unrealised net loss.
165‑120 To deduct a bad debt
(1) A company cannot deduct a debt (or part of a debt) that it writes off as bad in the *current year unless:
(a) it meets the conditions in section 165‑123 (which is about the company maintaining the same owners); or
Note: See section 165‑230 for a special alternative to the condition in this paragraph.
(b) the Commissioner thinks it would be unreasonable to require the company to meet the conditions in that section, having regard to the entities that beneficially owned the shares in the company when (in the Commissioner’s opinion) the debt (or part) became bad; or
(c) the company meets the condition in section 165‑126 (which is about the company satisfying the same business test).
Note 1: In the case of a widely held or eligible Division 166 company, Subdivision 166‑C modifies how this Subdivision applies, unless the company chooses otherwise.
Note 2: Normally bad debts are deductible under section 8‑1 or 25‑35.
Note 3: Subdivisions 709‑D and 719‑I modify how this Subdivision operates in relation to a company that used to be a member of a consolidated group or MEC group and that writes off as bad a debt that used to be owed to a member of the group.
(2) The conditions in section 165‑123 or 165‑126 apply to different periods, depending on whether the debt was incurred in the *current year or an earlier income year:
Meaning of first continuity period and second continuity period |
In this case:
| the first continuity period: | and the second continuity period: |
the debt was incurred in an earlier income year | • starts on the day when the debt was incurred; and • ends at the end of that income year | is the *current year |
the debt was incurred in the *current year (but not on the last day of it) | • starts on the first day of the *current year; and • ends on the day when the debt was incurred | • starts on the day after the debt was incurred; and • ends on the last day of the *current year |
(3) A company cannot deduct a debt (or part of a debt) that it writes off as bad on the last day of the *current year if the debt was also incurred on that day.
165‑123 Company must maintain the same owners
Ownership test period
(1) In determining whether section 165‑120 prevents a company from deducting a debt or a part of a debt, the ownership test period is the period from the start of the *first continuity period to the end of the *second continuity period.
Note: See section 165‑255 for the rule about incomplete test periods.
Voting power
(2) There must be persons who had *more than 50% of the voting power in the company at all times during the *ownership test period.
Note: See section 165‑150 to work out who had more than 50% of the voting power.
Rights to dividends
(3) There must be persons who had rights to *more than 50% of the company’s dividends at all times during the *ownership test period.
Note: See section 165‑155 to work out who had rights to more than 50% of the company’s dividends.
Rights to capital distributions
(4) There must be persons who had rights to *more than 50% of the company’s capital distributions at all times during the *ownership test period.
Note: See section 165‑160 to work out who had rights to more than 50% of the company’s capital distributions.
When to apply the primary test
(5) To work out whether a condition in this section was satisfied at all times during the *ownership test period, apply the primary test for that condition unless subsection (6) requires the alternative test to be applied.
Note: For the primary test, see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
When to apply the alternative test
(6) Apply the alternative test for that condition if one or more other companies beneficially owned *shares or interests in shares in the company at any time during the *ownership test period.
Note: For the alternative test, see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
Conditions in subsections (2), (3) and (4) may be treated as having been satisfied in certain circumstances
(7) If any of the conditions in subsections (2), (3) and (4) have not been satisfied, those conditions are taken to have been satisfied if:
(a) they would have been satisfied except for the operation of section 165‑165; and
(b) the company has information from which it would be reasonable to conclude that less than 50% of the debt or of the part of a debt 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 in the company during the *ownership test period.
(7A) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the *ownership test period, the conditions in subsections (3) and (4) are taken to have been satisfied by the company.
Time of happening of CGT event
(8) The happening of any *CGT event in relation to a *direct equity interest or *indirect equity interest in the company that results in the failure of the company to satisfy a condition in subsection (2), (3) or (4) is taken, for the purposes of paragraph (7)(b), to have occurred during the *ownership test period.
165‑126 Alternatively, the company must satisfy the same business test
(1) This section sets out the condition that a company must meet to be able to deduct a debt or part of a debt that it writes off as bad in the *current year if:
(a) either:
(i) the company fails to meet a condition in subsection 165‑123(2), (3) or (4); or
(ii) it is not practicable to show that the company meets the conditions in those subsections; and
(b) paragraph 165‑120(1)(b) (about the Commissioner thinking it is unreasonable to require the company to meet the conditions in section 165‑123) does not apply.
Note Other provisions may treat the company as meeting, or failing to meet, the conditions in subsections 165‑123(2), (3) and (4).
(2) The company must satisfy the *same business test for the *second continuity period (the same business test period). Apply the test to the *business the company carried on immediately before the time (the test time) shown in the relevant item of the table.
Test time |
Item | If: | The test time is: |
1 | It is practicable to show there is a period that meets these conditions: (a) the period starts at the start of the *first continuity period; (b) the company would meet the conditions in subsections 165‑123(2), (3) and (4) if the period were the *ownership test period for the purposes of this Act | The latest time that it is practicable to show is in the period |
2 | Item 1 does not apply and either: (a) the debt was incurred before the *current year; or (b) the company came into being during the current year | The end of the day on which the debt was incurred |
3 | All these conditions are met: (a) item 1 does not apply; (b) the debt was incurred in the *current year; (c) the company was in being throughout the current year | The start of the current year |
For the same business test: see Subdivision 165‑E.
165‑129 Same people must control the voting power, or the company must satisfy the same business test
(1) Even if section 165‑120 does not prevent a company from deducting a bad debt (or part of one), it cannot deduct the bad debt (or that part of it) if:
(a) for some or all of the part of the *ownership test period that started at the end of the *first continuity period, a person controlled, or was able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities); and
(b) for some or all of the *first continuity period, that person did not control, and was not able to control, that voting power (directly, or indirectly in that way); and
(c) that person began to control, or became able to control, that voting power (directly, or indirectly in that way) for the purpose of:
(i) getting some benefit or advantage in relation to how this Act applies; or
(ii) getting such a benefit or advantage for someone else;
or for purposes including that purpose.
Note: A person can still control the voting power in a company that is in liquidation etc.: see section 165‑250.
(2) However, that person’s control of the voting power, or ability to control it, does not prevent the company from deducting the bad debt (or that part of it) if the company satisfies the *same business test for the *second continuity period (the same business test period).
(3) Apply the *same business test to the *business that the company carried on immediately before the time (the test time) when the person began to control that voting power, or became able to control it.
For the same business test: see Subdivision 165‑E.
165‑132 When tax losses resulting from bad debts cannot be deducted
(1) If:
(a) a company can deduct a debt (or part of a debt) that it wrote off as bad in an income year; and
(b) because the company failed to meet a condition in section 165‑123 (about the company maintaining the same owners), it could not have deducted the debt (or part) apart from section 165‑126 (about the company satisfying the same business test); and
(c) the company wrote off the debt after the *test time worked out under section 165‑126; and
(d) because of the deduction, the company has a *tax loss for that income year, or there was an increase in the amount of its *tax loss for that income year; and
(e) the company carried on a *business during that income year for the purpose, or for purposes including the purpose, of securing a deduction for the debt (or part) by relying on section 165‑126;
the company cannot deduct the *tax loss for a later income year, or cannot deduct it to the extent of the increase, unless it also satisfies the *same business test for the later income year (the same business test period).
(2) Apply the test to the *business that the company carried on immediately before the *test time worked out for section 165‑126.
For the same business test: see Subdivision 165‑E.
Subdivision 165‑D—Tests for finding out whether the company has maintained the same owners
Table of sections
The primary and alternative tests
165‑150 Who has more than 50% of the voting power in the company
165‑155 Who has rights to more than 50% of the company’s dividends
165‑160 Who has rights to more than 50% of the company’s capital distributions
165‑165 Rules about tests for a condition or occurrence of a circumstance
165‑175 Tests can be satisfied by a single person
Rules affecting the operation of the tests
165‑180 Arrangements affecting beneficial ownership of shares
165‑185 Shares treated as not having carried rights
165‑190 Shares treated as always having carried rights
165‑200 Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units
165‑202 Shares held by government entities and charities etc.
165‑203 Companies where no shares have been issued
165‑205 Death of share owner
165‑207 Trustees of family trusts
165‑208 Companies in liquidation etc.
165‑209 Dual listed companies
The primary and alternative tests
165‑150 Who has more than 50% of the voting power in the company
The primary test
(1) Applying the primary test: if there are persons who, at a particular time, beneficially own (between them) *shares that carry (between them) the right to exercise more than 50% of the voting power in the company, those persons have more than 50% of the voting power in the company at that time.
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 primary test
(1) Applying the primary test: if there are persons who, at a particular time, beneficially own (between them) *shares that carry (between them) the right to receive 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.
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 primary test
(1) Applying the primary test: if there are persons who, at a particular time, beneficially own (between them) *shares that carry (between them) the right to receive 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.
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.
165‑165 Rules about tests for a condition or occurrence of a circumstance
Exactly the same shares or interests must continue to be held
(1) For the purpose of determining whether a company has satisfied a condition or whether a time is a changeover time or an alteration time in respect of a company:
(a) a condition that has to be satisfied is not satisfied; or
(b) a time that, apart from this subsection, would not be a changeover time or alteration time is taken to be a changeover time or alteration time, as the case may be;
unless, at all relevant times:
(c) the only *shares in the company that are taken into account are exactly the same shares and are held by the same persons; and
(d) the only interests in any other entity (including shares in another company) that are taken into account are exactly the same interests and are beneficially owned by the same persons.
What happens in case of share splitting
(2) If:
(a) a particular *share (an old share) in a company of which a person is the beneficial owner at the start of a *test period is divided into 2 or more new shares; and
(b) the person becomes the beneficial owner of each of the new shares immediately after the division takes place and remains the beneficial owner until the end of that period;
the new shares are taken to be exactly the same shares as the old share.
What happens in case of splitting of units in a unit trust
(3) If:
(a) a particular unit (the old unit) in a unit trust of which a person is the holder at the start of a *test period is divided into 2 or more new units; and
(b) the person becomes the holder of each of the new units immediately after the division takes place and remains the holder until the end of that period;
the new units are taken to be exactly the same units as the old unit.
What happens in case of consolidation of shares
(4) If:
(a) a particular *share (an old share) in a company of which a person is the beneficial owner at the start of a *test period, and other shares (each of which also called an old share) in the company of which the person is the beneficial owner at the start of that period, are consolidated into a new share; and
(b) the person becomes the beneficial owner of the new share immediately after the consolidation takes place;
the new share is taken to be exactly the same share as the old shares.
What happens in case of consolidation of units in a unit trust
(5) If:
(a) a particular unit (an old unit) in a unit trust of which a person is the holder at the start of a *test period and other units (each of which also called an old unit) in the trust of which the person is the holder at the start of that period are consolidated into a new unit; and
(b) the person becomes the holder of the new unit immediately after the consolidation takes place;
the new unit is taken to be exactly the same unit as the old units.
Test period
(6) A test period is:
(a) for the purpose of determining whether a condition in section 165‑12 has been satisfied—the *ownership test period; or
(b) for the purpose of determining whether a test time is a changeover time for the purposes of section 165‑115C—the period between the reference time referred to in subsection 165‑115A(2A) and the test time; or
(c) for the purpose of determining whether a test time is an alteration time for the purposes of section 165‑115L—the period between the reference time referred to in subsection 165‑115L(2) and the test time.
Satisfaction by primary test by public company
(7) A *public company is taken to satisfy the primary test if it is reasonable to assume that the test is satisfied.
165‑175 Tests can be satisfied by a single person
To avoid doubt, a test for a condition can be satisfied by one person.
Rules affecting the operation of the tests
165‑180 Arrangements affecting beneficial ownership of shares
(1) For the purposes of a test, the Commissioner may treat a person as not having beneficially owned particular *shares at a particular time if the conditions in subsections (2) and (3) are met.
Example: The Commissioner may treat a person as not having beneficially owned redeemable shares at a particular time if the conditions in subsections (2) and (3) are met in respect of those shares.
(2) An *arrangement must have been entered into at some time that in any way (directly or indirectly) related to, affected, or depended for its operation on:
(a) the beneficial interest in the *shares, or the value of that beneficial interest; or
(b) a right carried by, or relating to, the shares; or
(c) the exercise of such a right.
(3) The *arrangement must also have been entered into for the purpose, or for purposes including the purpose, of eliminating or reducing a liability of an entity to pay income tax for a *financial year.
165‑185 Shares treated as not having carried rights
(1) In applying a test for the purposes of this Division other than Subdivision 165‑CC, *shares are taken not to have carried particular rights during a part of the *ownership test period if the Commissioner is satisfied that:
(a) the shares stopped carrying those rights after the ownership test period; or
(b) the shares will or may stop carrying those rights after the ownership test period;
because of:
(c) the company’s *constitution as in force at some time during the ownership test period; or
(d) an *arrangement entered into before or during the ownership test period.
(2) In applying a test for the purposes of Subdivision 165‑CC, *shares are taken not to have carried particular rights after a particular time if the Commissioner is satisfied that:
(a) the shares stopped carrying those rights after that time; or
(b) the shares will or may stop carrying those rights after that time;
because of:
(c) the company’s *constitution as in force at any time; or
(d) an *arrangement entered into at any time.
165‑190 Shares treated as always having carried rights
(1) In applying a test for the purposes of this Division other than Subdivision 165‑CC, *shares are taken to have carried particular rights at all times during a part of the *ownership test period if the Commissioner is satisfied that:
(a) the shares started to carry those rights after the ownership test period; or
(b) the shares will or may start to carry those rights after the ownership test period;
because of:
(c) the company’s *constitution as in force at some time during the ownership test period; or
(d) an *arrangement entered into before or during the ownership test period.
(2) In applying a test for the purposes of Subdivision 165‑CC, *shares are taken to have carried particular rights after a particular time if the Commissioner is satisfied that:
(a) the shares started to carry those rights after that time; or
(b) the shares will or may start to carry those rights after that time;
because of:
(c) the company’s *constitution as in force at any time; or
(d) an *arrangement entered into at any time.
165‑200 Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units
(1) Sections 165‑165, 165‑180, 165‑185 and 165‑190 do not affect how *shares, and rights carried by *shares, are counted for the purposes of determining:
(a) the total voting power in the company; or
(b) the total *dividends that the company may pay; or
(c) the total distributions of capital of the company.
(2) Section 165‑165 does not affect how units in a unit trust, or the rights carried by such units, are counted for the purposes of determining the total rights, or the total rights of a particular kind, in the trust of the holders of such units.
165‑202 Shares held by government entities and charities etc.
(1) For the purposes of a test, *shares that are beneficially owned by each of the following entities are taken to be beneficially owned instead by a person (who is not a company):
(a) the Commonwealth, a State or a Territory;
(b) a municipal corporation;
(c) a local governing body;
(d) the government of a foreign country, or of part of a foreign country;
(e) a company, established under a law, in which no person has a *membership interest;
(f) a *non‑profit company;
(g) a charity that is not a trust.
(2) For the purposes of a test, *shares that are beneficially owned through a charity that is a trust are taken to be beneficially owned instead by a person (who is neither a company nor a trustee).
165‑203 Companies where no shares have been issued
For the purposes of a test, if no *shares have been issued in a company, each *membership interest in the company is taken to be a share in the company.
165‑205 Death of share owner
(1) If an individual beneficially owns *shares in a company when he or she dies, this section applies if and while the shares:
(a) are owned by the trustee of the deceased’s estate; or
(b) are beneficially owned by someone who receives them as a beneficiary of the deceased’s estate.
(2) For the purposes of a test:
(a) the *shares are taken to continue to be beneficially owned by the deceased; and
(b) as a result of being taken to continue to beneficially own the shares, the deceased is taken to continue:
(i) to have any rights to exercise, or to be able to control (whether directly, or indirectly through one or more interposed entities), any of the voting power in the company; and
(ii) to have any rights to receive for the deceased’s own benefit (whether directly or *indirectly) any *dividends that the company may pay; and
(iii) to have any rights to receive for the deceased’s own benefit (whether directly or indirectly) any distributions of capital of the company.
165‑207 Trustees of family trusts
(1) This section applies if one or more trustees of a *family trust:
(a) owns *shares in a company; or
(b) controls, or is able to control, (whether directly, or indirectly through one or more interposed entities) voting power in a company; or
(c) has a right to receive (whether directly, or *indirectly through one or more interposed entities) a percentage of a *dividend or a distribution of capital of a company.
(2) For the purposes of a primary test, a single notional entity that is a person (but is neither a company nor a trustee) is taken to own the *shares beneficially.
Note: For a primary test, see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
(3) For the purposes of an alternative test, a single notional entity that is a person (but is neither a company nor a trustee) is taken:
(a) to control, or have the ability to control, the voting power in the company; or
(b) to have the right to receive (whether directly or *indirectly) the percentage of the *dividend or distribution for the entity’s own benefit.
Note: For an alternative test, see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
(4) If a trustee of the trust is subsequently replaced by another trustee of the trust, the same single notional entity is taken:
(a) to own the *shares beneficially; or
(b) to control, or have the ability to control, the voting power in the company; or
(c) to have the right to receive (whether directly or *indirectly) the percentage of the *dividend or distribution for the entity’s own benefit.
165‑208 Companies in liquidation etc.
(1) For the purposes of a primary test or an alternative test, an entity is not prevented from:
(a) beneficially owning *shares in a company; or
(b) having the right to exercise, controlling, or being able to control, voting power in a company; or
(c) having the right to receive any *dividends that a company may pay; or
(d) having the right to receive any distribution of capital of a company;
merely because:
(e) the company is or becomes:
(i) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or
(ii) an entity with a similar status under a *foreign law to an externally‑administered body corporate; or
(f) either:
(i) a provisional liquidator is appointed to the company under section 472 of the Corporations Act 2001; or
(ii) a person with a similar status under a foreign law to a provisional liquidator is appointed to the company.
Note 1: For a primary test, see subsections 165‑150(1), 165‑155(1) and 165‑160(1).
Note 2: For an alternative test, see subsections 165‑150(2), 165‑155(2) and 165‑160(2).
(2) For the purposes of a primary test or an alternative test, a company (the stakeholding company) is not prevented from:
(a) beneficially owning *shares in another company, or any other interest in another entity; or
(b) having the right to exercise, controlling, or being able to control, voting power in another company or any other entity; or
(c) having the right to receive any *dividends that another company or any other entity may pay; or
(d) having the right to receive any distribution of capital of another company or of any other entity;
merely because:
(e) the stakeholding company is or becomes:
(i) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or
(ii) an entity with a similar status under a *foreign law to an externally‑administered body corporate; or
(f) either:
(i) a provisional liquidator is appointed to the stakeholding company under section 472 of the Corporations Act 2001; or
(ii) a person with a similar status under a foreign law to a provisional liquidator is appointed to the stakeholding company.
165‑209 Dual listed companies
Section 165‑150 does not apply to *shares that are *dual listed company voting shares.
Subdivision 165‑E—The same business test
165‑210 The test
(1) A company satisfies the same business test if throughout the *same business test period it carries on the same *business as it carried on immediately before the *test time.
(2) However, the company does not satisfy the *same business test if, at any time during the *same business test period, it *derives assessable income from:
(a) a *business of a kind that it did not carry on before the *test time; or
(b) a transaction of a kind that it had not entered into in the course of its business operations before the *test time.
(3) The company also does not satisfy the *same business test if, before the *test time, it:
(a) started to carry on a *business it had not previously carried on; or
(b) in the course of its business operations, entered into a transaction of a kind that it had not previously entered into;
and did so for the purpose, or for purposes including the purpose, of being taken to have carried on throughout the *same business test period the same business as it carried on immediately before the test time.
(4) So far as the *same business test is applied for the purpose of Subdivision 165‑B (which is about working out the taxable income and *tax loss for the income year of change of ownership or control), the company also does not satisfy the test if, at any time during the *same business test period, it incurs expenditure:
(a) in carrying on a *business of a kind that it did not carry on before the *test time; or
(b) as a result of a transaction of a kind that it had not entered into in the course of its business operations before the test time.
165‑212D Restructure of MDOs etc.
(1) An *MDO does not fail to satisfy the *same business test merely because, before 1 July 2003:
(a) the MDO restructured the way it *provides medical indemnity cover; or
(b) the MDO ceased to provide medical indemnity cover;
in order to comply with the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
(2) A *general insurance company which is an *associate of an *MDO does not fail to satisfy the *same business test merely because, before 1 July 2003:
(a) the MDO restructured the way it *provides medical indemnity cover; or
(b) the MDO ceased to provide medical indemnity cover;
in order to comply with the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003.
165‑212E Entry history rule does not apply for the purposes of the same business test
For the purposes of the *same business test, if an entity (the joining entity) becomes a *subsidiary member of a *consolidated group or a *MEC group, section 701‑5 (the entry history rule) does not operate to take the *business of the *head company of the group to include the business of the joining entity before it became a *member of the group.
Subdivision 165‑F—Special provisions relating to ownership by non‑fixed trusts
Table of sections
165‑215 Special alternative to change of ownership test for Subdivision 165‑A
165‑220 Special alternative to change of ownership test for Subdivision 165‑B
165‑225 Special way of dividing the income year under Subdivision 165‑B
165‑230 Special alternative to change of ownership test for Subdivision 165‑C
165‑235 Information about non‑fixed trusts with interests in company
165‑240 Notices where requirements of section 165‑235 are met
165‑245 When an entity has a fixed entitlement to income or capital of a company
165‑215 Special alternative to change of ownership test for Subdivision 165‑A
(1) If a company does not meet the conditions in section 165‑12, it is nevertheless taken to meet the conditions if it meets the conditions in this section.
First condition
(2) At all times during the *ownership test period:
(a) both:
(i) persons must have held *fixed entitlements to all of the income and capital of the company; and
(ii) *non‑fixed trusts, other than *family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the company; or
(b) both:
(i) a *fixed trust or a company (which trust or company is the holding entity) must have held, directly or indirectly, fixed entitlements to all of the income and capital of the company; and
(ii) non‑fixed trusts, other than *family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the holding entity.
Second condition
(3) The persons holding *fixed entitlements to shares of the income, and the persons holding fixed entitlements to shares of the capital, of:
(a) in a paragraph (2)(a) case—the company; or
(b) in a paragraph (2)(b) case—the holding entity;
at the beginning of the *loss year must have held those entitlements to those shares at all times during the *ownership test period.
Third condition
(4) At the beginning of the *loss year:
(a) individuals must not have had (between them), directly or indirectly, and for their own benefit, *fixed entitlements to a greater than 50% share of the income of the company; or
(b) individuals must not have had (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the company.
Fourth condition
(5) It must be the case that, for each *non‑fixed trust (other than an *excepted trust) that, at any time during the *ownership test period, held directly or indirectly a *fixed entitlement to a share of the income or capital of the company, section 267‑20 in Schedule 2F to the Income Tax Assessment Act 1936 would not have prevented the non‑fixed trust from deducting the *tax loss concerned if it, rather than the company, had incurred the tax loss.
Note: See section 165‑245 for when an entity is taken to have held or had, directly or indirectly, a fixed entitlement to a share of income or capital of a company.
165‑220 Special alternative to change of ownership test for Subdivision 165‑B
(1) If the company does not meet the condition in paragraph 165‑35(a), it is nevertheless taken to meet the condition if it meets the conditions in this section.
First condition
(2) At all times during the income year:
(a) both:
(i) persons must have held *fixed entitlements to all of the income and capital of the company; and
(ii) *non‑fixed trusts, other than *family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the company; or
(b) both:
(i) a *fixed trust or a company (which trust or company is the holding entity) must have held, directly or indirectly, fixed entitlements to all of the income and capital of the company; and
(ii) non‑fixed trusts, other than family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the holding entity.
Second condition
(3) The persons holding *fixed entitlements to shares of the income, and the persons holding fixed entitlements to shares of the capital, of:
(a) in a paragraph (2)(a) case—the company; or
(b) in a paragraph (2)(b) case—the holding entity;
at the beginning of the income year must have held those entitlements to those shares at all times during the income year.
Third condition
(4) At the beginning of the income year:
(a) individuals must not have had (between them), directly or indirectly, and for their own benefit, *fixed entitlements to a greater than 50% share of the income of the company; or
(b) individuals must not have had (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the company.
Fourth condition
(5) It must be the case that, for each *non‑fixed trust (other than an *excepted trust) that, at any time in the income year, held directly or indirectly a *fixed entitlement to a share of the income or capital of the company, section 267‑60 in Schedule 2F to the Income Tax Assessment Act 1936 does not require the non‑fixed trust to work out its net income and *tax loss for the income year under Division 268.
Note: See section 165‑245 for when an entity is taken to have held or had, directly or indirectly, a fixed entitlement to a share of income or capital of a company.
165‑225 Special way of dividing the income year under Subdivision 165‑B
(1) If:
(a) the company is required to calculate:
(i) its taxable income and *tax loss for the income year under Subdivision 165‑B; and
(ii) its *net capital gain and *net capital loss for the income year under Subdivision 165‑CB; and
(b) the company meets the requirements of subsections 165‑220(2) and (4);
then, in dividing the income year into periods, apply subsection (2) of this section instead of subsections 165‑45(3) and (4).
(2) The last period ends at the end of the income year. Each period (except the last) ends at the earliest of:
(a) the latest time that would result in the persons holding *fixed entitlements to shares of the income or shares of the capital of:
(i) if the company meets the requirements of paragraph 165‑220(2)(a)—the company; or
(ii) if the company meets the requirements of paragraph 165‑220(2)(b)—the holding entity mentioned in that paragraph;
and the percentages of the shares that they hold, remaining the same during the whole of the period; and
(b) the times that, for all of the *non‑fixed trusts, other than *excepted trusts, holding directly or indirectly a fixed entitlement to a share of the income or capital of the company at any time during the income year, are the latest times that would result in individuals having *more than a 50% stake in their income or capital; and
(c) the earliest time in the period when a group (within the meaning of Schedule 2F to the Income Tax Assessment Act 1936) begins to *control a non‑fixed trust, other than an excepted trust, that holds directly or indirectly a fixed entitlement to a share of the income or capital of the company at any time during the income year.
Note: See section 165‑245 for when an entity is taken to have held or had, directly or indirectly, a fixed entitlement to a share of income or capital of a company.
165‑230 Special alternative to change of ownership test for Subdivision 165‑C
(1) If a company does not meet the conditions in section 165‑123, it is nevertheless taken to meet the conditions if it meets the conditions in this section.
First condition
(2) At all times during the *ownership test period:
(a) both:
(i) persons must have held *fixed entitlements to all of the income and capital of the company; and
(ii) *non‑fixed trusts, other than *family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the company; or
(b) both:
(i) a *fixed trust or a company (which trust or company is the holding entity) must have held, directly or indirectly, fixed entitlements to all of the income and capital of the company; and
(ii) non‑fixed trusts, other than family trusts, must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the holding entity.
Second condition
(3) The persons holding *fixed entitlements to shares of the income, and the persons holding fixed entitlements to shares of the capital, of:
(a) in a paragraph (2)(a) case—the company; or
(b) in a paragraph (2)(b) case—the holding entity;
at the beginning of the *first continuity period must have held those entitlements to those shares at all times during the *ownership test period.
Third condition
(4) At the beginning of the *first continuity period:
(a) individuals must not have had (between them), directly or indirectly, and for their own benefit, *fixed entitlements to a greater than 50% share of the income of the company; or
(b) individuals must not have had (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the company.
Fourth condition
(5) It must be the case that, for each *non‑fixed trust (other than an *excepted trust) that, at any time during the *ownership test period, held directly or indirectly a *fixed entitlement to a share of the income or capital of the company, section 267‑25 in Schedule 2F to the Income Tax Assessment Act 1936 would not have prevented the non‑fixed trust from deducting the amount in respect of the debt if it, rather than the company, would otherwise be entitled to deduct the amount.
Note: See section 165‑245 for when an entity is taken to have held or had, directly or indirectly, a fixed entitlement to a share of income or capital of a company.
165‑235 Information about non‑fixed trusts with interests in company
Notice about foreign resident non‑fixed trust
(1) The Commissioner may give the company a notice in accordance with section 165‑240 if the requirements of subsections (2) to (5) of this section are met.
Tax detriment under Division 165
(2) In its *income tax return for the income year:
(a) the company must have deducted a *tax loss from a *loss year where it would not be allowed to deduct the tax loss unless it met the conditions in section 165‑215; or
(b) the company must not have calculated:
(i) its taxable income and tax loss for the income year under Subdivision 165‑B; and
(ii) its *net capital gain and *net capital loss for the income year under Subdivision 165‑CB;
where it would have been required to calculate them unless it met the conditions in section 165‑220; or
(c) the company must have applied a net capital loss for an earlier income year in working out its net capital gain where it would not have been allowed to apply the loss unless it met the conditions in section 165‑215 as applied on the assumption mentioned in subsection 165‑96(1); or
(d) the company must have deducted a debt that it wrote off as bad in the income year where it would not be allowed to deduct the debt unless it met the conditions in section 165‑230.
Information about non‑fixed trust
(3) In order to determine whether it meets the conditions concerned, the Commissioner must need information about a *non‑fixed trust mentioned in:
(a) if paragraph (2)(a) applies—subsection 165‑215(5); or
(b) if paragraph (2)(b) applies—subsection 165‑220(5); or
(c) if paragraph (2)(c) applies—subsection 165‑215(5) as applied on the assumption mentioned in subsection 165‑96(1); or
(d) if paragraph (2)(d) applies—subsection 165‑230(5).
Foreign resident trust
(4) When the Commissioner gives the notice:
(a) a trustee of the *non‑fixed trust must be a foreign resident; or
(b) the central management and control of the non‑fixed trust must be outside Australia.
When notice must be given
(5) The Commissioner must give the notice before the later of:
(a) 5 years after the income year; and
(b) the end of the period during which the company is required by section 262A of the Income Tax Assessment Act 1936 to retain records in relation to that income year.
165‑240 Notices where requirements of section 165‑235 are met
Information required
(1) The notice that the Commissioner may give if the requirements of subsections 165‑235(2) to (5) are met must require the company to give the Commissioner specified information that is relevant in determining whether:
(a) if paragraph 165‑235(2)(a) applies—the requirements of subsection 165‑215(5); or
(b) if paragraph 165‑235(2)(b) applies—the requirements of subsection 165‑220(5); or
(c) if paragraph 165‑235(2)(c) applies—the requirements of subsection 165‑215(5) as applied on the assumption mentioned in subsection 165‑96(1); or
(d) if paragraph 165‑235(2)(d) applies—the requirements of subsection 165‑230(5);
are satisfied in relation to the *non‑fixed trust mentioned in subsections 165‑235(3) and (4).
Company knowledge
(2) The information need not be within the knowledge of the company at the time the notice is given.
Period for giving information
(3) The notice must specify a period within which the company is to give the information. The period must not end earlier than 21 days after the day on which the Commissioner gives the notice.
Consequence of not giving the information
(4) If the company does not give the information within the period or within such further period as the Commissioner allows, the company is taken not to meet, and never to have met, the conditions mentioned in whichever paragraph of subsection 165‑235(2) is applicable.
Application of Subdivision 165‑B
(5) If, because of subsection (4), the company is required to calculate under Subdivision 165‑B its taxable income and *tax loss for the income year concerned, that Subdivision is to be applied as if it required the income year to be divided into such periods as would result in the highest possible taxable income for the income year.
Application of Subdivision 165‑CB
(6) If, because of subsection (4), the company is required to calculate under Subdivision 165‑CB its *net capital gain and *net capital loss for the income year concerned, that Subdivision is to be applied as if it required the income year to be divided into such periods as would result in the highest net capital gain for the income year.
165‑245 When an entity has a fixed entitlement to income or capital of a company
For the purposes of this Act, an entity is taken to have held or had, directly or indirectly, a *fixed entitlement to a share of income or capital of a company at a time if and only if the entity held or had, directly or indirectly, that fixed entitlement at that time for the purposes of Schedule 2F to the Income Tax Assessment Act 1936.
Subdivision 165‑G—Other special provisions
Table of sections
165‑250 Control of companies in liquidation etc.
165‑255 Incomplete periods
165‑250 Control of companies in liquidation etc.
(1) For the purposes of sections 165‑15, 165‑40, 165‑115D, 165‑115M and 165‑129, a person is not prevented from controlling, or being or becoming able to control, voting power in a company merely because:
(a) the company is or becomes:
(i) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or
(ii) an entity with a similar status under a *foreign law to an externally‑administered body corporate; or
(b) either:
(i) a provisional liquidator is appointed to the company under section 472 of the Corporations Act 2001; or
(ii) a person with a similar status under a foreign law to a provisional liquidator is appointed to the company.
(2) For the purposes of sections 165‑15, 165‑40, 165‑115D, 165‑115M and 165‑129, a company (the stakeholding company) is not prevented from controlling, or being or becoming able to control, voting power in another company merely because:
(a) the stakeholding company is or becomes:
(i) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or
(ii) an entity with a similar status under a *foreign law to an externally‑administered body corporate; or
(b) either:
(i) a provisional liquidator is appointed to the stakeholding company under section 472 of the Corporations Act 2001; or
(ii) a person with a similar status under a foreign law to a provisional liquidator is appointed to the stakeholding company.
165‑255 Incomplete periods
(1) If:
(a) this Division or Division 166 requires a company to meet or satisfy a condition or test, or work out an amount, for a period; and
(b) the company is only in existence after the beginning of the period;
then the period is taken to start on the first day that the company is in existence.
(2) If:
(a) this Division or Division 166 requires a company to meet or satisfy a condition or test, or work out an amount, for a period; and
(b) the company ceases to be in existence before the end of the period;
then the period is taken to end on the day the company ceases to be in existence.
Division 166—Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company
Table of Subdivisions
Guide to Division 166
166‑AA The object of this Division
166‑A Deducting tax losses of earlier income years
166‑B Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change
166‑C Deducting bad debts
166‑CA Changeover times and alteration times
166‑D Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners
166‑E Concessional tracing rules
Guide to Division 166
166‑1 What this Division is about
This Division modifies the way the rules in Division 165 apply to a widely held or eligible Division 166 company by making it easier for the company to apply the rules.
If the company has maintained the same owners as between certain points of time, it does not need to prove it has maintained the same owners throughout the periods in between.
In certain cases, special concessional tracing rules deem entities to hold voting, dividend or capital stakes in the company so that the company does not have to trace through to the ultimate beneficial owners of the stakes.
Subdivision 166‑AA—The object of this Division
166‑3 The object of this Division
(1) The object of this Division is to make it easier for a *widely held company, or an *eligible Division 166 company, to apply the rules in Division 165 (because of the difficulty the company might have under that Division in actually tracing through to the ultimate beneficial owners of *voting stakes, *dividend stakes and *capital stakes in the company).
(2) This Division makes it easier to apply the rules in Division 165 by:
(a) making it unnecessary for the company to prove that it has maintained the same owners throughout a period, if the company had the same owners at certain test times; and
(b) making it unnecessary for the company to trace through to the ultimate beneficial owners of:
(i) *voting stakes, *dividend stakes and *capital stakes in the company held by certain entities (whether directly, or *indirectly through one or more interposed entities); and
(ii) small voting stakes, dividend stakes and capital stakes in the company.
Subdivision 166‑A—Deducting tax losses of earlier income years
Table of sections
166‑5 How Subdivision 165‑A applies to a widely held or eligible Division 166 company
166‑15 Companies can choose that this Subdivision is not to apply to them
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.
Note 1: Subdivision 165‑A is about the conditions a company must meet before it can deduct a tax loss for an earlier income year.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166‑15.
Note 3: See section 165‑255 for the rule about incomplete income years.
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.
Note: See section 165‑255 for the rule about incomplete test periods.
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.
Note: See sections 166‑145 and 166‑175 to work out whether there is substantial continuity of ownership and a corporate change.
No substantial continuity of ownership
(4) The company is taken to have failed to meet the conditions in section 165‑12 if there is no *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of an income year in that period; or
(b) the *end of a *corporate change in that period.
Satisfies the same business test
(5) However, if the company satisfies the *same business test for the income year (the same business test period), it is taken to have satisfied the condition in section 165‑13.
Note 1: For the same business test, see Subdivision 165‑E.
Note 2: See section 165‑255 for the rule about incomplete test periods.
(6) Apply the *same business test to the *business that the company carried on immediately before the earlier of the following times (the test time):
(a) the end of the first income year;
(b) the first time in the test period that a *corporate change in the company *ends;
for which there is no *substantial continuity of ownership of the company as between the start of the *test period and that time.
166‑15 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165‑A is to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166‑B—Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change
Table of sections
166‑20 How Subdivisions 165‑B and 165‑CB apply to a widely held or eligible Division 166 company
166‑25 How to work out the taxable income, tax loss, net capital gain and net capital loss
166‑35 Companies can choose that this Subdivision is not to apply to them
166‑20 How Subdivisions 165‑B and 165‑CB apply to a widely held or eligible Division 166 company
(1) This Subdivision modifies how Subdivisions 165‑B and 165‑CB apply to a company that is:
(a) a *widely held company at all times during the income year (the test period); or
(b) an *eligible Division 166 company at all times during the income year (the test period); 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 (the whole year being the test period).
Note 1: Subdivision 165‑B is about when a company must calculate its taxable income and tax loss for the income year in a special way. Subdivision 165‑CB is about when a company must calculate its net capital gain and net capital loss for the income year in a special way.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166‑35.
Note 3: See section 165‑255 for the rule about incomplete test periods.
No corporate change etc.
(2) If:
(a) no *corporate change in the company *ends at any time in the *test period; or
(b) a corporate change in the company *ends during the test period, but there is *substantial continuity of ownership as between the start of the test period and immediately after the corporate change ends;
the company is taken to have met the condition in paragraph 165‑35(a) (which is about there being persons having *more than a 50% stake in it during the whole of the income year).
Note: See sections 166‑145 and 166‑175 to work out whether there is substantial continuity of ownership and a corporate change.
Corporate change
(3) If:
(a) a *corporate change in the company *ends at any time in the *test period; and
(b) there is no *substantial continuity of ownership as between the start of the test period and immediately after the corporate change ends;
then the company is taken to have failed to meet the condition in paragraph 165‑35(a).
Satisfies the same business test
(4) However, if the company satisfies the *same business test for the rest of the income year (the same business test period) after the first time (the test time) in the *test period that a *corporate change in the company *ended, the company is taken to have satisfied the condition in paragraph 165‑35(b).
Note 1: For the same business test, see Subdivision 165‑E.
Note 2: See section 165‑255 for the rule about incomplete test periods.
(5) Apply the *same business test to the *business that the company carried on immediately before the *test time.
166‑25 How to work out the taxable income, tax loss, net capital gain and net capital loss
(1) If the company must calculate its taxable income and *tax loss for the income year under Subdivision 165‑B, and its *net capital gain and *net capital loss under Subdivision 165‑CB, then, in dividing the income year into periods, apply subsection (2) of this section instead of subsection 165‑45(3).
(2) The last period ends at the end of the income year. Each period (except the last) ends at the earlier of:
(a) the earliest time when:
(i) a *corporate change in the company *ends; and
(ii) there is no *substantial continuity of ownership of the company as between the start of the *test period and that time; or
(b) the earliest time when a person begins to control, or becomes able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities) for the purpose, or for purposes including the purpose, of:
(i) getting some benefit or advantage to do with how this Act applies; or
(ii) getting such a benefit or advantage for someone else.
Note: See sections 166‑145 and 166‑175 to work out whether there is substantial continuity of ownership and a corporate change.
166‑35 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivisions 165‑B and 165‑CB are to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166‑C—Deducting bad debts
Table of sections
166‑40 How Subdivision 165‑C applies to a widely held or eligible Division 166 company
166‑50 Companies can choose that this Subdivision is not to apply to them
166‑40 How Subdivision 165‑C applies to a widely held or eligible Division 166 company
(1) This Subdivision modifies the way Subdivision 165‑C applies to a company that is:
(a) a *widely held company at all times during the *current year; or
(b) an *eligible Division 166 company at all times during the current year; or
(c) a widely held company for a part of the current year and an eligible Division 166 company for the rest of the current year.
Note 1: Subdivision 165‑C is about the conditions a company must meet before it can deduct a bad debt.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166‑50.
Note 3: See section 165‑255 for the rule about incomplete current years.
Meaning of test period
(2) The company’s test period is the period:
(a) that begins at whichever of the following times the company chooses:
(i) the start of the income year in which the debt was incurred;
(ii) the start of the *first continuity period; and
(b) that ends at the end of the *second continuity period;
and includes any intervening period.
Note: See section 165‑255 for the rule about incomplete test periods.
Substantial continuity of ownership
(3) The company is taken to have met the conditions in section 165‑123 (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.
Note: See sections 166‑145 and 166‑175 to work out whether there is substantial continuity of ownership and a corporate change.
No substantial continuity of ownership
(4) The company is taken to have failed to meet the conditions in section 165‑123 if there is no *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of an income year in that period; or
(b) the *end of a *corporate change in that period.
Satisfies the same business test
(5) However, if the company satisfies the *same business test for the *second continuity period (the same business test period), it is taken to have satisfied the condition in section 165‑126.
Note 1: For the same business test, see Subdivision 165‑E.
Note 2: See section 165‑255 for the rule about incomplete test periods.
(6) Apply the *same business test to the *business that the company carried on immediately before the earlier of the following times (the test time):
(a) the end of the first income year;
(b) the first time in the test period that a *corporate change in the company *ends;
for which there is no *substantial continuity of ownership of the company as between the start of the *test period and that time.
166‑50 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165‑C is to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166‑CA—Changeover times and alteration times
Table of sections
166‑80 How Subdivision 165‑CC or 165‑CD applies to a widely held or eligible Division 166 company
166‑90 Companies can choose that this Subdivision is not to apply to them
166‑80 How Subdivision 165‑CC or 165‑CD applies to a widely held or eligible Division 166 company
(1) This Subdivision modifies the way in which:
(a) Subdivision 165‑CC applies in determining whether a changeover time (within the meaning of section 165‑115C) has occurred; or
(b) Subdivision 165‑CD applies in determining whether an alteration time (within the meaning of section 165‑115L) has occurred;
in relation to a company that is:
(c) a *widely held company at all times during the income year; or
(d) an *eligible Division 166 company at all times during the income year; or
(e) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.
Note 1: Subdivision 165‑CC is about the conditions a company that has an unrealised net loss must satisfy before it can have capital losses taken into account or deduct revenue losses. Subdivision 165‑CD provides for reductions in cost bases and certain other reductions after alterations have occurred in the ownership or control of a loss company.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166‑90.
Note 3: See section 165‑255 for the rule about incomplete income years.
Meaning of test period and test time
(2) The company’s test period is the period starting at the time that is the reference time for the purposes of Subdivision 165‑CC or section 165‑115L, as the case may be, and ending at each of the following times (the test time):
(a) the end of the income year in which the reference time occurred;
(b) the end of a later income year;
(c) the *end of a *corporate change in the company.
Note 1: See section 165‑255 for the rule about incomplete test periods.
Note 2: See section 166‑175 to work out whether there is a corporate change.
Substantial continuity of ownership
(3) A changeover time or an alteration time is taken not to have occurred in respect of the company during the test period if there is *substantial continuity of ownership of the company as between the start of the *test period and the *test time.
Note: See section 166‑145 to work out whether there is substantial continuity of ownership.
No substantial continuity of ownership
(4) Subsections (5) and (6) have effect if there is no *substantial continuity of ownership of the company as between the start of the *test period and the *test time.
(5) The *test time is taken to have been a changeover time or an alteration time, as the case may be, in respect of the company.
(6) No other time during the *test period is a changeover time or an alteration time in respect of the company.
166‑90 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165‑CC or 165‑CD is to apply to it in respect of a *test period for the purposes of section 166‑80 without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year in which the *test period begins, or before a later day if the Commissioner allows.
Subdivision 166‑D—Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners
Guide to Subdivision 166‑D
166‑135 What this Subdivision is about
This Subdivision has the tests to work out whether a widely held or eligible Division 166 company has maintained the same owners as between different times. (Subdivision 166‑E has rules which make it easier for the company to satisfy these tests.)
This Subdivision also defines when there has been a corporate change in the company.
Table of sections
The ownership tests: substantial continuity of ownership
166‑145 The ownership tests: substantial continuity of ownership
166‑165 Relationship with rules in Division 165
Corporate change in a company
166‑175 Corporate change in a company
The ownership tests: substantial continuity of ownership
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.
Note: To work out who had more than 50% of the voting power, see section 165‑150.
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.
Note: To work out who had rights to more than 50% of the company’s dividends, see section 165‑155.
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.
Note: To work out who had rights to more than 50% of the company’s capital distributions, see section 165‑160.
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).
Conditions in subsections (3) and (4) satisfied by non‑profit and mutual companies
(6) If the company is:
(a) a *non‑profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the *test period, the conditions in subsections (3) and (4) are taken to have been satisfied by the company.
166‑165 Relationship with rules in Division 165
(1) The provisions of Subdivision 165‑D (other than section 165‑165) apply for the purposes of the tests in section 166‑145.
(2) The following provisions apply for the purposes of the tests in section 166‑145 as if the reference to a particular time were a reference to the *ownership test time:
(a) section 165‑180 (which is about arrangements affecting beneficial ownership of shares);
(b) subsection 165‑185(2) (which treats some shares as never having carried rights);
(c) subsection 165‑190(2) (which treats some shares as always having carried rights).
Corporate change in a company
166‑175 Corporate change in a company
Meaning of corporate change
(1) There is a corporate change in a company if:
(a) there is a *takeover bid for *shares in the company; or
(b) there is a scheme of arrangement, involving more than 50% of the company’s shares, that has been approved by a court; or
(c) there is any other arrangement, involving the acquisition of more than 50% of the company’s shares, that is regulated under the Corporations Act 2001 or a *foreign law; or
(d) there is an issue of *shares in the company that results in an increase of 20% or more in:
(i) the issued share capital of the company; or
(ii) the number of the company’s shares on issue; or
(e) there is a corporate change in another company which beneficially owns one or more of the following stakes in the first company:
(i) a *voting stake that carries rights to more than 50% of the voting power of the first company;
(ii) a *dividend stake that carries rights to receive more than 50% of any dividends the first company may pay;
(iii) a *capital stake that carries rights to receive more than 50% of any distribution of capital of the first company;
(whether the other company owns those stakes directly, or *indirectly through one or more interposed entities).
When a corporate change ends
(2) A *corporate change ends:
(a) if paragraph (1)(a) applies (or paragraph (1)(e) applies because of paragraph (1)(a))—at the latest time when a *bid period of the *takeover bid ends; and
(b) if paragraph (1)(b) or (c) applies (or paragraph (1)(e) applies because of paragraph (1)(b) or (c))—when the scheme of arrangement or other arrangement ends; and
(c) if paragraph (1)(d) applies (or paragraph (1)(e) applies because of paragraph (1)(d))—when the offer period for the issue of *shares ends.
Subdivision 166‑E—Concessional tracing rules
Guide to Subdivision 166‑E
166‑215 What this Subdivision is about
This Subdivision has rules which make it easier for a widely held or eligible Division 166 company to satisfy the ownership tests in Subdivision 166‑D.
Special concessional tracing rules deem entities to hold the following stakes in the company so that the company does not have to trace through to the beneficial owners of the stakes:
(a) stakes of less than 10% in the company;
(b) stakes of between 10% and 50% that are held by widely held companies;
(c) stakes that are held by complying superannuation funds, complying approved deposit funds, special companies and managed investment schemes;
(d) stakes in interposed foreign listed companies that are held as bearer shares;
(e) stakes in interposed foreign listed companies that are held by depository entities.
Table of sections
Application of this Subdivision
166‑220 Application of this Subdivision
Stakes of less than 10% in the tested company
166‑225 Direct stakes of less than 10% in the tested company
166‑230 Indirect stakes of less than 10% in the tested company
166‑235 Voting, dividend and capital stakes
Stakes held directly and/or indirectly by widely held companies
166‑240 Stakes held directly and/or indirectly by widely held companies
166‑245 Stakes held by other entities
When identity of foreign stakeholders is not known
166‑255 Bearer shares in foreign listed companies
166‑260 Depository entities holding stakes in foreign listed companies
Other rules relating to voting power and rights
166‑265 Persons who actually control voting power or have rights are taken not to control power or have rights
166‑270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights
166‑272 Same shares or interests to be held
When the rules in this Subdivision do not apply
166‑275 Rules in this Subdivision intended to be concessional
166‑280 Controlled test companies
Application of this Subdivision
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.
Note: See section 165‑255 for the rule about incomplete income years.
Stakes of less than 10% in the tested company
166‑225 Direct 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:
(a) a *voting stake that carries rights to less than 10% of the voting power in the company is held directly in the company; or
(b) a *dividend stake that carries the right to receive less than 10% of any dividends that the company may pay is held directly in the company; or
(c) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the company is held directly in the company.
Note: Other rules might affect this provision: see sections 166‑270, 166‑275 and 166‑280.
Notional shareholder
(2) The tests are applied to the tested company as if, at the *ownership test time, a single notional entity:
(a) directly controlled the voting power that is carried by each such *voting stake; and
(b) had the right to receive, for its own benefit and directly:
(i) any *dividends the tested company may pay in respect of each such *dividend stake; and
(ii) any distributions of capital of the tested company in respect of each such *capital stake; and
(c) 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.
(3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165‑207 and the one mentioned in section 166‑255.
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.
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.
Acquisition of top interposed entity by another entity
(3) If:
(a) a new entity (the new interposed entity) acquires all the *shares or other interests in the top interposed entity (the old interposed entity); and
(b) the new interposed entity has the same classes of shares or other interests as the old interposed entity; and
(c) if the new interposed entity is a company—the shares are not *redeemable shares; and
(d) in any case—each stakeholder holds the same proportion of the total *voting stakes, *dividend stakes or *capital stakes in the new interposed entity immediately after the acquisition as the stakeholder held in the old interposed entity immediately before the acquisition;
then, at all times that the old interposed entity held or is taken to have held a stake in the tested company, the new interposed entity is taken to have held that stake.
(4) Except for the purposes of determining whether a time is an alteration time (within the meaning of section 165‑115L), section 166‑272 (which is about the same shares or interests) is to be disregarded when applying subsection (3).
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.
Stakes held by nominees
(7) For the purposes of sections 166‑225 and 166‑230, if:
(a) an entity (the nominee entity) holds a *voting stake, a *dividend stake, or a *capital stake, in a company; and
(b) the nominee entity is itself a company; and
(c) the nominee entity holds the stake as a nominee for more than one other entity;
then, for each entity for whom a part of the stake is held by the nominee entity, that entity’s part of the stake may be treated instead as a separate stake.
Stakes held directly and/or indirectly by widely held companies
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: 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.
Exception
(3) This section does not apply in respect of a *widely held company if the company is not a widely held company for the whole income year in which the *ownership test time occurs.
Note: See section 165‑255 for the rule about incomplete periods.
Acquisition of widely held company by another entity
(4) If:
(a) a new company acquires all the *shares in the *widely held company; and
(b) immediately before the acquisition, the shares in the widely held company were listed for quotation in the official list of an *approved stock exchange; and
(c) immediately after the acquisition, the shares in the new company are listed for quotation in the official list of an approved stock exchange; and
(d) the new company has the same classes of shares (not being *redeemable shares) as the widely held company; and
(e) each entity that held stakes in the widely held company immediately before the acquisition holds the same proportion of the total *voting stakes, *dividend stakes or *capital stakes in the new company immediately after the acquisition as the entity held in the widely held company immediately before the acquisition;
then, at all times that the widely held company held or is taken to have held a stake in the tested company, the new company is taken to have held that stake.
(5) Except for the purposes of determining whether a time is an alteration time (within the meaning of section 165‑115L), section 166‑272 (which is about same shares or interests) is to be disregarded when applying subsection (4).
166‑245 Stakes held by other entities
(1) This section modifies how the ownership tests in section 166‑145 are applied to the tested company if:
(a) an entity mentioned in subsection (2) directly or indirectly (through one or more interposed entities) holds a *voting stake, a *dividend stake or a *capital stake in the company; and
(b) neither the entity nor another entity has, under section 166‑225, 166‑230 or 166‑240, been taken to control voting power or have rights in respect of the stake; and
(c) the entity mentioned in subsection (2) satisfies the condition in subsection (3).
Note: Other rules might affect this provision: see sections 166‑272, 166‑275 and 166‑280.
(2) For the purposes of subsection (1), these are the entities:
(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.
(3) For the purposes of paragraph (1)(c), an entity satisfies the condition in this subsection if at all times during the income year of the tested company in which the *ownership test time occurs:
(a) if the entity is a *superannuation fund:
(i) the fund is a *complying superannuation fund; or
(ii) the fund is a superannuation fund that is established in a foreign country and is regulated under a *foreign law; or
(b) if the entity is an *approved deposit fund—the fund is a *complying approved deposit fund; or
(ba) if the entity is an *FHSA trust—the entity is an FHSA trust; and
(c) if the entity is a *special company—the company is a special company; or
(d) if the entity is a *managed investment scheme:
(i) the scheme is registered under the Corporations Act 2001; or
(ii) the entity is recognised, under a *foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme; or
(e) if the entity is an entity, or an entity of a kind, prescribed by the regulations—the entity meets any conditions prescribed by the regulations.
Note: See section 165‑255 for the rule about incomplete periods.
If the entity has 10 members or fewer
(4) If the entity has 10 *members or fewer, the tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake—each member controls, or is able to control, an equal proportion of 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—each member had the right to receive (whether directly or *indirectly), for its own benefit, an equal proportion of any *dividends the tested company may pay in respect of that stake at that time; and
(c) if the stake is a *capital stake—each member had the right to receive (whether directly or indirectly), for its own benefit, an equal proportion of any distributions of capital of the tested company in respect of that stake at that time; and
(d) in any case—each member were a person (other than a company or a trustee).
Note 1: If each member’s proportion of the voting power, the dividends or the distributions is less than 10%, then subsections (5) and (6) apply instead.
Note 2: 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.
If the entity has more than 10 members etc.
(5) The ownership tests are applied as set out in subsection (6) if:
(a) the entity has more than 10 *members; or
(b) under subsection (4):
(i) the proportion of the voting power in the company that each member controls, or is able to control, is less than 10% of the total voting power; or
(ii) the proportion of the *dividends that the tested company may pay for the benefit of each member is less than 10% of the total dividends; or
(iii) the proportion of the distributions of capital that the tested company may pay for the benefit of each member is less than 10% of the total distributions.
(6) The ownership tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake—the 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 entity 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 entity 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 entity were a person (other than a company or a trustee).
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.
When identity of foreign stakeholders is not known
166‑255 Bearer shares in foreign listed companies
(1) This section modifies how the ownership tests in section 166‑145 are applied to the tested company if:
(a) at the *ownership test time, it is the case, or it is reasonable to assume, that persons (none of them companies or trustees) hold a *voting stake, a *dividend stake or a *capital stake in the tested company; and
(b) an entity has not, under section 166‑225, 166‑230, 166‑240 or 166‑245, been taken to control voting power or have rights in respect of the stake; and
(c) another company (the foreign listed company) is interposed, at that time, between those persons and the tested company; and
(d) at all times during the income year of the tested company in which the ownership test time occurs, the *principal class of shares in the foreign listed company is listed for quotation in the official list of an *approved stock exchange; and
(e) at the ownership test time:
(i) voting stakes that carry rights to 50% or more of the voting power in the foreign listed company; or
(ii) dividend stakes that carry rights to receive 50% or more of any dividends that the foreign listed company may pay; or
(iii) capital stakes that carry rights to receive 50% or more of any distribution of capital of the foreign listed company;
as the case requires, are directly held by way of bearer shares; and
(f) the beneficial owners of some or all of those bearer shares have not been disclosed to the foreign listed company.
Note 1: See section 165‑255 for the rule about incomplete test periods.
Note 2: Other rules might affect this provision: see sections 166‑270, 166‑275 and 166‑280.
(2) The tests are applied to the tested company as if, at the *ownership test time, for each of those bearer shares whose owners have not been disclosed:
(a) a single notional entity controls, or is able to control, the voting power in the tested company that is carried by those shares at that time; and
(b) the entity *indirectly had the right to receive, for its own benefit:
(i) any *dividends the tested company may pay in respect of those shares at that time; and
(ii) any distributions of capital of the tested company in respect of those shares at that time; and
(c) the 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.
(3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165‑207 and the one mentioned in section 166‑225.
166‑260 Depository entities holding stakes in foreign listed companies
(1) This section modifies how the ownership tests in section 166‑145 are applied to the tested company if:
(a) at the *ownership test time, it is the case, or it is reasonable to assume, that persons (none of them companies or trustees) have a *voting stake, a *dividend stake or a *capital stake in the tested company; and
(b) an entity has not, under section 166‑225, 166‑230, 166‑240, 166‑245 or 166‑255, been taken to control voting power or have rights in respect of the stake; and
(c) another company (the foreign listed company) is interposed, at that time, between those persons and the tested company; and
(d) at all times during the income year of the tested company in which the ownership test time occurs, the *principal class of shares in the foreign listed company is listed for quotation in the official list of an *approved stock exchange; and
(e) at the ownership test time:
(i) voting stakes that carry rights to 50% or more of the voting power in the foreign listed company; or
(ii) dividend stakes that carry rights to receive 50% or more of any dividends that the foreign listed company may pay; or
(iii) capital stakes that carry rights to receive 50% or more of any distribution of capital of the foreign listed company;
as the case requires, are directly held by one or more *depository entities (see subsection (3)); and
(f) a law of a foreign country, or a part of a foreign country, in which the approved stock exchange is located, prevents the disclosure of the beneficial owners of some or all of those shares that are held by the depository entities; and
(g) the beneficial owners of some or all of the shares held by the depository entities have not been disclosed to the foreign listed company.
Note 1: See section 165‑255 for the rule about incomplete test periods.
Note 2: This rule might not apply in all circumstances: see sections 166‑275 and 166‑280.
(2) The tests are applied to the tested company as if, at the *ownership test time, for each of those *shares held by a *depository entity whose owners have not been disclosed, the depository entity:
(a) controls, or is able to control, the voting power in the tested company that is carried by those shares at that time; and
(b) *indirectly had the right to receive, for its own benefit:
(i) any *dividends the tested company may pay in respect of those shares at that time; and
(ii) any distributions of capital of the tested company in respect of those shares at that time; and
(c) 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.
(3) If the effect of subsection (2) is that the *depository entity is taken to hold:
(a) a *voting stake that carries rights to less than 10% of the voting power in the tested company; or
(b) a *dividend stake that carries the right to receive less than 10% of any dividends that the tested company may pay; or
(c) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the tested company;
then neither section 166‑225 nor section 166‑230 applies in respect of that stake.
(4) If the *depository entity (the old depository entity) is subsequently replaced by another depository entity (the new depository entity), then, at all times that the old depository entity held or is taken to have held a stake in the tested company, the new entity is taken to have held that stake.
(5) A depository entity is an entity:
(a) that is a central securities repository; and
(b) that provides custody of share certificates; and
(c) that provides services for the exchange of shares.
Other rules relating to voting power and rights
166‑265 Persons who actually control voting power or have rights are taken not to control power or have rights
If any of sections 166‑225, 166‑230, 166‑240, 166‑245, 166‑255 or 166‑260 apply, the ownership tests in section 166‑145 are also applied to the tested company as if, at the *ownership test time:
(a) the persons who control, or are able to control, the voting power in the tested company (whether directly, or indirectly through one or more interposed entities) that is carried by each *voting stake in the tested company mentioned in that section had not had that control; and
(b) the persons who have the right to receive for their own benefit (whether directly, or *indirectly through one or more interposed entities):
(i) any *dividends that the tested company may pay in respect of each *dividend stake in the tested company mentioned in that section; and
(ii) any distributions of capital of the tested company in respect of each *capital stake in the tested company mentioned in that section;
had not had that right.
166‑270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights
Minimum control of voting power
(1) If:
(a) the *ownership test time is after the start of the *test period; and
(b) a single notional entity mentioned in section 166‑225 or 166‑255 has voting power in a company; and
(c) the voting power that the entity has at the ownership test time is greater than the voting power that the entity had at the start of the test period;
then the entity is taken to have voting power in the company at the ownership test time only to the extent that it had it at the start of the test period.
Minimum percentage of rights to dividends and capital
(2) If:
(a) the *ownership test time is after the start of the *test period; and
(b) a single notional entity mentioned in section 166‑225 or 166‑255 has a percentage of rights to the *dividends or distributions of capital of a company; and
(c) the percentage that the entity has rights to at the ownership test time is greater than the percentage (the lower percentage) of the dividends or distributions of capital of the company that the entity had rights to at the start of the test period;
then the entity is taken to have rights to the lower percentage of the dividends or distributions of capital at the ownership test time.
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;
(c) an entity mentioned in subsection 166‑245(2) (which is about stakes held by other entities);
(d) a *depository entity mentioned in section 166‑260;
(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 or whether a time is a changeover time or an alteration time in respect of the tested company:
(a) a condition that has to be satisfied is not satisfied; or
(b) a time that, apart from this subsection, would not be a changeover time or alteration time is taken to be a changeover time or alteration time, as the case may be;
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.
What happens in case of share splitting
(3) If:
(a) a particular *share (an old share) in a company of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period is divided into 2 or more new shares during that period; and
(b) the stakeholder or entity becomes the holder of each of the new shares immediately after the division takes place and remains the holder until the end of that period;
the new shares are taken to be exactly the same shares as the old share.
What happens in case of splitting of units in a unit trust
(4) If:
(a) a particular unit (an old unit) in a unit trust of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period is divided into 2 or more new units during that period; and
(b) the stakeholder or entity becomes the holder of each of the new units immediately after the division takes place and remains the holder until the end of that period;
the new units are taken to be exactly the same units as the old unit.
What happens in case of consolidation of shares
(5) If:
(a) a particular *share (an old share) in a company of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period, and other shares (each of which is also called an old share) in the company of which the stakeholder or entity is the holder at the start of that period, are consolidated into a new share during that period; and
(b) the stakeholder or entity becomes the holder of the new share immediately after the consolidation takes place;
the new share is taken to be exactly the same share as the old shares.
What happens in case of consolidation of units in a unit trust
(6) If:
(a) a particular unit (an old unit) in a unit trust of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period and other units (each of which is also called an old unit) in the trust of which the stakeholder or entity is the holder at the start of that period are consolidated into a new unit during that period; and
(b) the stakeholder or entity becomes the holder of the new unit immediately after the consolidation takes place;
the new unit is taken to be exactly the same unit as the old units.
Totals of shares or rights not affected
(7) This section does not affect how *shares, and rights carried by shares, are counted for the purpose of determining:
(a) the total voting power in the tested company; or
(b) the total dividends that the tested company may pay; or
(c) the total distributions of capital of the tested company.
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; or
(ii) the *notional loss; or
(iii) the bad debt; or
(iv) the unrealised net loss (within the meaning of section 165‑115E);
as the case requires, 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.
Subsection (8) not to apply for purpose of determining whether an alteration time has occurred
(9) However, subsection (8) does not apply in relation to any of the conditions in section 166‑145 in so far as those conditions have effect for the purpose of determining whether an alteration time (within the meaning of section 165‑115L) has occurred.
Time of happening of CGT event
(10) The happening of any *CGT event in relation to a *direct equity interest or *indirect equity interest in the tested company that results in the failure of the tested company to satisfy a condition in section 166‑145 is taken, for the purposes of paragraph (8)(b), to have occurred during the *test period.
When the rules in this Subdivision do not apply
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).
166‑280 Controlled test companies
(1) A *tracing rule does not modify how the ownership tests in section 166‑145 apply to the tested company in respect of 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:
(a) either:
(i) an entity (the controlling entity) directly holds that power or has those rights; or
(ii) an entity (the controlling entity) indirectly holds that power or has those rights through one or more interposed entities; and
(b) the tested company is sufficiently influenced (within the meaning of paragraph 318(6)(b) of the Income Tax Assessment Act 1936) by the controlling entity.
Note: However, a tracing rule can modify how the ownership tests in section 166‑145 apply to the tested company in respect of voting power or dividend or capital rights held by entities other than controlling entities.
(2) A *tracing rule does not modify how the ownership tests in section 166‑145 apply to the tested company in respect of all or part of the voting power in the tested company if:
(a) the tested company is a *widely held company; and
(b) that voting power:
(i) is more than 25% of the total voting power in the tested company and is controlled (whether directly, or indirectly through one or more interposed entities) by a natural person, together with his or her *associates; or
(ii) is more than 50% of the total voting power in the tested company and is controlled (whether directly, or indirectly through one or more interposed entities) by a trustee or company, together with its associates.
Division 170—Treatment of certain company groups for income tax purposes
Table of Subdivisions
170‑A Transfer of tax losses within certain wholly‑owned groups of companies
170‑B Transfer of net capital losses within certain wholly‑owned groups of companies
170‑C Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly‑owned groups of companies
170‑D Transactions by a company that is a member of a linked group
Subdivision 170‑A—Transfer of tax losses within certain wholly‑owned groups of companies
Guide to Subdivision 170‑A
170‑1 What this Subdivision is about
A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. One of the companies must be an Australian branch of a foreign bank, and both companies must be members of the same wholly‑owned group.
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
170‑25 Tax treatment of consideration for transferred tax loss
Conditions for transfer
170‑30 Companies must be in existence and members of the same wholly‑owned group etc.
170‑32 Tax loss incurred by the loss company because of a transfer under Subdivision 707‑A
170‑33 Alternative test of relations between the loss company and other companies
170‑35 The loss company
170‑40 The income company
170‑42 If the income company has become the head company of a consolidated group or MEC group
170‑45 Maximum amount that can be transferred
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
Australian permanent establishments of foreign financial entities
170‑75 Treatment like Australian branches of foreign banks
170‑5 Basic principles for transferring tax losses
(1) A company can transfer a tax loss to another company so that the other company can deduct it in the income year of the transfer.
(2) Both companies must be members of the same wholly‑owned group. There are other eligibility requirements that they must also satisfy.
(2A) One of the companies must be an Australian branch of a foreign bank. The other company must be:
(a) the head company of a consolidated group or MEC group; or
(b) not a member of a consolidatable group.
Note: This Subdivision applies to Australian permanent establishments of foreign entities that are financial entities in the same way as it applies to Australian branches of foreign banks. See section 170‑75.
(3) The transferred loss must be “surplus” in the sense that the transferring company cannot use it because there is not enough assessable income to offset it. The other company must have enough assessable income to offset the transferred tax loss.
(4) Neither company must be prevented from deducting the loss by Division 165 or 175.
Note: Division 165 deals with the income tax consequences of changing ownership or control of a company. Division 175 deals with using a company’s tax losses to avoid income tax.
(5) The tax loss is transferred by an agreement between the 2 companies.
(6) The tax loss can be transferred in the same year as it is incurred. In that case different rules apply.
Effect of transferring a tax loss
170‑10 When a company can transfer a tax loss
(1) A company (the loss company) can transfer an amount of its *tax loss for an income year (the loss year) to another company (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.
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 transfer, 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.
(3) Despite subsection (1), if the *tax loss is transferred because the conditions in section 170‑32 are met, the *income company is taken to have incurred the tax loss for the income year for which the first prior transferor mentioned in that section incurred the tax loss.
(4) Despite subsection (1), if the *tax loss is transferred because the condition in subsection 170‑42(4) is met, the *income company is taken to have incurred the tax loss for the income year for which that subsection assumes the income company incurred the tax loss.
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 36‑17 (which is about how to deduct a tax loss), but only for the income year of the income company for which the amount is transferred. That income year is called the deduction year.
(2) The *loss company can no longer *utilise the transferred amount and is taken not to have incurred the *tax loss to the extent of that amount.
170‑25 Tax treatment of consideration for transferred tax loss
(1) If the *loss company receives any consideration from the *income company for the amount of the *tax loss:
(a) so much of the consideration as is given for the amount of the tax loss is neither assessable income nor exempt income of the loss company; and
(b) a *capital gain does not accrue to the loss company because of the receipt of the consideration.
Note: However, the consideration may affect how section 170‑210 modifies the cost base of direct and indirect interests in the loss company.
(2) If the *income company gives any consideration to the *loss company for the amount of the *tax loss:
(a) the income company cannot deduct the amount or value of the consideration; and
(b) the income company does not incur a *capital loss because of the giving of the consideration.
Note: However, the consideration may affect how section 170‑215 modifies the cost base of direct and indirect interests in the income company.
Conditions for transfer
170‑30 Companies must be in existence and members of the same wholly‑owned group etc.
(1) Both companies must be in existence during at least part of each of the following income years:
(a) the *loss year; and
(b) the *deduction year; and
(c) any intervening income year.
Note: In some cases, this condition may not apply, or may be taken to be met even if it is not actually met. See sections 170‑32 and 170‑33.
(2) Also, both companies must be members of the same *wholly‑owned group during the whole or part of those income years when both companies were in existence.
Note: In some cases, this condition may not apply, or may be taken to be met even if it is not actually met. See sections 170‑32 and 170‑33.
(3) One of the companies must be an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank.
Note: The Australian branch can be taken to be a separate entity from the foreign bank for this Subdivision. See Part IIIB of the Income Tax Assessment Act 1936.
(4) The other company must be covered by an item of this table.
The other company |
Item | The other company must: | At this time: |
1 | Be the *head company of a *consolidated group | The end of the *deduction year or, if the company ceases to be in existence during the deduction year, just before the cessation |
2 | Be the *head company of a *MEC group | The end of the *deduction year or, if the group ceases to exist during the deduction year because the company ceases to be in existence, just before the cessation |
3 | Not be a *member of a *consolidatable group | The end of the *deduction year or, if the company ceases to be in existence during the deduction year, just before the cessation |
170‑32 Tax loss incurred by the loss company because of a transfer under Subdivision 707‑A
When the conditions in this section apply
(1) The conditions in this section apply instead of the conditions in subsections 170‑30(1) and (2) if:
(a) the *income company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank; and
(b) the *loss company incurred the *tax loss because of one or more transfers of the tax loss under Subdivision 707‑A.
Conditions
(2) Each transferor (prior transferor) of the *tax loss under Subdivision 707‑A must have been a company.
(3) It must have been possible to meet the conditions in subsections 170‑30(1) and (2) in relation to the *loss company and the *income company assuming:
(a) the *loss year were so much of the income year in which the *tax loss was transferred to the loss company under Subdivision 707‑A as occurred after the transfer; and
(b) so much (if any) of the *deduction year as occurred before the transfer were disregarded.
(4) The *income company and each prior transferor must both be in existence during at least part of each of these periods:
(a) the period consisting of:
(i) if the prior transferor incurred the *tax loss apart from Subdivision 707‑A—the *loss year; or
(ii) if the prior transferor incurred the tax loss because of a transfer under Subdivision 707‑A (other than a transfer from the prior transferor to itself)—so much of the income year in which the transfer occurred as was after the transfer (but before any later transfer of the loss from the prior transferor under that Subdivision);
(b) so much of the income year during which the tax loss was transferred under Subdivision 707‑A from the prior transferor to another company as occurs before the transfer (but after the start of the period described in paragraph (a));
(c) any intervening income year.
(5) The *income company must be a member of the same *wholly‑owned group as each prior transferor during the whole or part of the periods described in subsection (4) for the prior transferor when both were in existence.
170‑33 Alternative test of relations between the loss company and other companies
(1) The conditions in subsections 170‑30(1) and (2) are taken to be met in relation to the *loss company and the *income company if:
(a) the loss company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank; and
(b) the income company is covered by item 1 or 2 of the table in subsection 170‑30(4) (because the company is the *head company of a *consolidated group or *MEC group at the time described in that item); and
(c) the relevant circumstances in this section exist.
Circumstances
(2) One circumstance is that there is another company (the first link company) in relation to which all these conditions are met:
(a) the first link company became a *subsidiary member of a *consolidated group or *MEC group after the start of the *loss year but before the time described in the item of the table in subsection 170‑30(4) that covers the *income company;
(b) the *tax loss could have been transferred from the *loss company to the first link company under this Subdivision (apart from subsection 170‑30(4) and this section) for a *deduction year consisting of the *trial year for the first link company becoming a subsidiary member of that group had:
(i) the first link company continued to be *in existence as a separate entity (rather than being part of the head company of that group) when it was a subsidiary member of that group; and
(ii) the trial year not started before the start of the loss year; and
(iii) the first link company had enough assessable income for the trial year;
(c) the tax loss would have been incurred by the income company because of one or more transfers under Subdivision 707‑A assuming the tax loss had been made by the first link company (apart from that Subdivision) for the loss year.
(3) If the condition in paragraph (2)(c) could be met only if there had been a transfer described in that paragraph involving a company other than the first link company and the *income company, another circumstance is that the other company and the *loss company were *in existence and members of the same *wholly‑owned group for the period:
(a) starting when the *tax loss would have been transferred under Subdivision 707‑A to the other company as described in that paragraph; and
(b) ending when the tax loss would have been transferred under Subdivision 707‑A from the other company as described in that paragraph.
(4) It does not matter whether or not any of the transfers mentioned in subsection (3) would have involved the first link company or the *income company as well as the other company.
(5) Another circumstance is that the conditions in subsections 170‑30(1) and (2) would have been met for the *loss company and the *income company assuming:
(a) the *loss year consisted of the part of the income year in which the *tax loss would have been transferred to the income company under Subdivision 707‑A as described in paragraph (2)(c) occurring after the time the transfer would have occurred; and
(b) so much (if any) of the *deduction year as occurred before the time the transfer would have occurred were disregarded.
170‑35 The loss company
(1) The *loss company:
(a) must be an Australian resident and not a *prescribed dual resident; and
(b) must not be a *dual resident investment company in either the *loss year or the *deduction year.
(2) If the *loss year and the *deduction year are the same, it must be the case that the *loss company was not required to calculate the *tax loss:
(a) under section 165‑70 (because of a change in ownership or control); or
(b) under section 175‑35 (because of injected income or deductions).
(3) Also, it must be the case that neither Subdivision 165‑A nor Subdivision 175‑A would have prevented the *loss company from deducting the *tax loss in the *deduction year if it had had enough assessable income (including *assessable film income) to offset the tax loss.
Note 1: Subdivision 165‑A deals with the deductibility of a company’s tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year. Subdivision 175‑A is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.
Note 2: Division 707 affects the operation of Subdivision 165‑A if the loss company incurred the tax loss because of a transfer under Subdivision 707‑A.
170‑40 The income company
(1) The *income company must be an Australian resident and not a *prescribed dual resident.
(2) It must not be prevented by Division 165 or 175 from deducting the transferred amount in the *deduction year. Those Divisions do not apply to the *income company if the *loss year and the *deduction year are the same.
Note 1: Division 165 deals with the income tax consequences of changing ownership or control of a company. Division 175 deals with using a company’s tax losses to avoid income tax.
Note 2: The condition in subsection (2) may not apply in some cases. See section 170‑42.
170‑42 If the income company has become the head company of a consolidated group or MEC group
(1) The condition in subsection (2) of this section applies to the *income company instead of the condition in subsection 170‑40(2) if the conditions in subsections 170‑30(1) and (2) are met in relation to the *loss company and the income company apart from section 170‑33 and either:
(a) both these circumstances exist:
(i) after the start of the *loss year but before the relevant time described in subsection 170‑30(4), the income company became the *head company of a *consolidated group or of a *MEC group that came into existence after the start of the loss year;
(ii) the loss year and *deduction year are not the same; or
(b) all these circumstances exist:
(i) the income company is, at the relevant time described in subsection 170‑30(4), the head company of a MEC group;
(ii) before that time but after the end of the loss year, the MEC group was involved in an application event described in section 719‑300 (but not covered by subsection 719‑300(4) or (5));
(iii) the income company would be taken under section 719‑305 to have transferred losses to itself under Subdivision 707‑A, assuming it had made losses while head company of the group or of a consolidated group involved in the event;
(iv) the MEC group or consolidated group came into existence before the start of the *loss year.
Note: An application event involves either expanding an existing MEC group by including extra eligible tier‑1 companies of the top company for the group or creating a MEC group because more companies become eligible tier‑1 companies of the top company of which the head company of a consolidated group is an eligible tier‑1 company.
(2) The *income company must have been able to deduct the *tax loss in the *deduction year assuming that it had incurred the tax loss for the *loss year.
(3) The condition in subsection (4) of this section applies to the *income company instead of the condition in subsection 170‑40(2) if the conditions in subsections 170‑30(1) and (2) are met in relation to the *loss company and the income company because of section 170‑33.
(4) The *income company must have been able to deduct the *tax loss in the *deduction year assuming that it had incurred the tax loss, for the income year in which the loss would have been transferred to it as described in paragraph 170‑33(2)(c), because of one or more transfers under Subdivision 707‑A described in that paragraph.
170‑45 Maximum amount that can be transferred
Loss company can only transfer what it cannot use itself
(1) The amount transferred cannot exceed what would be the amount of the *loss company’s *unutilised *tax loss at the end of the *deduction year if the loss company utilised the tax loss to the greatest extent possible.
Transferred loss must not exceed what the income company can use
(2) The amount transferred also cannot exceed the amount worked out as follows:
Method statement
Step 1. Add together the *income company’s assessable income and *net exempt income (if any) for the *deduction year.
Step 2. Subtract the *income company’s deductions for the *deduction year, except deductions for amounts of *tax losses transferred to the income company (by the *loss company or any other company).
Step 3. Subtract the *income company’s deductions for the *deduction year for amounts of *tax losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.
Example: In the deduction year:
• the income company has assessable income of $60,000, net exempt income of $10,000 and deductions of $25,000 (apart from the transferred loss); and
• another company, being a member of the same wholly‑owned group as the income company, transferred a tax loss of $15,000 to the income company; and
• the loss company incurred a tax loss of $50,000.
Of the $50,000 loss, the loss company can transfer no more than $30,000 ($60,000+$10,000‑$25,000‑$15,000) to the income company.
(3) Subsection (2) does not apply if the *tax loss is a *film loss. In that case, the amount transferred also cannot exceed the amount worked out as follows:
Method statement
Step 1. Add together the *income company’s *net assessable film income and *net exempt film income (if any) for the *deduction year.
Step 2. Subtract the *income company’s deductions for the *deduction year for amounts of *film losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.
(4) Subsections (2) and (3) do not apply if the transfer occurs because either or both of the conditions in subsections 170‑42(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 170‑42(2) or (4) (as appropriate), would have included the *tax loss or *film loss (as appropriate).
Note 1: There will be 2 or more bundles of losses identified if both of the conditions in subsections 170‑42(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 170‑42(4) if the conditions in subsections 170‑30(1) and (2) are met in relation to the loss company and the income company because of multiple applications of section 170‑33 each involving a different first link company.
Step 2. For each *bundle identified, work out how much of the *tax loss or *film loss (as appropriate) the *income company would have been able to deduct in the *deduction year assuming that:
(a) the loss could have been deducted in that year only after the deduction 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 income 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 deducted only in the order in which the loss company incurred them.
Note 1: If the assumption in subsection 170‑42(2) is relevant to the bundle, it would have included losses incurred by the income company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707‑A.
Note 2: If the assumption in paragraph 170‑42(4) is relevant to the bundle, it would have included losses actually incurred by the first link company and transferred (by one or more transfers under Subdivision 707‑A) to the income company.
Step 3. Total every result of step 2 for the *tax loss or *film loss (as appropriate).
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 income year of the transfer (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 lodgement of the *income company’s *income tax return for the *deduction 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 for which the income company will deduct the loss.
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 *deduction 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 *deduction year, it can transfer them only in the order in which it incurred them.
(3) If:
(a) the *loss company has 2 or more *tax losses, or 2 or more *film losses, it can transfer for the *deduction year; and
(b) it incurred at least one of those losses apart from Subdivision 707‑A and at least one of those losses because of a transfer under that Subdivision;
it can transfer under this Subdivision the losses it incurred because of a transfer under Subdivision 707‑A only after transferring under this Subdivision the losses it incurred apart from that Subdivision.
(4) For the purposes of subsection (3), treat a loss incurred by the company both apart from that Subdivision and because of a transfer under that Subdivision as a loss incurred because of a transfer under that Subdivision.
(5) Subsections (1) and (2) have effect subject to subsection (3).
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 *deduction 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.
Australian permanent establishments of foreign financial entities
170‑75 Treatment like Australian branches of foreign banks
(1) The object of this section is to let *tax losses be transferred under this Subdivision to and from *Australian permanent establishments of *foreign entities that are *financial entities in the same way as tax losses can be transferred to and from Australian branches of *foreign banks.
(2) This Subdivision (except this section) applies to an *Australian permanent establishment of a *foreign entity that is a *financial entity in the same way as this Subdivision applies to an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank.
Subdivision 170‑B—Transfer of net capital losses within certain wholly‑owned groups of companies
Guide to Subdivision 170‑B
170‑101 What this Subdivision is about
A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in working out its net capital gain for the income year of the transfer. One of the companies must be an Australian branch of a foreign bank, and both companies must be members of the same wholly‑owned group.
Table of sections
170‑105 Basic principles for transferring a net capital loss
Effect of transferring a net capital loss
170‑110 When a company can transfer a net capital loss
170‑115 Who can apply transferred loss
170‑120 Gain company is taken to have made transferred loss
170‑125 Tax treatment of consideration for transferred tax loss
Conditions for transfer
170‑130 Companies must be in existence and members of the same wholly‑owned group etc.
170‑132 Net capital loss made by the loss company because of a transfer under Subdivision 707‑A
170‑133 Alternative test of relations between the loss company and other companies
170‑135 The loss company
170‑140 The gain company
170‑142 If the gain company has become the head company of a consolidated group or MEC group
170‑145 Maximum amount that can be transferred
170‑150 Transfer by written agreement
170‑155 Losses must be transferred in order they are made
170‑160 Gain company cannot transfer transferred net capital loss
Effect of agreement to transfer more than can be transferred
170‑165 Agreement transfers as much as can be transferred
170‑170 Amendment of assessments
Australian permanent establishments of foreign financial entities
170‑174 Treatment like Australian branches of foreign banks
170‑105 Basic principles for transferring a net capital loss
(1) A company can transfer a net capital loss (except a net capital loss from collectables) to another company so that the other company can apply it in working out its net capital gain for the income year of the transfer.
(2) Both companies must be members of the same wholly‑owned group. There are other eligibility requirements that they must also satisfy.
(2A) One of the companies must be an Australian branch of a foreign bank. The other company must be:
(a) the head company of a consolidated group or MEC group; or
(b) not a member of a consolidatable group.
Note: This Subdivision applies to Australian permanent establishments of foreign entities that are financial entities in the same way as it applies to Australian branches of foreign banks. See section 170‑174.
(3) The transferred loss must be “surplus” in the sense that, for the income year of the transfer, the transferring company does not have enough capital gains against which to apply it. The other company must have enough capital gains against which to apply it.
(5) Neither company must be prevented by Subdivision 165‑CA or 175‑CA from applying the loss in working out its net capital gain for the income year of the transfer.
Note: Subdivision 165‑CA deals with the consequences of changing ownership or control of a company. Subdivision 175‑CA deals with using a company’s net capital losses to avoid income tax.
(6) The net capital loss is transferred by an agreement between the 2 companies.
(7) The net capital loss can be transferred in the same year as it is made. In that case different rules apply.
(8) The provisions of Subdivision 170‑C (so far as they relate to the transfer of net capital losses) are to be disregarded in applying the provisions of this Subdivision where the relevant agreement referred to in section 170‑150 was made before 22 February 1999.
Effect of transferring a net capital loss
