Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 174

Compilation date:   12 October 2017

Includes amendments up to: Act No. 108, 2017

Registered:    12 October 2017

This compilation is in 11 volumes

Volume 1: sections 11 to 3655

Volume 2: sections 401 to 5510

Volume 3: sections 581 to 122205

Volume 4: sections 1241 to 152430

Volume 5: sections 1641 to 220800

Volume 6: sections 2301 to 31215

Volume 7: sections 3151 to 42070

Volume 8: sections 6151 to 727910

Volume 9: sections 7681 to 9951

Volume 10: Endnotes 1 to 3

Volume 11: Endnote 4

Each volume has its own contents

 

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 12 October 2017 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Selfrepealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

 

 

 

Contents

Chapter 3—Specialist liability rules

Part 35—Corporate taxpayers and corporate distributions

Division 164—Nonshare capital accounts for companies

Guide to Division 164 1

1641 What this Division is about

Operative provisions

1645 Object

16410 Nonshare capital account

16415 Credits to nonshare capital account

16420 Debits to nonshare capital account

Division 165—Income tax consequences of changing ownership or control of a company

Guide to Division 165 7

1651 What this Division is about

Subdivision 165A—Deducting tax losses of earlier income years

Guide to Subdivision 165A

1655 What this Subdivision is about

Operative provisions

16510 To deduct a tax loss

16512 Company must maintain the same owners

16513 Alternatively, the company must satisfy the same business test

16515 The same people must control the voting power, or the company must satisfy the same business test

16520 When company can deduct part of a tax loss

Subdivision 165B—Working out the taxable income and tax loss for the income year of the change

Guide to Subdivision 165B

16523 What this Subdivision is about

16525 Summary of this Subdivision

16530 Flow chart showing the application of this Subdivision

When a company must work out its taxable income and tax loss under this Subdivision

16535 On a change of ownership, unless the company satisfies the same business test

16537 Who has more than a 50% stake in the company during a period

16540 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

16545 First, divide the income year into periods

16550 Next, calculate the notional loss or notional taxable income for each period

16555 How to attribute deductions to periods

16560 How to attribute assessable income to periods

16565 How to calculate the company’s taxable income for the income year

Working out the company’s tax loss

16570 How to calculate the company’s tax loss for the income year

Special rules that apply if the company is in partnership

16575 How to calculate the company’s notional loss or notional taxable income for a period when the company was a partner

16580 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

16585 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

16590 Company’s full year deductions include a share of partnership’s full year deductions

Subdivision 165CA—Applying net capital losses of earlier income years

Guide to Subdivision 165CA

16593 What this Subdivision is about

Operative provisions

16596 When a company cannot apply a net capital loss

Subdivision 165CB—Working out the net capital gain and the net capital loss for the income year of the change

Guide to Subdivision 165CB

16599 What this Subdivision is about

When a company must work out its net capital gain and net capital loss under this Subdivision

165102 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

165105 First, divide the income year into periods

165108 Next, calculate the notional net capital gain or notional net capital loss for each period

165111 How to work out the company’s net capital gain

165114 How to work out the company’s net capital loss

Subdivision 165CC—Change of ownership or control of company that has an unrealised net loss

Guide to Subdivision 165CC

165115 What this Subdivision is about

165115AA...........Special rules to save compliance costs

Operative provisions

165115A Application of Subdivision

165115B 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

165115BAWhat happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock

165115BB Order of application of assets: residual unrealised net loss

165115C Changeover time—change in ownership of company

165115D Changeover time—change in control of company

165115E What is an unrealised net loss

165115F Notional gains and losses

Subdivision 165CD—Reductions after alterations in ownership or control of loss company

Guide to Subdivision 165CD

165115GA................What this Subdivision is about

165115GB..............When adjustments must be made

165115GC...............How adjustments are calculated

165115H How this Subdivision applies

Operative provisions

165115J Object of Subdivision

165115K Application and interpretation

165115L Alteration time—alteration in ownership of company

165115M.....Alteration time—alteration in control of company

165115N Alteration time—declaration by liquidator or administrator

165115P Notional alteration time—disposal of interests in company within 12 months before alteration time

165115Q Notional alteration time—disposal of interests in company earlier than 12 months before alteration time

165115R When company is a loss company at first or only alteration time in income year

165115S When company is a loss company at second or later alteration time in income year

165115T Reduction of certain amounts included in company’s overall loss at alteration time

165115U Adjusted unrealised loss

165115V Notional losses

165115W............Calculation of trading stock decrease

165115X Relevant equity interest

165115Y Relevant debt interest

165115Z What constitutes a controlling stake in a company

165115ZAReductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time

165115ZB.....Adjustment amounts for the purposes of section 165115ZA

165115ZC.......................Notices to be given

165115ZDAdjustment (or further adjustment) for interest realised at a loss after global method has been used

Subdivision 165C—Deducting bad debts

Guide to Subdivision 165C

165117 What this Subdivision is about

Operative provisions

165119 Application of Subdivision

165120 To deduct a bad debt

165123 Company must maintain the same owners

165126 Alternatively, the company must satisfy the same business test

165129 Same people must control the voting power, or the company must satisfy the same business test

165132 When tax losses resulting from bad debts cannot be deducted

Subdivision 165D—Tests for finding out whether the company has maintained the same owners

The primary and alternative tests

165150 Who has more than 50% of the voting power in the company

165155 Who has rights to more than 50% of the company’s dividends

165160 Who has rights to more than 50% of the company’s capital distributions

165165 Rules about tests for a condition or occurrence of a circumstance

165175 Tests can be satisfied by a single person

Rules affecting the operation of the tests

165180 Arrangements affecting beneficial ownership of shares

165185 Shares treated as not having carried rights

165190 Shares treated as always having carried rights

165200 Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units

165202 Shares held by government entities and charities etc.

165203 Companies where no shares have been issued

165205 Death of share owner

165207 Trustees of family trusts

165208 Companies in liquidation etc.

165209 Dual listed companies

Subdivision 165E—The same business test

165210 The test

165212D Restructure of MDOs etc.

165212E Entry history rule does not apply for the purposes of section 165210

Subdivision 165F—Special provisions relating to ownership by nonfixed trusts

165215 Special alternative to change of ownership test for Subdivision 165A

165220 Special alternative to change of ownership test for Subdivision 165B

165225 Special way of dividing the income year under Subdivision 165B

165230 Special alternative to change of ownership test for Subdivision 165C

165235 Information about nonfixed trusts with interests in company

165240 Notices where requirements of section 165235 are met

165245 When an entity has a fixed entitlement to income or capital of a company

Subdivision 165G—Other special provisions

165250 Control of companies in liquidation etc.

165255 Incomplete periods

Division 166—Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company

Guide to Division 166 130

1661 What this Division is about

Subdivision 166AA—The object of this Division

1663 The object of this Division

Subdivision 166A—Deducting tax losses of earlier income years

1665 How Subdivision 165A applies to a widely held or eligible Division 166 company

16615 Companies can choose that this Subdivision is not to apply to them

Subdivision 166B—Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change

16620 How Subdivisions 165B and 165CB apply to a widely held or eligible Division 166 company

16625 How to work out the taxable income, tax loss, net capital gain and net capital loss

16635 Companies can choose that this Subdivision is not to apply to them

Subdivision 166C—Deducting bad debts

16640 How Subdivision 165C applies to a widely held or eligible Division 166 company

16650 Companies can choose that this Subdivision is not to apply to them

Subdivision 166CA—Changeover times and alteration times

16680 How Subdivision 165CC or 165CD applies to a widely held or eligible Division 166 company

16690 Companies can choose that this Subdivision is not to apply to them

Subdivision 166D—Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners

Guide to Subdivision 166D

166135 What this Subdivision is about

The ownership tests: substantial continuity of ownership

166145 The ownership tests: substantial continuity of ownership

166165 Relationship with rules in Division 165

Corporate change in a company

166175 Corporate change in a company

Subdivision 166E—Concessional tracing rules

Guide to Subdivision 166E

166215 What this Subdivision is about

Application of this Subdivision

166220 Application of this Subdivision

Stakes of less than 10% in the tested company

166225 Direct stakes of less than 10% in the tested company

166230 Indirect stakes of less than 10% in the tested company

166235 Voting, dividend and capital stakes

Stakes held directly and/or indirectly by widely held companies

166240 Stakes held directly and/or indirectly by widely held companies

166245 Stakes held by other entities

When identity of foreign stakeholders is not known

166255 Bearer shares in foreign listed companies

166260 Depository entities holding stakes in foreign listed companies

Other rules relating to voting power and rights

166265 Persons who actually control voting power or have rights are taken not to control power or have rights

166270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights

166272 Same shares or interests to be held

When the rules in this Subdivision do not apply

166275 Rules in this Subdivision intended to be concessional

166280 Controlled test companies

Division 167—Companies whose shares carry unequal rights to dividends, capital distributions or voting power

Guide to Division 167 170

1671 What this Division is about

Subdivision 167A—Rights to dividends or capital distributions

Guide to Subdivision 167A

1675 What this Subdivision is about

1677 Simplified outline of this Subdivision

Operative provisions

16710 When this Subdivision applies

16715 First way—disregard debt interests

16720 Second way—also disregard secondary share classes

16725 Third way—treat remaining shares as having fixed rights to dividends and capital distributions

16730 Fixing rights if practicable to work out market values

16735 Fixing rights if impracticable to work out market values etc.

16740 The valuing times for conditions listed in subsection 16710(1)

Subdivision 167B—Voting power

Guide to Subdivision 167B

16775 What this Subdivision is about

Operative provisions

16780 When this Subdivision applies

16785 Different method for working out voting power

16790 Dual listed companies

Division 170—Treatment of certain company groups for income tax purposes

Subdivision 170A—Transfer of tax losses within certain whollyowned groups of companies

Guide to Subdivision 170A

1701 What this Subdivision is about

1705 Basic principles for transferring tax losses

Effect of transferring a tax loss

17010 When a company can transfer a tax loss

17015 Income company is taken to have incurred transferred loss

17020 Who can deduct transferred loss

17025 Tax treatment of consideration for transferred tax loss

Conditions for transfer

17030 Companies must be in existence and members of the same whollyowned group etc.

17032 Tax loss incurred by the loss company because of a transfer under Subdivision 707A

17033 Alternative test of relations between the loss company and other companies

17035 The loss company

17040 The income company

17042 If the income company has become the head company of a consolidated group or MEC group

17045 Maximum amount that can be transferred

17050 Transfer by written agreement

17055 Losses must be transferred in order they are incurred

17060 Income company cannot transfer transferred tax loss

Effect of agreement to transfer more than can be transferred

17065 Agreement transfers as much as can be transferred

17070 Amendment of assessments

Australian permanent establishments of foreign financial entities

17075 Treatment like Australian branches of foreign banks

Subdivision 170B—Transfer of net capital losses within certain whollyowned groups of companies

Guide to Subdivision 170B

170101 What this Subdivision is about

170105 Basic principles for transferring a net capital loss

Effect of transferring a net capital loss

170110 When a company can transfer a net capital loss

170115 Who can apply transferred loss

170120 Gain company is taken to have made transferred loss

170125 Tax treatment of consideration for transferred tax loss

Conditions for transfer

170130 Companies must be in existence and members of the same whollyowned group etc.

170132 Net capital loss made by the loss company because of a transfer under Subdivision 707A

170133 Alternative test of relations between the loss company and other companies

170135 The loss company

170140 The gain company

170142 If the gain company has become the head company of a consolidated group or MEC group

170145 Maximum amount that can be transferred

170150 Transfer by written agreement

170155 Losses must be transferred in order they are made

170160 Gain company cannot transfer transferred net capital loss

Effect of agreement to transfer more than can be transferred

170165 Agreement transfers as much as can be transferred

170170 Amendment of assessments

Australian permanent establishments of foreign financial entities

170174 Treatment like Australian branches of foreign banks

Subdivision 170C—Provisions applying to both transfers of tax losses and transfers of net capital losses within whollyowned groups of companies

Guide to Subdivision 170C

170201 What this Subdivision is about

Operative provisions

170205 Object of Subdivision

170210 Transfer of tax loss: direct and indirect interests in the loss company

170215 Transfer of tax loss: direct and indirect interests in the income company

170220 Transfer of net capital loss: direct and indirect interests in the loss company

170225 Transfer of net capital loss: direct and indirect interests in the gain company

Subdivision 170D—Transactions by a company that is a member of a linked group

Guide to Subdivision 170D

170250 What this Subdivision is about

Operative provisions

170255 Application of Subdivision

170260 Linked group

170265 Connected entity

170270 Immediate consequences for originating company

170275 Subsequent consequences for originating company

170280 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 175 237

1751 What this Division is about

Subdivision 175A—Tax benefits from unused tax losses

1755 When Commissioner can disallow deduction for tax loss

17510 First case: income or capital gain injected into company because of available tax loss

17515 Second case: someone else obtains a tax benefit because of tax loss available to company

Subdivision 175B—Tax benefits from unused deductions

17520 Income or capital gain injected into company because of available deductions

17525 Deduction injected into company because of available income or capital gain

17530 Someone else obtains a tax benefit because of a deduction, income or capital gain available to company

17535 Tax loss resulting from disallowed deductions

Subdivision 175CA—Tax benefits from unused net capital losses of earlier income years

17540 When Commissioner can disallow net capital loss of earlier income year

17545 First case: capital gain injected into company because of available net capital loss

17550 Second case: someone else obtains a tax benefit because of net capital loss available to company

Subdivision 175CB—Tax benefits from unused capital losses of the current year

17555 When Commissioner can disallow capital loss of current year

17560 Capital gain injected into company because of available capital loss

17565 Capital loss injected into company because of available capital gain

17570 Someone else obtains a tax benefit because of capital loss or gain available to company

17575 Net capital loss resulting from disallowed capital losses

Subdivision 175C—Tax benefits from unused bad debt deductions

17580 When Commissioner can disallow deduction for bad debt

17585 First case: income or capital gain injected into company because of available bad debt

17590 Second case: someone else obtains a tax benefit because of bad debt deduction available to company

Subdivision 175D—Common rules

17595 When a person has a shareholding interest in the company

175100 Commissioner may disallow excluded losses etc. of insolvent companies

Division 180—Information about family trusts with interests in companies

Guide to Division 180 254

1801 What this Division is about

Subdivision 180A—Information relevant to Division 165

1805 Information about family trusts with interests in companies

18010 Notice where requirements of section 1805 are met

Subdivision 180B—Information relevant to Division 175

18015 Information about family trusts with interests in companies

18020 Notice where requirements of section 18015 are met

Division 195—Special types of company

Subdivision 195A—Pooled development funds (PDFs)

Guide to Subdivision 195A

1951 What this Subdivision is about

Working out a PDF’s taxable income and tax loss

1955 Deductibility of PDF tax losses

19510 PDF cannot transfer tax loss

19515 Tax loss for year in which company becomes a PDF

Working out a PDF’s net capital gain and net capital loss

19525 Applying a PDF’s net capital losses

19530 PDF cannot transfer net capital loss

19535 Net capital loss for year in which company becomes a PDF

Subdivision 195B—Limited partnerships

Guide to Subdivision 195B

19560 What this Subdivision is about

Operative provisions

19565 Tax losses cannot be transferred to a VCLP, an ESVCLP, an AFOF or a VCMP

19570 Previous tax losses can be deducted after ceasing to be a VCLP, an ESVCLP, an AFOF or a VCMP

19575 Determinations to take account of income years of less than 12 months

Division 197—Tainted share capital accounts

Guide to Division 197 269

1971 What this Division is about

Subdivision 197A—What transfers into a company’s share capital account does this Division apply to?

1975 Division generally applies to an amount transferred to share capital account from another account

19710 Exclusion for amounts that could be identified as share capital

19715 Exclusion for amounts transferred under debt/equity swaps

19720 Exclusion for amounts transferred leading to there being no shares with a par value—nonCorporations Act companies

19725 Exclusion for transfers from option premium reserves

19730 Exclusion for transfers made in connection with demutualisations of noninsurance etc. companies

19735 Exclusion for transfers made in connection with demutualisations of insurance etc. companies

19737 Exclusion for transfers made in connection with demutualisations of private health insurers

19738 Exclusion for transfers connected with demutualisations of friendly society health or life insurers

19740 Exclusion for postdemutualisation transfers relating to life insurance companies

19742 Exclusion for exploration credits

Subdivision 197B—Consequence of transfer: franking debit arises

19745 A franking debit arises in relation to the transfer

Subdivision 197C—Consequence of transfer: tainting of share capital account

19750 The share capital account becomes tainted (if it is not already tainted)

19755 Choosing to untaint a tainted share capital account

19760 Choosing to untaint—liability to untainting tax

19765 Choosing to untaint—further franking debits may arise

19770 Due date for payment of untainting tax

19775 General interest charge for late payment of untainting tax

19780 Notice of liability to pay untainting tax

19785 Evidentiary effect of notice of liability to pay untainting tax

Part 36—The imputation system

Division 200—Guide to Part 36

Guide to Division 200 287

2001 What this Division is about

2005 The imputation system

20010 Franking a distribution

20015 The franking account

20020 How a distribution is franked

20025 A corporate tax entity must not give its members credit for more tax than the entity has paid

20030 Benchmark rule

20035 Effect of receiving a franked distribution

20040 An Australian corporate tax entity can pass the benefit of having received a franked distribution on to its members

20045 Special rules for franking by some entities

Division 201—Objects and application of Part 36

2011 Objects

2015 Application of this Part

Division 202Franking a distribution

Subdivision 202A—Franking a distribution

Guide to Subdivision 202A

2021 What this Subdivision is about

Operative provisions

2025 Franking a distribution

Subdivision 202B—Who can frank a distribution?

Guide to Subdivision 202B

20210 What this Subdivision is about

Operative provisions

20215 Franking entities

20220 Residency requirement when making a distribution

Subdivision 202C—Which distributions can be franked?

Guide to Subdivision 202C

20225 What this Subdivision is about

20230 Frankable distributions

Operative provisions

20235 Object

20240 Frankable distributions

20245 Unfrankable distributions

20247 Distributions of certain ADI profits following restructure

Subdivision 202D—Amount of the franking credit on a distribution

Guide to Subdivision 202D

20250 What this Subdivision is about

20255 What is the maximum franking credit for a frankable distribution?

Operative provisions

20260 Amount of the franking credit on a distribution

20265 Where the franking credit stated in the distribution statement exceeds the maximum franking credit for the distribution

Subdivision 202E—Distribution statements

Guide to Subdivision 202E

20270 What this Subdivision is about

Operative provisions

20275 Obligation to give a distribution statement

20280 Distribution statement

20285 Changing the franking credit on a distribution by amending the distribution statement

Division 203—Benchmark rule

Guide to Division 203 304

2031 What this Division is about

2035 Benchmark rule

20310 Benchmark franking percentage

Operative provisions

20315 Object

20320 Application of the benchmark rule

20325 Benchmark rule

20330 Setting a benchmark franking percentage

20335 Franking percentage

20340 Franking periods—where the entity is not a private company

20345 Franking period—private companies

20350 Consequences of breaching the benchmark rule

20355 Commissioner’s powers to permit a departure from the benchmark rule

Division 204—Antistreaming rules

Subdivision 204A—Objects and application

2041 Objects

2045 Application

Subdivision 204B—Linked distributions

Guide to Subdivision 204B

20410 What this Subdivision is about

Operative provisions

20415 Linked distributions

Subdivision 204C—Substituting taxexempt bonus share for franked distributions

Guide to Subdivision 204C

20420 What this Subdivision is about

Operative provisions

20425 Substituting taxexempt bonus shares for franked distributions

Subdivision 204D—Streaming distributions

Guide to Subdivision 204D

20426 What this Subdivision is about

Operative provisions

20430 Streaming distributions

20435 When does a franking debit arise if the Commissioner makes a determination under paragraph 20430(3)(a)

20440 Amount of the franking debit

20441 Amount of the exempting debit

20445 Effect of a determination about distributions to favoured members

20450 Assessment and notice of determination

20455 Right to review where a determination made

Subdivision 204E—Disclosure requirements

Guide to Subdivision 204E

20465 What this Subdivision is about

Operative provisions

20470 Application of this Subdivision

20475 Notice to the Commissioner

20480 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 205 329

2051 What this Division is about

2055 Franking accounts, franking deficit tax liabilities and the related tax offset

Operative provisions

20510 Each entity that is or has been a corporate tax entity has a franking account

20515 Franking credits

20520 Paying a PAYG instalment, income tax or diverted profits tax

20525 Residency requirement for an event giving rise to a franking credit or franking debit

20530 Franking debits

20535 Refund of income tax or diverted profits tax

20540 Franking surplus and deficit

20545 Franking deficit tax

20550 Deferring franking deficit

20570 Tax offset arising from franking deficit tax liabilities

Division 207—Effect of receiving a franked distribution

Guide to Division 207 350

2075 Overview

Subdivision 207A—Effect of receiving a franked distribution generally

Guide to Subdivision 207A

20710 What this Subdivision is about

Operative provisions

20715 Applying the general rule

20720 General rule—grossup and tax offset

Subdivision 207B—Franked distribution received through certain partnerships and trustees

Guide to Subdivision 207B

20725 What this Subdivision is about

Grossup and tax offset

20730 Applying this Subdivision

20735 Grossup—distribution made to, or flows indirectly through, a partnership or trustee

20737 Attributable franked distribution—trusts

20745 Tax offset—distribution flows indirectly to an entity

Key concepts 

20750 When a franked distribution flows indirectly to or through an entity

20755 Share of a franked distribution

20757 Share of the franking credit on a franked distribution

20758 Specifically entitled to an amount of a franked distribution

20759 Franked distributions within class treated as single franked distribution

Subdivision 207C—Residency requirements for the general rule

Guide to Subdivision 207C

20760 What this Subdivision is about

20765 Satisfying the residency requirement

Operative provisions

20770 Grossup and tax offset under section 20720

20775 Residency requirement

Subdivision 207D—No grossup or tax offset where distribution would not be taxed

Guide to Subdivision 207D

20780 What this Subdivision is about

Operative provisions

20785 Applying this Subdivision

20790 Distribution that is made to an entity

20795 Distribution that flows indirectly to an entity

Subdivision 207E—Exceptions to the rules in Subdivision 207D

Guide to Subdivision 207E

207105 What this Subdivision is about

Operative provisions

207110 Effect of nonassessable income on gross up and tax offset

Exempt institutions

207115 Which exempt institutions are eligible for a refund?

207117 Residency requirement

207119 Entity not treated as exempt institution eligible for refund in certain circumstances

207120 Entity may be ineligible because of a distribution event

207122 Entity may be ineligible if distribution is in the form of property other than money

207124 Entity may be ineligible if other money or property also acquired

207126 Entity may be ineligible if distributions do not match trust share amounts

207128 Reinvestment choice

207130 Controller’s liability

207132 Treatment of benefits provided by an entity to a controller

207134 Entity’s present entitlement disregarded in certain circumstances

207136 Review of certain decisions

Subdivision 207F—No grossup or tax offset where the imputation system has been manipulated

Guide to Subdivision 207F

207140 What this Subdivision is about

Operative provisions

207145 Distribution that is made to an entity

207150 Distribution that flows indirectly to an entity

207155 When is a distribution made as part of a dividend stripping operation?

207157 Distribution washing

207160 Distribution that is treated as an interest payment

Division 208—Exempting entities and former exempting entities

Guide to Division 208 400

2085 What is an exempting entity?

20810 Former exempting entities

20815 Distributions by exempting entities and former exempting entities

Subdivision 208A—What are exempting entities and former exempting entities?

20820 Exempting entities

20825 Effective ownership of entity by prescribed persons

20830 Accountable membership interests

20835 Accountable partial interests

20840 Prescribed persons

20845 Persons who are taken to be prescribed persons

20850 Former exempting companies

Subdivision 208B—Franking with an exempting credit

Guide to Subdivision 208B

20855 What this Subdivision is about

Operative provisions

20860 Franking with an exempting credit

Subdivision 208C—Amount of the exempting credit on a distribution

Guide to Subdivision 208C

20865 What this Subdivision is about

Operative provisions

20870 Amount of the exempting credit on a distribution

Subdivision 208D—Distribution statements

Guide to Subdivision 208D

20875 Guide to Subdivision 208D

Operative provisions

20880 Additional information to be included by a former exempting entity or exempting entity

Subdivision 208E—Distributions to be franked with exempting credits to the same extent

Guide to Subdivision 208E

20885 What this Subdivision is about

Operative provisions

20890 All frankable distributions made within a franking period must be franked to the same extent with an exempting credit

20895 Exempting percentage

208100 Consequences of breaching the rule in section 20890

Subdivision 208F—Exempting accounts and franking accounts of exempting entities and former exempting entities

Guide to Subdivision 208F

208105 What this Subdivision is about

Operative provisions

208110 Exempting account

208115 Exempting credits

208120 Exempting debits

208125 Exempting surplus and deficit

208130 Franking credits arising because of status as exempting entity or former exempting entity

208135 Relationships that will give rise to a franking credit under item 5 of the table in section 208130

208140 Membership of the same effectively whollyowned group

208145 Franking debits arising because of status as exempting entity or former exempting entity

208150 Residency requirement

208155 Eligible continuing substantial member

208160 Distributions that are affected by a manipulation of the imputation system

208165 Amount of the exempting credit or franking credit arising because of a distribution franked with an exempting credit

208170 Where a determination under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 affects part of the distribution

208175 When does a distribution franked with an exempting credit flow indirectly to an entity?

208180 What is an entity’s share of the exempting credit on a distribution?

208185 Minister may convert exempting surplus to franking credit of former exempting entity previously owned by the Commonwealth

Subdivision 208G—Tax effects of distributions by exempting entities

Guide to Subdivision 208G

208190 What this Subdivision is about

Operative provisions

208195 Division 207 does not generally apply

208200 Distributions to exempting entities

208205 Distributions to employees acquiring shares under eligible employee share schemes

208215 Eligible employee share schemes

Subdivision 208H—Tax effect of a distribution franked with an exempting credit

Guide to Subdivision 208H

208220 What this Subdivision is about

Operative provisions

208225 Division 207 does not generally apply

208230 Distributions to exempting entities and former exempting entities

208235 Distributions to employees acquiring shares under eligible employee share schemes

208240 Distributions to certain individuals

Division 210—Venture capital franking

Guide to Division 210 448

2101 Purpose of venture capital franking

2105 How is this achieved?

21010 What is a venture capital credit?

21015 What does the PDF have to do to distribute the credits?

21020 Limits on venture capital franking

Subdivision 210A—Franking a distribution with a venture capital credit

Guide to Subdivision 210A

21025 What this Subdivision is about

Operative provisions

21030 Franking a distribution with a venture capital credit

Subdivision 210B—Participating PDFs

Guide to Subdivision 210B

21035 What this Subdivision is about

Operative provisions

21040 What is a participating PDF

Subdivision 210C—Distributions that are frankable with a venture capital credit

Guide to Subdivision 210C

21045 What this Subdivision is about

Operative provisions

21050 Which distributions can be franked with a venture capital credit?

Subdivision 210D—Amount of the venture capital credit on a distribution

Guide to Subdivision 210D

21055 What this Subdivision is about

Operative provisions

21060 Amount of the venture capital credit on a distribution

Subdivision 210E—Distribution statements

Guide to Subdivision 210E

21065 What this Subdivision is about

Operative provisions

21070 Additional information to be included when a distribution is franked with a venture capital credit

Subdivision 210F—Rules affecting the allocation of venture capital credits

Guide to Subdivision 210F

21075 What this Subdivision is about

Operative provisions

21080 Draining the venture capital surplus when a distribution frankable with venture capital credits is made

21081 Distributions to be franked with venture capital credits to the same extent

21082 Consequences of breaching the rule in section 21081

Subdivision 210G—Venture capital subaccount

Guide to Subdivision 210G

21085 What this Subdivision is about

21090 The venture capital subaccount

21095 Venture capital deficit tax

Operative provisions

210100 Venture capital subaccount

210105 Venture capital credits

210110 Determining the extent to which a franking credit is reasonably attributable to a particular payment of tax

210115 Participating PDF may elect to have venture capital credits arise on its assessment day

210120 Venture capital debits

210125 Venture capital debit where CGT limit is exceeded

210130 Venture capital surplus and deficit

210135 Venture capital deficit tax

210140 Effect of a liability to pay venture capital deficit tax on franking deficit tax

210145 Effect of a liability to pay venture capital deficit tax on the franking account

210150 Deferring venture capital deficit

Subdivision 210H—Effect of receiving a distribution franked with a venture capital credit

Guide to Subdivision 210H

210155 What this Subdivision is about

210160 The significance of a venture capital credit

210165 Recipients for whom the venture capital credit is not significant

Operative provisions

210170 Tax offset for certain recipients of distributions franked with venture capital credits

210175 Amount of the tax offset

210180 Application of Division 207 where the recipient is entitled to a tax offset under section 210170

Division 214—Administering the imputation system

Guide to Division 214 471

2141 Purpose of the system

2145 Key features

Subdivision 214A—Franking returns

Guide to Subdivision 214A

21410 What this Subdivision is about

Operative provisions

21415 Notice to give a franking return—general notice

21420 Notice to a specific corporate tax entity

21425 Content and form of a franking return

21430 Franking account balance

21435 Venture capital subaccount balance

21440 Meaning of franking tax

21445 Effect of a refund on franking returns

Subdivision 214B—Franking assessments

Guide to Subdivision 214B

21455 What this Subdivision is about

Operative provisions

21460 Commissioner may make a franking assessment

21465 Commissioner taken to have made a franking assessment on first return

21470 Partyear assessment

21475 Validity of assessment

21480 Objections

Subdivision 214C—Amending franking assessments

Guide to Subdivision 214C

21490 What this Subdivision is about

Operative provisions

21495 Amendments within 3 years of the original assessment

214100 Amended assessments are treated as franking assessments

214105 Further return as a result of a refund affecting a franking deficit tax liability

214110 Later amendments—on request

214115 Later amendments—failure to make proper disclosure

214120 Later amendments—fraud or evasion

214125 Further amendment of an amended particular

214135 Amendment on review etc.

214140 Notice of amendments

Subdivision 214D—Collection and recovery

Guide to Subdivision 214D

214145 What this Subdivision is about

Operative provisions

214150 Due date for payment of franking tax

214155 General interest charge

214160 Refunds of amounts overpaid

Subdivision 214E—Records

Guide to Subdivision 214E

214170 What this Subdivision is about

Operative provisions

214175 Record keeping

Division 215—Consequences of the debt/equity rules

Subdivision 215A—Application of the imputation system to nonshare equity interests

2151 Application of the imputation system to nonshare equity interests

Subdivision 215B—Nonshare dividends that are unfrankable to some extent

Guide to Subdivision 215B

2155 What this Subdivision is about

21510 Certain nonshare dividends by ADIs unfrankable

21515 Nonshare dividends are unfrankable if profits are unavailable

21520 Working out the available frankable profits

21525 Anticipating available frankable profits

Division 216—Cum dividend sales and securities lending arrangements

Subdivision 216A—Circumstances where a distribution to a member of a corporate tax entity is treated as having been made to someone else

2161 When a distribution made to a member of a corporate tax entity is treated as having been made to someone else

2165 First situation (cum dividend sales)

21610 Second situation (securities lending arrangements)

21615 Distribution closing time

Subdivision 216B—Statements to be made where there is a cum dividend sale or securities lending arrangement

21620 Cum dividend sale—statement by securities dealer

21625 Cum dividend sale—statement by party

21630 Securities lending arrangements—statement by borrower

Division 218—Application of imputation rules to cooperative companies

2185 Application of imputation rules to cooperative companies

Division 219—Imputation for life insurance companies

Guide to Division 219 500

2191 What this Division is about

Subdivision 219A—Application of imputation rules to life insurance companies

21910 Application of imputation rules to life insurance companies

Subdivision 219B—Franking accounts of life insurance companies

21915 Franking credits

21930 Franking debits

21940 Residency requirement

21945 Assessment day

21950 Amount attributable to shareholders’ share of income tax liability

21955 Adjustment resulting from an amended assessment

21970 Tax offset under section 20570

21975 Working out franking credits and franking debits where a tax offset under section 20570 is applied

Division 220—Imputation for NZ resident companies and related companies

Guide to Division 220 516

2201 What this Division is about

Subdivision 220A—Objects of this Division

22015 Objects

22020 What is an NZ resident?

Subdivision 220B—NZ company treated as Australian resident for imputation system if company chooses

22025 Application of provisions of Part 36 outside this Division

22030 What is an NZ franking company?

22035 Making an NZ franking choice

22040 When is an NZ franking choice in force?

22045 Revoking an NZ franking choice

22050 Cancelling an NZ franking choice

Subdivision 220C—Modifications of other Divisions of this Part

Franking NZ franking companies’ distributions

220100 Residency requirement for franking

220105 Unfrankable distributions by NZ franking companies

220110 Maximum franking credit under section 20260

NZ franking companies’ franking accounts etc.

220205 Franking credit for payment of NZ franking company’s withholding tax liability

220210 Effect of franked distribution to NZ franking company or flowing indirectly to NZ franking company

220215 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

220300 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 nonassessable and nonexempt

220350 Providing for a franking credit to arise

Effects of supplementary dividend from NZ franking company

220400 Grossup and tax offset for distribution from NZ franking company reduced by supplementary dividend

220405 Franked distribution and supplementary dividend flowing indirectly

220410 Franking credit reduced if tax offset reduced

Rules about exempting entities

220500 Publicly listed postchoice NZ franking company and its 100% subsidiaries are not exempting entities

220505 Postchoice NZ franking company is not automatically prescribed person

220510 Parent company’s status as prescribed person sets status of all other members of same whollyowned group

NZ franking companies’ exempting accounts

220605 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

220700 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

220800 Joint and several liability for NZ resident company’s franking tax etc.

Chapter 3Specialist liability rules

Part 35Corporate taxpayers and corporate distributions

Division 164Nonshare capital accounts for companies

Guide to Division 164

1641  What this Division is about

A company that issues nonshare equity interests will have a notional account called a nonshare capital account. This account records contributions to the company in relation to those nonshare equity interests and returns made by the company of those contributions.

A nonshare distribution that represents a return of contributions is not taxed as a dividend (subject to the antiavoidance 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

1645 Object

16410 Nonshare capital account

16415 Credits to nonshare capital account

16420 Debits to nonshare capital account

Operative provisions

1645  Object

 (1) This Division provides for the *nonshare capital account through which a company records contributions made to it in respect of *nonshare equity interests and returns by it of those contributions.

 (2) This allows a *nonshare distribution to be characterised as either:

 (a) a *nonshare dividend; or

 (b) a *nonshare capital return.

16410  Nonshare capital account

 (1) A company has a nonshare capital account if:

 (a) the company issues a *nonshare equity interest in the company on or after 1 July 2001; or

 (b) the company has issued a nonshare 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 974110(1) or (2); or

 (d) the following conditions are satisfied in relation to an interest in the company:

 (i) immediately before subsection 97475(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 97475(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 97475(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 *nonshare 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 16415 and 16420.

16415  Credits to nonshare capital account

 (1) If the company issues a *nonshare equity interest in the company on or after 1 July 2001, there is a credit to the *nonshare 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 nonshare 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 16410(1)(c), (d) or (e) applies in relation to a particular interest in the company, there is a credit to the *nonshare 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 *nonshare capital account at the beginning of 1 July 2001 because of a *nonshare equity interest the company issued before 1 July 2001, there is a credit to the nonshare capital account on that day for each nonshare 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 *nonshare 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 97475(6) or 974110(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.

16420  Debits to nonshare capital account

 (1) The company may debit the whole or a part of a *nonshare distribution against the company’s *nonshare capital account:

 (a) to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a *nonshare 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 nonshare 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 *nonshare 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 974110(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 974110(1A); or

 (c) the following conditions are satisfied in relation to an interest in the company:

 (i) subsection 97475(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 97475(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 *nonshare 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 *nonshare 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 *nonshare 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 *nonshare 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 97475(6) or 974110(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 165Income tax consequences of changing ownership or control of a company

Table of Subdivisions

 Guide to Division 165

165A Deducting tax losses of earlier income years

165B Working out the taxable income and tax loss for the income year of the change

165CA Applying net capital losses of earlier income years

165CB Working out the net capital gain and the net capital loss for the income year of the change

165CC Change of ownership or control of company that has an unrealised net loss

165CD Reductions after alterations in ownership or control of loss company

165C Deducting bad debts

165D Tests for finding out whether the company has maintained the same owners

165E The same business test

165F Special provisions relating to ownership by nonfixed trusts

Guide to Division 165

1651  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 165ADeducting tax losses of earlier income years

Guide to Subdivision 165A

1655  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 41535.

Table of sections

Operative provisions

16510 To deduct a tax loss

16512 Company must maintain the same owners

16513 Alternatively, the company must satisfy the same business test

16515 The same people must control the voting power, or the company must satisfy the same business test

16520 When company can deduct part of a tax loss

Operative provisions

16510  To deduct a tax loss

  A company cannot deduct a *tax loss unless either:

 (a) it meets the conditions in section 16512 (which is about the company maintaining the same owners); or

Note: See section 165215 for a special alternative to these conditions.

 (b) it meets the condition in section 16513 (which is about the company satisfying the same business test).

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

16512  Company must maintain the same owners

Ownership test period

 (1) In determining whether section 16510 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 165255 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 1: See section 165150 to work out who had more than 50% of the voting power.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

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 1: See section 165155 to work out who had rights to more than 50% of the company’s dividends.

Note 2: Subdivision 167A has special rules for working out rights to dividends in a company whose shares do not all carry the same rights to 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 1: See section 165160 to work out who had rights to more than 50% of the company’s capital distributions.

Note 2: Subdivision 167A has special rules for working out rights to capital distributions in a company whose shares do not all carry the same rights to 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 165150(1), 165155(1) and 165160(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 165150(2), 165155(2) and 165160(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 165165; 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 *nonprofit 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.

16513  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 16512(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 16512(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 16512(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 165E.

16515  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 16512 or 16513, 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 165250.

 (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 165E.

16520  When company can deduct part of a tax loss

 (1) If section 16510 (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 16510, the company would have been entitled to deduct the *tax loss.

Subdivision 165BWorking out the taxable income and tax loss for the income year of the change

Guide to Subdivision 165B

16523  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

16525 Summary of this Subdivision

16530 Flow chart showing the application of this Subdivision

When a company must work out its taxable income and tax loss under this Subdivision

16535 On a change of ownership, unless the company satisfies the same business test

16537 Who has more than a 50% stake in the company during a period

16540 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

16545 First, divide the income year into periods

16550 Next, calculate the notional loss or notional taxable income for each period

16555 How to attribute deductions to periods

16560 How to attribute assessable income to periods

16565 How to calculate the company’s taxable income for the income year

Working out the company’s tax loss

16570 How to calculate the company’s tax loss for the income year

Special rules that apply if the company is in partnership

16575 How to calculate the company’s notional loss or notional taxable income for a period when the company was a partner

16580 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

16585 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

16590 Company’s full year deductions include a share of partnership’s full year deductions

16525  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 16575 to 16590.

16530  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

16535  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 165220 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 41535(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 165E.

Note 2: In the case of a widely held or eligible Division 166 company, Subdivision 166B modifies how this Subdivision applies, unless the company chooses otherwise.

16537  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.

Note: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 165150(1), 165155(1)
and 165160(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 165150(2), 165155(2)
and 165160(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 165165; 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 *nonprofit 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.

16540  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 1: A person can still control the voting power in a company that is in liquidation etc.: see section 165250.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

 (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 165E.

Working out the company’s taxable income

16545  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 165255 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 165E.

Note 2: See section 165225 for a special alternative to subsections (3) and (4) of this section.

16550  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 16555 exceed the assessable income attributed to the period under section 16560. 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 16575.

 (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 16575.

 (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 415.

16555  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 4080 and Subdivisions 40H and 40I.

 (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 40I.

 (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 81 (about general deductions) or section 2535 (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 2550;

 (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.

16560  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 (Nonresident 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 *live stock or trees;

See section 385130.

 (b) amounts included in assessable income as a result of elections relating to the forced disposal of live stock;

See Subdivision 385E and section 385160.

 (c) recoupment of mains electricity connection expenditure.

See items 1.16 and 2.5 in section 2030, which lists deductions for which recoupments are assessable under Subdivision 20A.

 (4) An amount included in the company’s assessable income under section 385135 (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 165CB 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.

16565  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 16550 or 16575.

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 16560(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 81 (about general deductions) or section 2535 (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 16555(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

16570  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 16550 or 16575.

 (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 81 (about general deductions) or section 2535 (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 16550.

 (e) the *full year amounts referred to in section 16560 (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 3620).

 (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 3655 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 165A.
To find out how to deduct it: see section 3617.

Special rules that apply if the company is in partnership

16575  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 16555; 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 16560; 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 16570.

 (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 16565.

 (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 415.

16580  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.

16585  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 16590.

 (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.

16590  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 165CAApplying net capital losses of earlier income years

Guide to Subdivision 165CA

16593  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

16596 When a company cannot apply a net capital loss

Operative provisions

16596  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 165A 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 16520 (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 1025.

Note 2: Subdivision 165A 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 165F may affect the application of Subdivision 165A.

 (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 165CBWorking out the net capital gain and the net capital loss for the income year of the change

Guide to Subdivision 165CB

16599  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

165102 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

165105 First, divide the income year into periods

165108 Next, calculate the notional net capital gain or notional net capital loss for each period

165111 How to work out the company’s net capital gain

165114 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

165102  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 165B; or

Note: Subdivision 165F may affect the application of Subdivision 165B.

 (b) it would be required to calculate them under that Subdivision but for subsection 16550(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 166B modifies how this Subdivision applies, unless the company chooses otherwise.

Working out the company’s net capital gain and net capital loss

165105  First, divide the income year into periods

  Divide the income year into periods according to section 16545 (which is about working out the company’s taxable income under Subdivision 165B).

165108  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 1025.

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 (Nonresident 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.

165111  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 165108.

 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 (Nonresident 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 10215.

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 10230.

165114  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 165108.

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 10230.

Subdivision 165CCChange of ownership or control of company that has an unrealised net loss

Guide to Subdivision 165CC

165115  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.

165115AA  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 15215 (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

165115A Application of Subdivision

165115B 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

165115BAWhat happens when a CGT event happens after a changeover time to a CGT asset of the company that is trading stock

165115BBOrder of application of assets: residual unrealised net loss

165115C Changeover time—change in ownership of company

165115D Changeover time—change in control of company

165115E What is an unrealised net loss

165115F Notional gains and losses

Operative provisions

165115A  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 165115E); 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 15215.

CGT assets in respect of which Subdivision applies

 (1A) The *CGT assets for the purposes of paragraph (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 170255(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 170270; 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 170275 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 165115E(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 7080);

 (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 165115C and 165115D.

165115B  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 165115A(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 165115A(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 16512(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 16513 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 16510 as it applies because of section 16596), or deduct the *tax loss (see section 16510), unless it meets the condition in section 16513 (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 165115A(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 165115A(1)(c)(i).

Note: For changeover time see sections 165115C and 165115D.

165115BA  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 165115A(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 16513 (the same business test).

Assumptions for purposes of same business test

 (5) In determining whether the company meets the condition in section 16513, 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 16512(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.

165115BB  Order of application of assets: residual unrealised net loss

Order in which assets are to be applied

 (1) In applying subsection 165115B(2) or 165115BA(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 715105 (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 165115C and 165115D.

165115C  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 165150 to work out who had more than 50% of the voting power in the company.

Note 2: See section 165155 to work out who had rights to more than 50% of the company’s dividends.

Note 3: See section 165160 to work out who had rights to more than 50% of the company’s capital distributions.

Note 4: For reference time see subsection 165115A(2A).

Note 5: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 165150(1), 165155(1) and 165160(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 165150(2), 165155(2) and 165160(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 165165; 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 *nonprofit 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.

165115D  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 1: A person can still control the voting power in a company that is in liquidation etc.: see section 165250.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

 (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.

165115E  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 165115F 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 170270 in relation to an asset referred to in paragraph 165115A(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 170270 in relation to an asset referred to in paragraph 165115A(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 165115F 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.

165115F  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 1035); 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 165CDReductions after alterations in ownership or control of loss company

Guide to Subdivision 165CD

165115GA  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.

165115GB  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.

165115GC  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 165CC (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 15215 (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 15215) 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.

165115H  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 165115ZA(3)); or

 (b) any deduction to which the entity is entitled in respect of the disposal of the equity or debt (see subsection 165115ZA(4)); or

 (c) deductions in respect of, and the cost of, any of the equity or debt that is trading stock (see subsection 165115ZA(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 19992000 income year, Beta Co had an unapplied net capital loss of $500 from the 199899 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 199899 income year.

Table of sections

Operative provisions

165115J Object of Subdivision

165115K Application and interpretation

165115L Alteration time—alteration in ownership of company

165115M Alteration time—alteration in control of company

165115N Alteration time—declaration by liquidator or administrator

165115P Notional alteration time—disposal of interests in company within 12 months before alteration time

165115Q Notional alteration time—disposal of interests in company earlier than 12 months before alteration time

165115R When company is a loss company at first or only alteration time in income year

165115S When company is a loss company at second or later alteration time in income year

165115T Reduction of certain amounts included in company’s overall loss at alteration time

165115U Adjusted unrealised loss

165115V Notional losses

165115W Calculation of trading stock decrease

165115X Relevant equity interest

165115Y Relevant debt interest

165115Z What constitutes a controlling stake in a company

165115ZAReductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time

165115ZBAdjustment amounts for the purposes of section 165115ZA

165115ZCNotices to be given

165115ZDAdjustment (or further adjustment) for interest realised at a loss after global method has been used

Operative provisions

165115J  Object of Subdivision

  The main object of this Subdivision is to make appropriate adjustments (under section 165115ZA) 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.

165115K  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 165115L, 165115M, 165115N, 165115P and 165115Q.

Note 2: For relevant equity interests and relevant debt interests, see sections 165115X and 165115Y.

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 165115R(3)(a), (b), (c) and (d) and 165115S(3)(a) and (b); and

 (c) the test time is not a changeover time in relation to the company under Subdivision 165CC; 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 165115E;

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.

165115L  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 165150 to work out who had more than 50% of the voting power in the company.

Note 2: See section 165155 to work out who had rights to more than 50% of the company’s dividends.

Note 3: See section 165160 to work out who had rights to more than 50% of the company’s capital distributions.

Note 4: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 165150(1), 165155(1) and 165160(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 165150(2), 165155(2) and 165160(2).

 (5) If the company is:

 (a) a *nonprofit 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).

165115M  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 1: A person can still control the voting power in a company that is in liquidation etc.: see section 165250.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

 (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.

165115N  Alteration time—declaration by liquidator or administrator

  If a liquidator or administrator makes a declaration referred to in section 104145 in relation to a company, the time of the declaration is also an alteration time in respect of the company.

165115P  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 165115X and 165115Y.

165115Q  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 165115X and 165115Y.

165115R  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 165B; 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 165CB; or

 (e) it has an adjusted unrealised loss at the alteration time.

Note: For adjusted unrealised loss, see section 165115U.

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 170D 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 165115ZB(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 165115T.

165115S  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 165B; 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 165CB; or

 (c) it has an adjusted unrealised loss at the current alteration time.

Note: For adjusted unrealised loss, see section 165115U.

How losses are to be calculated

 (4) In applying subsection (3), Subdivision 170D 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 165115ZB(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 165115T.

165115T  Reduction of certain amounts included in company’s overall loss at alteration time

 (1) In working out under section 165115R or 165115S 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 165115R(3)(a), (b), (c) or (d) or 165115S(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 165115V.

Note 2: For trading stock decrease see section 165115W.

 (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.

165115U  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 165115V or 165115W 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 165115K(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 165115F 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 15215.

165115V  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 1035); 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.

165115W  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 7040(1) at the start of that income year or its cost if subsection 7040(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 165115K(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.

165115X  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 165115Z); 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.

Note: For paragraph (b), Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 165115Z); 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 165115Z) 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 10630, 10650 or 10660 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.

165115Y  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 165115Z); 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 165115Z); 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 165115Z) 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 10630, 10650 or 10660 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.

165115Z  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 1: 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.

Note 2: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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.

165115ZA  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 165115ZB 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 165115ZD.

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 245C to 245G (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 165115ZB.

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 165115ZB.

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 165115ZB;

 (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 81; or

 (b) whether an amount is included in assessable income under subsection 7035(2); or

 (c) whether an amount can be deducted under subsection 7035(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 7045 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).

165115ZB  Adjustment amounts for the purposes of section 165115ZA

 (1A) This section has effect for the purposes of:

 (a) section 165115ZA; and

 (b) sections 715255 and 715270 (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 165115Y(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:

Nonformula 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 165115J; 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 165115R(5) and 165115S(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.

165115ZC  Notices to be given

Application

 (1) This section applies when an alteration time occurs in respect of a *loss company.

Note: Section 165115ZC 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 165115R(3) or 165115S(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.

165115ZD  Adjustment (or further adjustment) for interest realised at a loss after global method has been used

 (1) This section affects how sections 165115ZA and 165115ZB 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 170D (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 165115ZD 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 165115ZA and 165115ZB 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 165115ZA and 165115ZB apply because of this section, the adjustment amount under section 165115ZB is to be worked out and applied in accordance with subsection 165115ZB(6) (the nonformula 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 165115F 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 11620(1) only; and

 (b) disregarding subsection 10310(1) and paragraph 10310(2)(a) (about entitlement to receive money or property).

Notices under section 165115ZC not affected

 (8) To avoid doubt:

 (a) a notice need not be given under section 165115ZC 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 165CDeducting bad debts

Guide to Subdivision 165C

165117  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 41540.

Table of sections

Operative provisions

165119 Application of Subdivision

165120 To deduct a bad debt

165123 Company must maintain the same owners

165126 Alternatively, the company must satisfy the same business test

165129 Same people must control the voting power, or the company must satisfy the same business test

165132 When tax losses resulting from bad debts cannot be deducted

Operative provisions

165119  Application of Subdivision

  This Subdivision applies to a debt only to the extent (if any) to which Subdivision 165CC does not apply in respect of the debt.

Note: Subdivision 165CC 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.

165120  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 165123 (which is about the company maintaining the same owners); or

Note: See section 165230 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 165126 (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 166C modifies how this Subdivision applies, unless the company chooses otherwise.

Note 2: Normally bad debts are deductible under section 81 or 2535.

Note 3: Subdivisions 709D and 719I 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 165123 or 165126 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.

165123  Company must maintain the same owners

Ownership test period

 (1) In determining whether section 165120 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 165255 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 1: See section 165150 to work out who had more than 50% of the voting power.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

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 1: See section 165155 to work out who had rights to more than 50% of the company’s dividends.

Note 2: Subdivision 167A has special rules for working out rights to dividends in a company whose shares do not all carry the same rights to 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 1: See section 165160 to work out who had rights to more than 50% of the company’s capital distributions.

Note 2: Subdivision 167A has special rules for working out rights to capital distributions in a company whose shares do not all carry the same rights to 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 165150(1), 165155(1) and 165160(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 165150(2), 165155(2) and 165160(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 165165; 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 *nonprofit 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.

165126  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 165123(2), (3) or (4); or

 (ii) it is not practicable to show that the company meets the conditions in those subsections; and

 (b) paragraph 165120(1)(b) (about the Commissioner thinking it is unreasonable to require the company to meet the conditions in section 165123) does not apply.

Note Other provisions may treat the company as meeting, or failing to meet, the conditions in subsections 165123(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 165123(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 165E.

165129  Same people must control the voting power, or the company must satisfy the same business test

 (1) Even if section 165120 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 1: A person can still control the voting power in a company that is in liquidation etc.: see section 165250.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

 (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 165E.

165132  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 165123 (about the company maintaining the same owners), it could not have deducted the debt (or part) apart from section 165126 (about the company satisfying the same business test); and

 (c) the company wrote off the debt after the *test time worked out under section 165126; 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 165126;

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 165126.

For the same business test: see Subdivision 165E.

Subdivision 165DTests for finding out whether the company has maintained the same owners

Table of sections

The primary and alternative tests

165150 Who has more than 50% of the voting power in the company

165155 Who has rights to more than 50% of the company’s dividends

165160 Who has rights to more than 50% of the company’s capital distributions

165165 Rules about tests for a condition or occurrence of a circumstance

165175 Tests can be satisfied by a single person

Rules affecting the operation of the tests

165180 Arrangements affecting beneficial ownership of shares

165185 Shares treated as not having carried rights

165190 Shares treated as always having carried rights

165200 Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units

165202 Shares held by government entities and charities etc.

165203 Companies where no shares have been issued

165205 Death of share owner

165207 Trustees of family trusts

165208 Companies in liquidation etc.

165209 Dual listed companies

The primary and alternative tests

165150  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.

165155  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.

165160  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.

165165  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 16512 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 165115C—the period between the reference time referred to in subsection 165115A(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 165115L—the period between the reference time referred to in subsection 165115L(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.

165175  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

165180  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.

165185  Shares treated as not having carried rights

 (1) In applying a test for the purposes of this Division other than Subdivision 165CC, *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 165CC, *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.

165190  Shares treated as always having carried rights

 (1) In applying a test for the purposes of this Division other than Subdivision 165CC, *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 165CC, *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.

165200  Rules do not affect totals of shares, units in unit trusts or rights carried by shares and units

 (1) Sections 165165, 165180, 165185 and 165190 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 165165 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.

165202  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 *nonprofit company;

 (g) a charity that is not a trust;

 (h) a *complying superannuation fund;

 (i) a superannuation fund that is established in a foreign country and is regulated under a *foreign law;

 (j) a *complying approved deposit fund;

 (k) a *special company;

 (l) a *managed investment scheme.

 (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).

165203  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.

165205  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.

165207  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 165150(1), 165155(1) and 165160(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 165150(2), 165155(2) and 165160(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.

165208  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) a Chapter 5 body corporate within the meaning of the Corporations Act 2001; or

 (ii) an entity with a similar status under a *foreign law to a Chapter 5 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 165150(1), 165155(1) and 165160(1).

Note 2: For an alternative test, see subsections 165150(2), 165155(2) and 165160(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) a Chapter 5 body corporate within the meaning of the Corporations Act 2001; or

 (ii) an entity with a similar status under a *foreign law to a Chapter 5 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.

165209  Dual listed companies

  Section 165150 does not apply to *shares that are *dual listed company voting shares.

Subdivision 165EThe same business test

165210  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 165B (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.

165212D  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.

165212E  Entry history rule does not apply for the purposes of section 165210

  For the purposes of section 165210, section 7015 (the entry history rule) does not operate in relation to an entity becoming a *subsidiary member of a *consolidated group or a *MEC group.

Subdivision 165FSpecial provisions relating to ownership by nonfixed trusts

Table of sections

165215 Special alternative to change of ownership test for Subdivision 165A

165220 Special alternative to change of ownership test for Subdivision 165B

165225 Special way of dividing the income year under Subdivision 165B

165230 Special alternative to change of ownership test for Subdivision 165C

165235 Information about nonfixed trusts with interests in company

165240 Notices where requirements of section 165235 are met

165245 When an entity has a fixed entitlement to income or capital of a company

165215  Special alternative to change of ownership test for Subdivision 165A

 (1) If a company does not meet the conditions in section 16512, 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) *nonfixed 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) nonfixed 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 *nonfixed 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 26720 in Schedule 2F to the Income Tax Assessment Act 1936 would not have prevented the nonfixed trust from deducting the *tax loss concerned if it, rather than the company, had incurred the tax loss.

Note: See section 165245 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.

165220  Special alternative to change of ownership test for Subdivision 165B

 (1) If the company does not meet the condition in paragraph 16535(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) *nonfixed 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) nonfixed 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 *nonfixed 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 26760 in Schedule 2F to the Income Tax Assessment Act 1936 does not require the nonfixed trust to work out its net income and *tax loss for the income year under Division 268.

Note: See section 165245 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.

165225  Special way of dividing the income year under Subdivision 165B

 (1) If:

 (a) the company is required to calculate:

 (i) its taxable income and *tax loss for the income year under Subdivision 165B; and

 (ii) its *net capital gain and *net capital loss for the income year under Subdivision 165CB; and

 (b) the company meets the requirements of subsections 165220(2) and (4);

then, in dividing the income year into periods, apply subsection (2) of this section instead of subsections 16545(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 165220(2)(a)—the company; or

 (ii) if the company meets the requirements of paragraph 165220(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 *nonfixed 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 nonfixed 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 165245 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.

165230  Special alternative to change of ownership test for Subdivision 165C

 (1) If a company does not meet the conditions in section 165123, 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) *nonfixed 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) nonfixed 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 *nonfixed 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 26725 in Schedule 2F to the Income Tax Assessment Act 1936 would not have prevented the nonfixed 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 165245 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.

165235  Information about nonfixed trusts with interests in company

Notice about foreign resident nonfixed trust

 (1) The Commissioner may give the company a notice in accordance with section 165240 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 165215; or

 (b) the company must not have calculated:

 (i) its taxable income and tax loss for the income year under Subdivision 165B; and

 (ii) its *net capital gain and *net capital loss for the income year under Subdivision 165CB;

  where it would have been required to calculate them unless it met the conditions in section 165220; 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 165215 as applied on the assumption mentioned in subsection 16596(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 165230.

Information about nonfixed trust

 (3) In order to determine whether it meets the conditions concerned, the Commissioner must need information about a *nonfixed trust mentioned in:

 (a) if paragraph (2)(a) applies—subsection 165215(5); or

 (b) if paragraph (2)(b) applies—subsection 165220(5); or

 (c) if paragraph (2)(c) applies—subsection 165215(5) as applied on the assumption mentioned in subsection 16596(1); or

 (d) if paragraph (2)(d) applies—subsection 165230(5).

Foreign resident trust

 (4) When the Commissioner gives the notice:

 (a) a trustee of the *nonfixed trust must be a foreign resident; or

 (b) the central management and control of the nonfixed 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.

165240  Notices where requirements of section 165235 are met

Information required

 (1) The notice that the Commissioner may give if the requirements of subsections 165235(2) to (5) are met must require the company to give the Commissioner specified information that is relevant in determining whether:

 (a) if paragraph 165235(2)(a) applies—the requirements of subsection 165215(5); or

 (b) if paragraph 165235(2)(b) applies—the requirements of subsection 165220(5); or

 (c) if paragraph 165235(2)(c) applies—the requirements of subsection 165215(5) as applied on the assumption mentioned in subsection 16596(1); or

 (d) if paragraph 165235(2)(d) applies—the requirements of subsection 165230(5);

are satisfied in relation to the *nonfixed trust mentioned in subsections 165235(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 165235(2) is applicable.

Application of Subdivision 165B

 (5) If, because of subsection (4), the company is required to calculate under Subdivision 165B 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 165CB

 (6) If, because of subsection (4), the company is required to calculate under Subdivision 165CB 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.

165245  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 165GOther special provisions

Table of sections

165250 Control of companies in liquidation etc.

165255 Incomplete periods

165250  Control of companies in liquidation etc.

 (1) For the purposes of sections 16515, 16540, 165115D, 165115M and 165129, 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) a Chapter 5 body corporate within the meaning of the Corporations Act 2001; or

 (ii) an entity with a similar status under a *foreign law to a Chapter 5 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 16515, 16540, 165115D, 165115M and 165129, 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) a Chapter 5 body corporate within the meaning of the Corporations Act 2001; or

 (ii) an entity with a similar status under a *foreign law to a Chapter 5 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.

165255  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 166Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company

Table of Subdivisions

 Guide to Division 166

166AA The object of this Division

166A Deducting tax losses of earlier income years

166B Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change

166C Deducting bad debts

166CA Changeover times and alteration times

166D Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners

166E Concessional tracing rules

Guide to Division 166

1661  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 166AAThe object of this Division

1663  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 166ADeducting tax losses of earlier income years

Table of sections

1665 How Subdivision 165A applies to a widely held or eligible Division 166 company

16615 Companies can choose that this Subdivision is not to apply to them

1665  How Subdivision 165A applies to a widely held or eligible Division 166 company

 (1) This Subdivision modifies the way Subdivision 165A 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 165A 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 16615.

Note 3: See section 165255 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 165255 for the rule about incomplete test periods.

Substantial continuity of ownership

 (3) The company is taken to have met the conditions in section 16512 (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 166145 and 166175 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 16512 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 16513.

Note 1: For the same business test, see Subdivision 165E.

Note 2: See section 165255 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.

16615  Companies can choose that this Subdivision is not to apply to them

 (1) The company can choose that Subdivision 165A 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 166BWorking out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change

Table of sections

16620 How Subdivisions 165B and 165CB apply to a widely held or eligible Division 166 company

16625 How to work out the taxable income, tax loss, net capital gain and net capital loss

16635 Companies can choose that this Subdivision is not to apply to them

16620  How Subdivisions 165B and 165CB apply to a widely held or eligible Division 166 company

 (1) This Subdivision modifies how Subdivisions 165B and 165CB 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 165B is about when a company must calculate its taxable income and tax loss for the income year in a special way. Subdivision 165CB 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 16635.

Note 3: See section 165255 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 16535(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 166145 and 166175 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 16535(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 16535(b).

Note 1: For the same business test, see Subdivision 165E.

Note 2: See section 165255 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.

16625  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 165B, and its *net capital gain and *net capital loss under Subdivision 165CB, then, in dividing the income year into periods, apply subsection (2) of this section instead of subsection 16545(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 166145 and 166175 to work out whether there is substantial continuity of ownership and a corporate change.

16635  Companies can choose that this Subdivision is not to apply to them

 (1) The company can choose that Subdivisions 165B and 165CB 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 166CDeducting bad debts

Table of sections

16640 How Subdivision 165C applies to a widely held or eligible Division 166 company

16650 Companies can choose that this Subdivision is not to apply to them

16640  How Subdivision 165C applies to a widely held or eligible Division 166 company

 (1) This Subdivision modifies the way Subdivision 165C 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 165C 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 16650.

Note 3: See section 165255 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 165255 for the rule about incomplete test periods.

Substantial continuity of ownership

 (3) The company is taken to have met the conditions in section 165123 (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 166145 and 166175 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 165123 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 165126.

Note 1: For the same business test, see Subdivision 165E.

Note 2: See section 165255 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.

16650  Companies can choose that this Subdivision is not to apply to them

 (1) The company can choose that Subdivision 165C 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 166CAChangeover times and alteration times

Table of sections

16680 How Subdivision 165CC or 165CD applies to a widely held or eligible Division 166 company

16690 Companies can choose that this Subdivision is not to apply to them

16680  How Subdivision 165CC or 165CD applies to a widely held or eligible Division 166 company

 (1) This Subdivision modifies the way in which:

 (a) Subdivision 165CC applies in determining whether a changeover time (within the meaning of section 165115C) has occurred; or

 (b) Subdivision 165CD applies in determining whether an alteration time (within the meaning of section 165115L) 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 165CC 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 165CD 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 16690.

Note 3: See section 165255 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 165CC or section 165115L, 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 165255 for the rule about incomplete test periods.

Note 2: See section 166175 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 166145 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.

16690  Companies can choose that this Subdivision is not to apply to them

 (1) The company can choose that Subdivision 165CC or 165CD is to apply to it in respect of a *test period for the purposes of section 16680 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 166DTests for finding out whether the widely held or eligible Division 166 company has maintained the same owners

Guide to Subdivision 166D

166135  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 166E 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

166145 The ownership tests: substantial continuity of ownership

166165 Relationship with rules in Division 165

Corporate change in a company

166175 Corporate change in a company

The ownership tests: substantial continuity of ownership

166145  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 166165, and Subdivision 166E, 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 1: To work out who had more than 50% of the voting power, see section 165150.

Note 2: Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

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 1: To work out who had rights to more than 50% of the company’s dividends, see section 165155.

Note 2: Subdivision 167A has special rules for working out rights to dividends in a company whose shares do not all carry the same rights to dividends.

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 1: To work out who had rights to more than 50% of the company’s capital distributions, see section 165160.

Note 2: Subdivision 167A has special rules for working out rights to capital distributions in a company whose shares do not all carry the same rights to capital distributions.

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 165150(2), 165155(2) and 165160(2).

Conditions in subsections (3) and (4) satisfied by nonprofit and mutual companies

 (6) If the company is:

 (a) a *nonprofit 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.

166165  Relationship with rules in Division 165

 (1) The provisions of Subdivision 165D (other than section 165165) apply for the purposes of the tests in section 166145.

 (2) The following provisions apply for the purposes of the tests in section 166145 as if the reference to a particular time were a reference to the *ownership test time:

 (a) section 165180 (which is about arrangements affecting beneficial ownership of shares);

 (b) subsection 165185(2) (which treats some shares as never having carried rights);

 (c) subsection 165190(2) (which treats some shares as always having carried rights).

Corporate change in a company

166175  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).

Note: For paragraph (e), Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

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 166EConcessional tracing rules

Guide to Subdivision 166E

166215  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 166D.

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

166220 Application of this Subdivision

Stakes of less than 10% in the tested company

166225 Direct stakes of less than 10% in the tested company

166230 Indirect stakes of less than 10% in the tested company

166235 Voting, dividend and capital stakes

Stakes held directly and/or indirectly by widely held companies

166240 Stakes held directly and/or indirectly by widely held companies

166245 Stakes held by other entities

When identity of foreign stakeholders is not known

166255 Bearer shares in foreign listed companies

166260 Depository entities holding stakes in foreign listed companies

Other rules relating to voting power and rights

166265 Persons who actually control voting power or have rights are taken not to control power or have rights

166270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights

166272 Same shares or interests to be held

When the rules in this Subdivision do not apply

166275 Rules in this Subdivision intended to be concessional

166280 Controlled test companies

Application of this Subdivision

166220  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 165255 for the rule about incomplete income years.

Stakes of less than 10% in the tested company

166225  Direct stakes of less than 10% in the tested company

 (1) This section modifies how the ownership tests in section 166145 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 1: Other rules might affect this provision: see sections 166270, 166275 and 166280.

Note 2: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

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 166265.

 (3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165207 and the one mentioned in section 166255.

166230  Indirect stakes of less than 10% in the tested company

 (1) This section modifies how the ownership tests in section 166145 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 166272, 166275 and 166280.

Note 3: For paragraph (a), Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

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 166265.

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 165115L), section 166272 (which is about the same shares or interests) is to be disregarded when applying subsection (3).

166235  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.

Note: For working out the size of a voting stake (for example, for paragraph 166225(1)(a)), Subdivision 167B has special rules for working out voting power in a company whose shares do not all carry the same voting rights, or do not carry all of the voting rights in the company.

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.

Note: For working out the size of a dividend stake (for example, for paragraph 166225(1)(b)), Subdivision 167A has special rules for a company whose shares do not all carry the same rights to dividends.

Meaning of capital stake

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

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

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

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

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

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

Note: For working out the size of a capital stake (for example, for paragraph 166225(1)(c)), Subdivision 167A has special rules for a company whose shares do not all carry the same rights to capital distributions.

Stakes held by nominees

 (7) For the purposes of sections 166225 and 166230, 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

166240  Stakes held directly and/or indirectly by widely held companies

 (1) This section modifies how the ownership tests in section 166145 are applied to the tested company if a *widely held company directly or indirectly (through one or more interposed entities), or both directly and indirectly, holds any of the following:

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

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

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

Note 1: Other rules might affect this provision: see subsections (3) and (4) and sections 166272, 166275 and 166280.

Note 2: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 166265.

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 165255 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 165115L), section 166272 (which is about same shares or interests) is to be disregarded when applying subsection (4).

166245  Stakes held by other entities

 (1) This section modifies how the ownership tests in section 166145 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 166225, 166230 or 166240, 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 166272, 166275 and 166280.

 (2) For the purposes of subsection (1), these are the entities:

 (a) a *superannuation fund; and

 (b) an *approved deposit fund; 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

 (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 165255 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 166265.

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 166265.

When identity of foreign stakeholders is not known

166255  Bearer shares in foreign listed companies

 (1) This section modifies how the ownership tests in section 166145 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 166225, 166230, 166240 or 166245, 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 165255 for the rule about incomplete test periods.

Note 2: Other rules might affect this provision: see sections 166270, 166275 and 166280.

Note 3: For paragraph (e), Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 166265.

 (3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165207 and the one mentioned in section 166225.

166260  Depository entities holding stakes in foreign listed companies

 (1) This section modifies how the ownership tests in section 166145 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 166225, 166230, 166240, 166245 or 166255, 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 165255 for the rule about incomplete test periods.

Note 2: This rule might not apply in all circumstances: see sections 166275 and 166280.

Note 3: For paragraph (e), Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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 166265.

 (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 166225 nor section 166230 applies in respect of that stake.

Note: Division 167 has special rules for working out rights to voting power, dividends and capital distributions in a company whose shares do not all carry the same rights to those matters.

 (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

166265  Persons who actually control voting power or have rights are taken not to control power or have rights

  If any of sections 166225, 166230, 166240, 166245, 166255 or 166260 apply, the ownership tests in section 166145 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.

166270  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 166225 or 166255 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 166225 or 166255 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.

166272  Same shares or interests to be held

Application

 (1) This section modifies how the ownership tests in section 166145 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 166230 (which is about indirect stakes of less than 10%);

 (b) a *widely held company mentioned in section 166240;

 (c) an entity mentioned in subsection 166245(2) (which is about stakes held by other entities);

 (d) a *depository entity mentioned in section 166260;

(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 166145 may be treated as having been satisfied in certain circumstances

 (8) If any of the conditions in section 166145 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 165115E);

  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 166145 in so far as those conditions have effect for the purpose of determining whether an alteration time (within the meaning of section 165115L) 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 166145 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

166275  Rules in this Subdivision intended to be concessional

  A company is taken to have met the conditions in section 16512, paragraph 16535(a) or section 165123, 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 166145 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 166225, 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 166225 no longer applies).

166280  Controlled test companies

 (1) A *tracing rule does not modify how the ownership tests in section 166145 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 166145 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 166145 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 167Companies whose shares carry unequal rights to dividends, capital distributions or voting power

Table of Subdivisions

 Guide to Division 167

167A Rights to dividends or capital distributions

167B Voting power

Guide to Division 167

1671  What this Division is about

This Division modifies the way conditions relating to this Part apply to companies whose shares:

 (a) do not all carry the same rights to dividends or capital distributions; or

 (b) do not all carry the same voting rights, or do not carry all of the voting rights in the company.

Subdivision 167ARights to dividends or capital distributions

Guide to Subdivision 167A

1675  What this Subdivision is about

Companies whose shares do not all carry the same rights to dividends or capital distributions may test the possession of those rights similarly to companies whose shares are all of a single class with the same rights.

1677  Simplified outline of this Subdivision

If a condition of the continuity of ownership test cannot be worked out for a company:

 (a) because of its unequal share structure; or

 (b) because of a holding company’s unequal share structure;

an entity can choose to reconsider that condition in up to 3 ways.

The first way involves disregarding debt interests.

The second way involves disregarding debt interests and secondary share classes.

The third way involves disregarding those shares, and treating the remaining shares as carrying certain percentages of the rights to receive dividends and capital distributions.

The second way can only be tried after the first way, while the third way can only be tried after the second way.

Table of sections

Operative provisions

16710 When this Subdivision applies

16715 First way—disregard debt interests

16720 Second way—also disregard secondary share classes

16725 Third way—treat remaining shares as having fixed rights to dividends and capital distributions

16730 Fixing rights if practicable to work out market values

16735 Fixing rights if impracticable to work out market values etc.

16740 The valuing times for conditions listed in subsection 16710(1)

Operative provisions

16710  When this Subdivision applies

When this Subdivision applies

 (1) This Subdivision applies in relation to a company if:

 (a) as described in the following table, a condition (the unsatisfied condition) cannot be worked out for the company for a particular period (the test period); and

 (b) at one or more times during the test period:

 (i) the company; or

 (ii) a company that has a *shareholding interest in it;

  (an unequally structured company) has an *unequal share structure.

 

Conditions that can be reconsidered under this Subdivision

Item

Column 1
Each of the following provisions contains a condition:

Column 2

that cannot be worked out for:

1

(a) subsection 16512(3) or (4);

(b) paragraph 16537(1)(b) or (c);

(c) subsection 165123(3) or (4);

(d) paragraph 17510(3)(b) or (c), 17545(3)(b) or (c) or 17585(3)(b) or (c);

(e) subparagraph (b)(ii) or (iii) of the definition of eligible Division 166 company in subsection 9951(1)

a period that is all or part of the period to which that provision relates

Note: Each of these conditions is about rights to the company’s dividends or capital distributions.

 (2) This Subdivision also applies in relation to a company if:

 (a) as described in the following table, a condition (the unsatisfied condition) cannot be worked out for the company for a particular time (the test time); and

 (b) at the test time, the company, or a company that has a *shareholding interest in it, (an unequally structured company) has an *unequal share structure.

 

Conditions that can be reconsidered under this Subdivision

Item

Column 1
Each of the following provisions contains a condition:

Column 2
that cannot be worked out for:

1

(a) paragraph 165115C(1)(b) or (c) or 165115L(1)(b) or (c);

(b) subparagraph 165115X(1)(b)(ii) or (iii);

(c) paragraph 165115Z(1)(b) or (c);

(d) subsection 166145(3) or (4);

(e) subparagraph 166175(1)(e)(ii) or (iii);

(f) paragraph 166225(1)(b) or (c);

(g) subparagraph 166230(1)(a)(ii) or (iii);

(h) paragraph 166240(1)(b) or (c);

(i) subparagraph 166255(1)(e)(ii) or (iii) or 166260(1)(e)(ii) or (iii);

(j) paragraph 166260(3)(b) or (c) or 166270(2)(c);

(k) paragraph 170260(3)(b) or (c) or 170265(2)(b) or (c)

a time that is the time, or one of the times, to which that provision relates

Note 1: Each of these conditions is about rights to the company’s dividends or capital distributions.

Note 2: If a condition cannot be worked out for several of the times to which the provision relates, apply this Subdivision separately for each of those times.

Meaning of unequal share structure

 (3) A company has an unequal share structure at a particular time if, at that time:

 (a) the company’s *shares do not all carry the same rights to *dividends, or capital distributions, of the company; or

 (b) some or all of the company’s shares carry discretionary rights to dividends, or capital distributions, of the company; or

 (c) the company is a *cooperative company that has *on issue one or more interests (other than shares) in the company’s capital.

16715  First way—disregard debt interests

 (1) The unsatisfied condition may be reconsidered by disregarding any *debt interests in each unequally structured company.

 (2) The way an entity prepares its *income tax return is sufficient evidence of it choosing to work out the unsatisfied condition under subsection (1).

16720  Second way—also disregard secondary share classes

 (1) This section applies in relation to each unequally structured company if:

 (a) despite section 16715, the unsatisfied condition cannot be worked out; and

 (b) on the last day of the test period or at the test time (as appropriate), there is *on issue in that company one or more classes of *shares (the secondary share classes) other than:

 (i) the class or classes of ordinary or common shares that represent the majority of that company’s value; and

 (ii) *debt interests; and

 (c) it is reasonable to conclude that the total *market value of the secondary share classes does not exceed 25% of the total market value of all of that company’s shares (other than debt interests); and

 (d) for one or more of the secondary share classes, it is reasonable to conclude that the market value of each of them does not exceed 10% of the total market value of all of that company’s shares (other than debt interests).

Note: This section can apply separately for each unequally structured company.

 (2) For the purposes of subsection (1), use *market values on the last day of the test period, or at the test time, (as appropriate).

 (3) The unsatisfied condition may be reconsidered by disregarding:

 (a) those of the secondary share classes that, under paragraph (1)(d), caused this section to apply; and

 (b) any *debt interests in that company.

 (4) The way an entity prepares its *income tax return is sufficient evidence of it choosing to work out the unsatisfied condition under subsection (3).

16725  Third way—treat remaining shares as having fixed rights to dividends and capital distributions

When this section applies

 (1) This section applies if, despite sections 16715 and 16720, the unsatisfied condition cannot be worked out for the test period or test time (as appropriate).

How to fix rights to dividends and capital distributions

 (2) The unsatisfied condition may be reconsidered by applying subsections (3) and (4) to each unequally structured company. When doing this for an unsatisfied condition listed in subsection 16710(1), assume:

 (a) that the test period consists only of the valuing times worked out under section 16740; and

 (b) that each of those valuing times is a test time.

 (3) Firstly, disregard any *debt interests in that company and any of its *shares that can be disregarded under subsection 16720(3).

 (4) Secondly, treat each of that company’s remaining *shares *on issue at the test time as having at that time the percentage of the rights to receive *dividends, and capital distributions, worked out either:

 (a) under section 16730; or

 (b) under section 16735 if:

 (i) it is not reasonably practicable to work out the market values of each of those remaining shares; or

 (ii) the sum of the *market values of all of those remaining shares is nil.

Note: The remaining shares are those remaining after disregarding the shares mentioned in subsection (3).

Evidence of a choice under this section

 (5) The way an entity prepares its *income tax return is sufficient evidence of it choosing to work out the unsatisfied condition under this section.

16730  Fixing rights if practicable to work out market values

  Each remaining *share is treated at the test time as carrying the following percentage of the rights to receive *dividends, and capital distributions, from the company:

where market value is worked out at the test time.

16735  Fixing rights if impracticable to work out market values etc.

 (1) Each remaining *share is treated at the test time as carrying such a percentage of the rights to receive *dividends, and capital distributions, from the company as is reasonable worked out:

 (a) at the test time; and

 (b) having regard to the purpose of the unsatisfied condition.

 (2) In working out what is reasonable for subsection (1), have regard to the following:

 (a) the company’s *constitution;

 (b) any agreements between the company and either or both of the following:

 (i) any or all of the shareholders in the company;

 (ii) any or all of the *associates of a shareholder in the company;

 (c) any statement by the company of its policy in paying *dividends or making capital distributions;

 (d) the ability of an entity to control (whether directly, or indirectly through one or more interposed entities) how the company pays dividends or makes capital distributions;

 (e) how the company has previously paid dividends or made capital distributions;

 (f) whether all classes of *shares carry substantially the same rights to receive dividends and capital distributions;

 (g) the principle that:

 (i) a *tax loss or bad debt should only be deductible; and

 (ii) a *net capital loss should only be applied;

  if a majority of the persons entitled to the benefits of dividend and capital distributions of the company is maintained.

16740  The valuing times for conditions listed in subsection 16710(1)

 (1) For the purposes of subsection 16725(2), the valuing times for the test period are:

 (a) the time the test period starts; and

 (b) the time just before, and the time just after, any of the following events that happen during the test period:

 (i) the issue of *shares of a class of remaining shares;

 (ii) the variation of rights attached to any remaining shares to receive *dividends or capital distributions;

 (iii) the redemption or cancellation of any remaining shares; and

 (c) the time the test period ends.

 (2) For paragraph (1)(b), disregard a time if it is outside the test period.

Subdivision 167BVoting power

Guide to Subdivision 167B

16775  What this Subdivision is about

Companies whose shares:

 (a) do not all carry the same voting rights; or

 (b) do not carry all of the voting rights in the company;

may test the possession of voting rights similarly to companies whose shares are all of a single class with the same rights.

Table of sections

Operative provisions

16780 When this Subdivision applies

16785 Different method for working out voting power

16790 Dual listed companies

Operative provisions

16780  When this Subdivision applies

 (1) For the purposes of this Part, voting power in a company at one or more times can be worked out under section 16785 if:

 (a) the company’s *shares do not all, at those times, carry the same voting rights for all matters affecting the company; or

 (b) the company’s shares do not carry all of the voting rights in the company;

whether this is because of the company’s *constitution, an *arrangement or some other reason.

Note: Disregard dual listed company voting shares (see section 16790).

 (2) Further, if those times are consecutive times during a period, the voting power in the company can be worked out under section 16785 as if that period consists only of:

 (a) the time that period starts; and

 (b) each later time (if any) during that period when there is a change in the maximum number of votes any entity could cast on a poll described in paragraph 16785(1)(a) or (b).

16785  Different method for working out voting power

 (1) An entity may choose whether voting power in the company at a particular time is worked out solely by reference to:

 (a) the maximum number of votes that could be cast on a poll on the election of a director of the company, if such a poll were to be held at that time; or

 (b) the maximum number of votes that could be cast on a poll on an amendment to the company’s *constitution, other than an amendment altering:

 (i) the rights carried by any of the company’s *shares; or

 (ii) other forms of voting power in the company;

  if such a poll were to be held at that time.

 (2) The way the entity prepares its *income tax return is sufficient evidence of it making a choice under subsection (1).

16790  Dual listed companies

  For the purposes of this Subdivision, disregard *shares that are *dual listed company voting shares.

Division 170Treatment of certain company groups for income tax purposes

Table of Subdivisions

170A Transfer of tax losses within certain whollyowned groups of companies

170B Transfer of net capital losses within certain whollyowned groups of companies

170C Provisions applying to both transfers of tax losses and transfers of net capital losses within whollyowned groups of companies

170D Transactions by a company that is a member of a linked group

Subdivision 170ATransfer of tax losses within certain whollyowned groups of companies

Guide to Subdivision 170A

1701  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 whollyowned group.

Table of sections

1705 Basic principles for transferring tax losses

Effect of transferring a tax loss

17010 When a company can transfer a tax loss

17015 Income company is taken to have incurred transferred loss

17020 Who can deduct transferred loss

17025 Tax treatment of consideration for transferred tax loss

Conditions for transfer

17030 Companies must be in existence and members of the same whollyowned group etc.

17032 Tax loss incurred by the loss company because of a transfer under Subdivision 707A

17033 Alternative test of relations between the loss company and other companies

17035 The loss company

17040 The income company

17042 If the income company has become the head company of a consolidated group or MEC group

17045 Maximum amount that can be transferred

17050 Transfer by written agreement

17055 Losses must be transferred in order they are incurred

17060 Income company cannot transfer transferred tax loss

Effect of agreement to transfer more than can be transferred

17065 Agreement transfers as much as can be transferred

17070 Amendment of assessments

Australian permanent establishments of foreign financial entities

17075 Treatment like Australian branches of foreign banks

1705  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 whollyowned 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 17075.

 (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

17010  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 19510.

17015  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 17032 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 17042(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.

17020  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 3617 (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.

17025  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 170210 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 170215 modifies the cost base of direct and indirect interests in the income company.

Conditions for transfer

17030  Companies must be in existence and members of the same whollyowned 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 17032 and 17033.

 (2) Also, both companies must be members of the same *whollyowned 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 17032 and 17033.

 (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