Part B Cancellation of transfer of losses
1 Has the head company cancelled the transfer of a loss?
A head company can make a choice to cancel the transfer of a loss of a joining entity. If the choice is made, the loss cannot be used by any entity for an income year ending after the joining time; see sections 707-145 and 707-150 of the ITAA 1997.
Print X in the appropriate box at A.
If the answer is Yes, complete item 2.
If the answer is No, go to Part C Ownership test and same business test.
2 Details of cancellation of transfer of losses
Write at B, D, F and H the TFNs of those joining entities that had transfers of one or more losses cancelled during the income year.
If the transfer of losses was cancelled for more than four joining entities, write the TFNs for only the four joining entities that had the largest total amounts of cancellation of transfer of losses.
Write at C, E, G and I, as required, the total amount of the cancellation of the transfer of one or more losses for joining entities whose TFNs are recorded at B, D, F and H respectively.
Part C Ownership test and same business test
1 For each joining company that transferred a same business test tax loss or same business test net capital loss to the head company, determine the year of income in which the joining company first failed the continuity of ownership or control tests. Against each of the listed years, show the total amount of losses which first failed the continuity of ownership or control tests that year.
You need to complete item 1 only if your group consolidated during the 2012-13 income year.
- Do not include transferred film losses at item 1.
- Do not include losses transferred by a joining company that satisfied the continuity of ownership and control transfer tests at item 1.
- Do not include losses transferred by a joining trust at item 1.
The aim of item 1 is to find out (in respect of companies that transferred losses to a head company of a consolidated group because a same business transfer test was satisfied):
- the period of time between the year of failure of the continuity of ownership or control transfer tests and the trial year, and
- the losses that failed the continuity of ownership or control tests at the joining time and in the trial year.
When a company joins a consolidated group any unused carry forward losses are transferred to the head company if the losses could have been utilised by the joining entity, assuming sufficient income or gains in the 'trial year' which generally begins 12 months before joining the consolidated group and ends immediately after the joining time. In certain circumstances, the trial year may be a period shorter than 12 months, see subsection 707-120(2) of the ITAA 1997.
Whether the losses could have been utilised by the joining company in the trial year is determined by applying modified versions of the usual tests for deducting tax losses and applying net capital losses. A joining company with a carry forward tax loss or net capital loss will need to satisfy the same business test unless the company satisfies the following continuity of ownership test conditions (and the control test):
- There must be persons who beneficially owned (between them) shares carrying (between them) the right to exercise more than 50% of the voting power in the company, rights to receive more than 50% of the company's dividends and rights to receive more than 50% of the company's capital distributions at all times during the ownership test period; see sections 165-150 to 165-160 of the ITAA 1997.
- Alternatively it is reasonable to assume that there are persons (none of them companies or trustees) who between them have beneficial interests (directly or indirectly through one or more interposed entities) in shares in the company carrying (between them) a majority of the voting power, and rights to dividend and capital distributions at all times during the ownership test period; see sections 165-150 to 165-160 of the ITAA 1997.
- Where tax losses are claimed in an income year ending after 21 September 1999, the company must meet the 'same share and interest' requirement, except where the 'saving' rule applies; see section 165-165 and subsection 165-12(7) of the ITAA 1997.
A modified version of the above rules can apply to widely held companies and eligible Division 166 companies, see Division 166 of the ITAA 1997.
Anti-avoidance provisions are in Subdivisions 175-A, 175-B and 175-CA of the ITAA 1997.
Same business test losses - companies only
The following table shows how the same business test applies for companies joining a consolidated group.
See subsections 707-120(1) and (3) and subsections 707-125(1) to (3) of the ITAA 1997.
Same business transfer tests for companies |
|
|---|---|
In these circumstances: |
Test the joining entity's business at these points: |
1 The joining entity made the loss for an income year starting after 30 June 1999 |
|
2 The joining entity made the loss for an income year starting before 1 July 1999 |
|
For the purposes of the table, the time of the ownership change refers to the time when the joining entity first fails the ownership or control tests or, where the company is unable to point to the actual time the ownership test was failed, the relevant default test time shown in the table in subsection 165-13(2) of the ITAA 1997.
Where a loss is transferred as a result of satisfying the same business test, it may only be transferred again if, in addition to satisfying the usual transfer tests, the entity transferring the loss carried on the same business at these times:
- just before the end of the income year in which the loss was previously transferred to it, and
- during the trial year.
See subsection 707-135(2) of the ITAA 1997.
Under the same business test, the company must carry on the same business at all the times indicated in the preceding table; that is, throughout the trial year and year of the ownership change (if applicable) and the other relevant time. The test is not satisfied if at any time the company did not carry on the same business as it did at another required time or it derives assessable income from:
- a business of a kind that it did not carry on before the relevant time, or
- a transaction of a kind that it did not enter into in the course of its business operations before the relevant time.
'Same' means 'identical' and not merely 'similar'. The term 'same business' is to be read as referring to the same business, in the sense of the identical business. However, the term does not mean identical in all respects.
A company may expand or contract its activities without necessarily ceasing to carry on the same business. The organic growth of a business does not necessarily cause the business to fail the same business test provided the business retains its identity.
However, if through a process of evolution a business changes its essential character, the entity may fail the test. Application of the same business test is a question of fact and is usually determined by a process of weighing up various relevant factors.
For more information, see sections 165-13 and 165-210 of the ITAA 1997; and also Taxation Ruling TR 1999/9, and Taxation Ruling TR 2007/2.
Year ownership test failed
At the appropriate year, write the total amount of tax losses and net capital losses of joining companies that first failed the continuity of ownership or control tests in the income year, but satisfied the same business test. If there is no amount, leave blank.
For the 2008-09 and earlier income years, write the total for those years.
Example 12
A consolidated group came into existence on 1 July 2012. During the 2012-13 income year, the following joining companies transferred tax losses and net capital losses because they satisfied the same business transfer test:
Joining company |
Loss year |
Amount |
Sort of loss |
Year of ownership change |
|---|---|---|---|---|
A |
1996-97 |
1,000 |
Tax |
1999-00 |
|
|
|
|
2009-10 |
|
2003-04 |
50 |
Net capital |
2011-12 |
B |
2001-02 |
350 |
Tax |
2012-13 |
|
2003-04 |
400 |
Net capital |
2012-13 |
C |
2001-02 |
550 |
Net capital |
2009-10 |
For the 2012-13 income year, the head company completes item 1 part C on the schedule as follows:
The amount of the tax loss incurred by Company A ($1,000) is written at N because the first change of ownership occurred during the 1999-00 income year.
2 Amount of losses utilised after consolidation, for which the continuity of ownership test is not passed but the same business test is satisfied
- Do not include film losses utilised at item 2.
- Do not include at item 2 losses utilised for which the head company satisfied the continuity of ownership test.
Write at item 2 the amount of tax losses, including foreign loss components of tax losses, and net capital losses utilised during the 2012-13 income year by the head company after consolidation, where the continuity of ownership test was not passed, but the same business test was satisfied.
Before a head company can utilise a loss generated by the consolidated group, or a loss transferred from a joining entity, it must satisfy the continuity of ownership and control tests or the same business test. Subdivision 707-B of the ITAA 1997 modifies the recoupment tests for transferred losses. The loss year is modified so that it starts from when the loss was transferred to the head company. Accordingly, losses transferred to a head company of a consolidated group because they satisfied the same business transfer test are effectively refreshed in the hands of the head company, in that the ownership test period for these losses starts at the time they are transferred to the head company.
However, in determining whether a head company can use a loss transferred to it from a joining company which passed the continuity of ownership and control tests, the changes in ownership of the joining company before it joined the consolidated group are taken into account. In addition, it is assumed that the head company's interest in the joining company remains unchanged from the joining time. This means that in determining if a head company can utilise a loss transferred to it from a joining company, the head company will satisfy the continuity of ownership test if the joining company would have satisfied the continuity of ownership test in respect of the loss.
For more information on the same business test, see sections 165-13 and 165-210 of the ITAA 1997; and also Taxation Ruling TR 1999/9, and Taxation Ruling TR 2007/2.
Subdivision 719-F of the ITAA 1997 modifies the rules about transferring and utilising losses in relation to MEC groups.
Tax losses
Write at O the amount of tax losses, including foreign loss components of tax losses, utilised by the head company which did not satisfy the continuity of ownership and control tests, but did satisfy the same business test.
Net capital losses
Write at P the amount of net capital losses utilised by the head company which did not satisfy the continuity of ownership and control tests, but did satisfy the same business test.
Example 13
A consolidated group came into existence on 1 July 2012. On that date the following losses were transferred to the head company from a joining company that satisfied the continuity of ownership and control transfer tests.
Year loss incurred |
Sort of loss |
Amount |
|---|---|---|
2000-01 |
Tax |
1,200 |
2001-02 |
Net capital |
4,600 |
During the period from the start of the loss year (1 July 2000) until immediately after the joining time (1 July 2012) there was a 40% change in the persons who controlled the voting power of the head company and had the rights to the company's dividends and capital distributions. The joining company was a 100% owned subsidiary of the head company during this period.
For the 2012-13 income year, the consolidated group generates sufficient capital gains and other assessable income to enable the transferred tax and net capital losses to be fully utilised applying the available fraction method. On 1 August 2012, there is a 20% change in the persons who, at the start of the loss year, controlled the voting power of the head company and had rights to the company's dividends and capital distributions. The head company does not satisfy the continuity of ownership test because of the change of majority ownership on 1 August 2012; that is, combined ownership changes of 60% (40% + 20%). However, the head company satisfies the same business test because the consolidated group carried on the same business during the 2012-13 income year as it did immediately before the change of ownership.
In determining whether a head company can utilise a loss transferred to it from a joining company that passed the continuity of ownership and control tests, changes in ownership of the joining company before it joined the consolidated group are taken into account.
The head company completes item 2 part C on the schedule as follows:
3 Amount of losses carried forward to later income years for which the same business test must be satisfied before they can be utilised
- Do not include film losses carried forward at item 3.
- Do not include at item 3 losses carried forward to later income years for which the head company satisfies the continuity of ownership test.
Write at item 3 the amount of tax losses, including foreign loss components of tax losses, and net capital losses carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.
Before a head company can utilise a loss generated by the consolidated group or a loss transferred from a joining entity, it must satisfy the continuity of ownership and control tests or the same business test. Subdivision 707-B of the ITAA 1997 modifies the recoupment tests for transferred losses. The loss year is modified so that it starts from when the loss was transferred to the head company. Accordingly, losses transferred to a head company of a consolidated group because they satisfied the same business transfer test are effectively refreshed in the hands of the head company, in that the ownership period for these losses starts at the time they are transferred to the head company.
However, in determining whether a head company can use a loss transferred to it from a joining company that passed the continuity of ownership and control tests, changes in ownership of the joining company before it joined the consolidated group are taken into account. In addition, it is assumed that the head company's interest in the joining company remains unchanged from the joining time. This means that in determining if a head company can utilise a loss transferred to it from a joining company, the head company will satisfy the continuity of ownership test if the joining company would have satisfied the continuity of ownership test in respect of the loss.
For more information on the same business test, see sections 165-13 and 165-210 of the ITAA 1997; and also Taxation Ruling TR 1999/9, and Taxation Ruling TR 2007/2.
Tax losses
Write at Q the amount of tax losses, including foreign loss components of tax losses, carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.
Net capital losses
Write at R the amount of net capital losses carried forward to later income years for which the head company must satisfy the same business test to utilise these losses.
Example 14
A consolidated group came into existence on 1 July 2012. On that date, tax losses of $2,200 were transferred to the head company from a joining company that satisfied the continuity of ownership and control transfer tests.
For the 2012-13 income year, the consolidated group made a group tax loss of $1,700 and a group net capital loss of $3,500, which are carried forward to the 2013-14 income year.
There was a change of majority ownership of the head company during the 2012-13 year, but this did not result in the head company joining another consolidated group. The head company must satisfy the same business test in later income years to utilise the losses carried forward comprising tax losses of $3,900 ($2,200 + $1,700) and net capital losses of $3,500.
The head company completes item 3 part C on the schedule as follows:
Part D Life insurance companies
The head company of a consolidated group that has at least one member that is a life insurance company at any time during the income year is taken to be a life insurance company for the purposes of an income tax assessment.
Part D is required to be completed where the head companies have the following losses carried forward to later income years in the complying superannuation/FHSA class:
- tax losses, or
- net capital losses.
Complying superannuation/FHSA class tax losses carried forward to later income years
Write at T the amount of tax losses carried forward to later income years from the complying superannuation/FHSA class. This includes prior year tax losses from the complying superannuation/FHSA class carried forward if they have not been utilised.
A life insurance company has a tax loss of the complying superannuation/FHSA class for an income year if, in that income year, the company's complying superannuation/FHSA deductions exceed the sum of the:
- assessable income from the complying superannuation/FHSA class, and
- net exempt income that is attributable to the complying superannuation/FHSA class of assets.
Complying superannuation/FHSA net capital losses carried forward to later income years
Write at U the amount of net capital losses carried forward to later income years from the complying superannuation/FHSA class. This includes prior year net capital losses from the complying superannuation/FHSA class carried forward if they have not been utilised.
A life insurance company has a net capital loss from the complying superannuation/FHSA class for the income year if, in that income year, the capital losses made from complying superannuation/FHSA class of assets exceed all capital gains made from complying superannuation/FHSA class of assets.
In working out the tax loss of the complying superannuation/FHSA class, the single entity rule is disregarded; see section 713-510A of the ITAA 1997 for more information.