Part B Ownership and same business test - company and listed widely held trust only
1 Whether continuity of majority ownership test passed
If the entity has deducted or applied (or, if applicable, transferred in or transferred out) a loss, which was incurred in any of the listed years, print X in the appropriate boxes to indicate whether the entity has satisfied the continuity of majority ownership test in respect of that loss.
The aim of item 1 is to find out if:
- the continuity of majority ownership test at section 165-12 of the ITAA 1997 if the entity is a company, or
- the 50% stake test at Subdivision 269-C of Schedule 2F to the ITAA 1936 if the entity is a listed widely held trust
has been satisfied in respect of a loss if a loss in any of the periods listed at item 1 is deducted or applied, if the entity is a company or listed widely held trust.
For more information regarding the operation of the loss rules, see Losses.
Completing item 1 of part B
Print X in the Yes boxes at A to F (as applicable) if, during the 2014–15 income year, the entity seeks to deduct or apply a loss of the relevant year and the entity has passed:
- the continuity of majority ownership test, if the entity is a company, or
- the 50% stake test, if the entity is a listed widely held trust in respect of the loss of that particular year.
Print X in the No boxes at A to F (as applicable) for each year in respect of which the entity seeks to deduct or apply a loss, if the continuity of majority ownership test or the 50% stake test, as applicable, has not been satisfied in respect of that loss and the entity is required to satisfy the same business test.
If there was no loss deducted or applied (or, if applicable, not transferred in or transferred out) in respect of a particular year, leave the boxes next to that year blank.
Examples for part B item 1
Although examples 3 and 4 are for companies, the examples, notes and comments apply equally to listed widely held trusts (which must satisfy the 50% stake test).
Example 3
A company had incurred tax losses in earlier income years. The company deducted all of these tax losses in respect of the 2014–15 income year. At the beginning of the 2014–15 income year, the company had undeducted losses from the 2009–10, 2011–12, 2012–13 and 2013–14 income years. The continuity of majority ownership test was failed during the 2011–12 income year, but all other tests for allowing the tax losses to be deducted have been passed by the company.
On these facts, for the tax losses of the 2011–12 income year and earlier income years, the company has not passed the continuity of majority ownership test.
Complete part B item 1 as follows:
Year of loss |
|
|
|
|
|
|
|---|---|---|---|---|---|---|
2014–15 |
A |
Yes |
|
No |
|
Print X in the appropriate box. |
2013–14 |
B |
Yes |
X |
No |
|
Print X in the appropriate box. |
2012–13 |
C |
Yes |
X |
No |
|
Print X in the appropriate box. |
2011–12 |
D |
Yes |
|
No |
X |
Print X in the appropriate box. |
2010–11 |
E |
Yes |
|
No |
|
Print X in the appropriate box. |
2009–10 and earlier income years |
F |
Yes |
|
No |
X |
Print X in the appropriate box. |
End of example
The above example shows that:
- there was no deduction for a tax loss incurred in the 2010–11 income year
- the company passed the continuity of majority ownership test for the tax losses of the 2012–13 and 2013–14 income years
- the company failed the continuity of majority ownership test for the tax losses of the 2009–10 and the 2011–12 income years.
Example 4
A company that incurred a tax loss in the 2009–10 income year subsequently undergoes a change in majority ownership in the 2010–11 income year. The company satisfies the same business test in respect of the 2009–10 tax loss.
The company incurs a further tax loss in the 2011–12 income year and satisfies the continuity of majority ownership test in respect of this 2011–12 tax loss.
In the 2014–15 income year, the company deducts the tax losses incurred in the 2009–10 and 2011–12 income years.
Print X in the Yes box at D 2011–12 and X in the No box at F 2009–10 and earlier income years.
End of example2 Amount of losses deducted or applied for which the continuity of majority ownership test is not passed but the same business test is satisfied - excludes film losses
Write at item 2 the total amount of losses deducted or applied during the 2014–15 income year (if the entity is either a company or a listed widely held trust) and for which the same business test must be satisfied.
In addition to those companies with either tax losses or net capital losses that have not passed the continuity of majority ownership test, this item also applies to listed widely held trusts with tax losses that have not passed the 50% stake test.
For more information regarding the operation of the loss rules, see Losses.
Tax losses
Write at G the amount of tax losses deducted by the entity that do not meet the continuity of majority ownership test but satisfy the same business test.
Net capital losses
Write at H the amount of net capital losses applied by a company that do not meet the continuity of majority ownership test but satisfy the same business test.
Example 5
A company had the following losses:
Year |
Tax loss |
Net capital loss |
|---|---|---|
2008–09 |
1,000 |
|
2009–10 |
2,000 |
|
2010–11 |
|
500 |
2011–12 |
1,600 |
800 |
2012–13 |
|
|
2013–14 |
10,000 |
2,000 |
2014–15 |
|
|
Total |
14,600 |
3,300 |
There was a change in the underlying beneficial ownership of the company in the 2012–13 income year.
The company passed the same business test and all other tests in relation to the losses incurred prior to that year and passed the continuity of majority ownership test and all other tests in relation to the 2013–14 losses.
Tax losses
All tax losses incurred in the 2008–09, 2009–10 and 2011–12 income years were deducted in the 2014–15 income year, as well as $6,000 of the 2013–14 tax loss.
Net capital losses
All of the 2010–11 net capital loss and $600 of the 2011–12 net capital loss were applied in the 2014–15 income year.
Of all of the above losses, which are being applied in the 2014–15 income year, those which are subject to the same business test being satisfied by the company are as follows:
Tax losses
Year |
Amount |
2008–09 |
1,000 |
2009–10 |
2,000 |
2011–12 |
1,600 |
Total |
4,600 |
Net capital losses
Year |
Amount |
|---|---|
2010–11 |
500 |
2011–12 |
600 |
Total |
1,100 |
Complete part B item 2 as follows:
The 2013–14 tax loss of $6,000 was deducted by the company on the basis that the company had satisfied the continuity of majority ownership test. Therefore this amount is not shown at G Tax losses.
As $200 of the 2011–12 net capital loss was not applied during the 2014–15 income year, that amount of $200 is not shown at H Net capital losses for the 2014–15 income year even though the same business test would need to be passed in a later income year in order for the company to be able to apply that net capital loss in a later income year.
End of example3 Losses carried forward for which the same business test must be satisfied before they can be deducted or applied in later years - excludes film losses
Item 3 asks for information about the tax losses and net capital losses for which the entity must satisfy the same business test in subsequent years for the entity to be able to deduct or apply those losses.
Tax losses
Write at I the total amount of tax losses carried forward to later income years for which the same business test must be satisfied for the entity to deduct those tax losses in later income years.
Net capital losses
Write at J the total amount of net capital losses carried forward to later income years for which the same business test must be satisfied for the company to apply those net capital losses in later income years.
Example 6
As at the end of the 2014–15 income year, the company had the following losses:
Year |
Tax loss |
Net capital loss |
|---|---|---|
2008–09 |
1,500 |
|
2009–10 |
3,000 |
|
2010–11 |
|
700 |
2011–12 |
1,900 |
900 |
2012–13 |
|
|
2013–14 |
1,000 |
1,500 |
2014–15 |
|
|
Total |
7,400 |
3,100 |
A change in the underlying beneficial interests in the company took place during the 2012–13 income year. As a result, the company must satisfy the same business test for the tax losses of the following income years:
- 2008–09 ($1,500)
- 2009–10 ($3,000)
- 2011–12 ($1,900).
It must also satisfy the same business test in respect of the net capital losses for the following income years:
- 2010–11 ($700)
- 2011–12 ($900).
The 2013–14 tax loss ($1,000) and the net capital loss ($1,500) are not affected.
The company completes part B item 3 as follows:
4 Do current year loss provisions apply?
Is the company required to calculate its taxable income or tax loss for the year under Subdivision 165-B or its net capital gain or net capital loss for the year under Subdivision 165-CB of the ITAA 1997?
A company is required to calculate its taxable income and tax loss under Subdivision 165-B of the ITAA 1997 where it does not satisfy the continuity of majority ownership test for the whole income year; see section 165-35 of the ITAA 1997. The current year loss provisions also apply where, during the income year, a person begins to control, or becomes able to control, the voting power in the company for the purpose or one of the purposes of gaining an advantage under the ITAA 1997 or gaining such a benefit for someone else; see section 165-40 of the ITAA 1997.
However, the current year loss rules do not apply in either case if the same business test is satisfied.
For more information on the application of these rules, see Current-year losses.
Print X in the Yes box at K if the company is required to calculate its taxable income or tax loss under the provisions of Subdivision 165-B or its net capital gain or net capital loss under the provisions of Subdivision 165-CB.
Print X in the No box at K if the company is not required to calculate its taxable income or tax loss under the provisions of Subdivision 165-B or its net capital gain or net capital loss under the provisions of Subdivision 165-CB.
Part C Unrealised losses - company only
Has a changeover time occurred in relation to the company after 1.00pm by legal time in the Australian Capital Territory on 11 November 1999?
A changeover time is the time of a change in majority ownership or in the control of a company.
To determine whether a company has failed the continuity of majority ownership test or the change of control test for the purposes of Subdivision 165-CC of the ITAA 1997, see:
- section 165-115C change in ownership of company
- section 165-115D change in control of company.
In determining whether there has been a change of ownership or control at a particular test time, the ownership or control profile is determined at two points in time, the reference time and the test time.
For this purpose, the reference (base) time is the later of 1.00pm (by legal time in the Australian Capital Territory) on 11 November 1999 (the commencement time) for a company in existence at that time (or the time when it came into existence if not), and the time immediately after the last preceding changeover time, if any.
The continuity of majority ownership test is subject to the 'same share and interest' rule in section 165-165 of the ITAA 1997. This requires (subject to special rules for share and unit 'splits' or 'consolidations') that exactly the same shares must continue to be held by the same persons throughout the 'test period' (that is, from reference time to test time) to count towards satisfaction of the test. Interests in any other entity (for example, shares in another company) must be exactly the same interests and beneficially owned by the same persons.
There is a 'saving rule' in section 165-115C of the ITAA 1936 which provides that if the continuity of majority ownership test would have been satisfied but for the operation of the 'same share and interest rule', the test time is not a changeover time if the company has information from which it is reasonable to conclude that less than 50% of the company's unrealised net loss has been or will be duplicated as a result of any CGT event that happened during the test period.
Subdivision 166-CA of Division 166 of the ITAA 1997 modifies the way in which Subdivision 165-CC of the ITAA 1997 applies to a widely held company or eligible Division 166 company.
If the answer is yes, print X in the Yes box at L, and complete M.
If the answer is no, print X in the No box at L, and do not complete M, N or O.
At the changeover time did the company satisfy the maximum net asset value test under section 152-15 of the ITAA 1997?
Any company that has a net value of CGT assets of $6 million or less, as determined under section 152-15 of the ITAA 1997, at the time it failed the continuity of majority ownership test, is not subject to the operation of Subdivision 165-CC of the ITAA 1997. The maximum threshold amount of $6 million includes the net value of the CGT assets of the company and any entity connected or affiliated with the company as referred to in section 152-15 of the ITAA 1997.
If the answer is yes, print X in the Yes box at M, and do not complete N and O.
If the answer is no, print X in the No box at M, and complete N.
If a company has failed the continuity of majority ownership test on two or more occasions since the commencement time, complete M in respect of the latest changeover time.
If you printed X in the No box at M, has the company determined it had an unrealised net loss at the changeover time?
Where a company that answered yes at L and no at M has an unrealised net loss at the changeover time, 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 owned at the changeover time, unless the company satisfies the same business test. Whether a company has an unrealised net loss at the time of the change is determined in accordance with the method statement in section 165-115E of the ITAA 1997.
If the answer is yes, print X in the Yes box at N, and complete O.
If the answer is no, print X in the No box at N, and do not complete O.
If a company has failed the continuity of majority ownership test on two or more occasions since the commencement time, complete N in respect of the latest changeover time. Subdivision 165-CC of the ITAA 1997 requires a company to determine whether it has an unrealised net loss each time that it experiences a changeover time.
If you printed X in the Yes box at N, what was the amount of unrealised net loss calculated under section 165-115E of ITAA 1997?
Subdivision 165-CC of the ITAA 1997 does not specify when a company has to calculate whether it has an unrealised net loss. However, this calculation must be done before claiming any loss or deduction on an asset that was held at the changeover time. Where no calculation has been undertaken as at the date of lodging the company's income tax return, print X in the No box at N, and do not complete O.
An unrealised net loss is, broadly, the excess of the company's unrealised losses on assets over unrealised gains on assets at the changeover time. This is determined by deeming such assets to be disposed of at market value at the changeover time. A company may choose to exclude every asset that it acquired for less than $10,000 from the calculation of the amount. A company may also choose to use the written down value of depreciable plant (not a building or structure) at the changeover time, rather than its market value at that time, provided:
- the expenditure incurred by the company to acquire the plant was less than $1 million, and
- it would be reasonable for the company to conclude that the market value of the plant at the changeover time was not less than 80% of its written down value at that time.
Whether a company has an unrealised net loss at a changeover time is calculated using the steps in the method statement below.
Method statement
Step 1
In respect of each CGT asset that the company owned at the changeover time, calculate any:
- notional capital gain or notional revenue gain
- notional capital loss or notional revenue loss in respect of the asset at that time.
The notional calculation is made on the assumption that the company disposed of the asset at its market value at the changeover time. The company has a notional revenue gain equal to the excess for an asset that is an item of trading stock, if the item's market value at the changeover time exceeded:
- the latest valuation under Division 70 of the ITAA 1997, or
- the cost of the item at the changeover time (if there is no valuation under Division 70).
The company has a notional revenue loss equal to the difference if the item's market value at the changeover time was less than the
- latest valuation under Division 70, or
- cost of the item at the changeover time (if there is no valuation under Division 70).
Step 2
Add up the sum of the company's notional capital gains and the sum of the company's notional revenue gains. The total is the unrealised gross gain at the changeover time.
Step 3
Add up the sum of the company's notional capital losses and the sum of the company's notional revenue losses. The total is the unrealised gross loss at the changeover time.
Step 4
If the unrealised gross loss at the changeover time exceeds the unrealised gross gain at that time, the excess is the company's preliminary unrealised net loss.
Step 5
Add up the company's preliminary unrealised net loss and any capital loss or deduction disregarded under Subdivision 170-D of the ITAA 1997. The total is the company's unrealised net loss.
Write at O the amount of unrealised net loss the company has at the changeover time.
Write zero at O if the company has an unrealised net gain at the changeover time.
The Commissioner of Taxation may give advice about methods to be used, and other things to be done, in valuing assets for the purposes of Subdivision 165-CC of the ITAA 1997.
Part D Life insurance companies
Part D must be completed for those companies that carry on the business of life insurance and that have the following losses carried forward to later income years in the complying superannuation/FHSA class:
- tax losses, or
- net capital losses.
Do not include tax losses or net capital losses of the complying superannuation/FHSA class in other parts of the schedule.
Show the tax losses utilised of the complying superannuation/FHSA class (claimed as a deduction under section 320-141 of the ITAA 1997) in Life insurance companies taxation schedule.
Complying superannuation/FHSA class tax losses carried forward to later income years
Write at P 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 deducted.
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 Q 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 applied.
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.