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Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS

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

History

Div 170 (heading) substituted by No 68 of 2002, s 3 and Sch 3 items 24 and 37 to 39 (as amended by No 90 of 2002, s 3 and Sch 11 item 1), effective 24 October 2002. The heading formerly read:

Division 170 - Treatment of company groups for income tax purposes

Act No 68 of 2002, s 3 and Sch 3 (as amended by No 16 of 2003, s 3 and Sch 19 item 6) contained the following application provisions:

37 Basic rule about application of amendments of Division 170
37(1)
The amendments of Division 170 of the Income Tax Assessment Act 1997 apply in relation to a company for each of its:

(a) income years starting after 30 June 2003; and

(b) non-membership periods (if any) under section 701-30 of the Income Tax Assessment Act 1997 starting after 30 June 2003.

37(2)
This item does not apply in relation to a company to which item 38 applies.
38 Different application for members of certain groups
38(1)
This item applies to a company if:

(a) the company becomes a member of a consolidated group or MEC group on the day (the consolidation day ) the group comes into existence; and

(b) the consolidation day either is before 1 July 2003 or is both:

(i) the first day of the first income year starting after 30 June 2003 of the group ' s head company (for a consolidated group) or provisional head company (for a MEC group) on the consolidation day; and

(ii) before 1 July 2004; and

(c) the company was not a member of a consolidated group or MEC group before the consolidation day.

38(2)
The amendments of Division 170 of the Income Tax Assessment Act 1997 apply in relation to the company for each of its:

(a) income years starting on or after the consolidation day; and

(b) non-membership periods (if any) under section 701-30 of the Income Tax Assessment Act 1997 starting on or after the consolidation day.
39 Transfer for final income year before amendments apply
39(1)
In this item:
apportioning day
of a company means:

(a) if item 37 applies to the company - 1 July 2003; or

(b) if item 38 applies to the company - the consolidation day.

39(2) Application.
This item applies to these transfers under Subdivision 170-A or 170-B of the Income Tax Assessment Act 1997 involving a company:

(a) a transfer by the company of a loss it made for the income year (the final year ) just before the first income year for which the amendments of those Subdivisions apply to the company;

(b) a transfer to the company for the final year of a loss made for that income year of an earlier income year.
However, this item does not apply to a transfer involving companies that would satisfy either subsections 170-30(3) and (4) or 170-130(3) and (4) of that Act (as amended) if those subsections applied for the final year.

39(3) Object.
The main object of this item is to ensure that the company can either:

(a) transfer a loss it makes for the final year only so far as the loss is attributable to so much of the final year as occurs before its apportioning day; or

(b) utilise a loss transferred to it to reduce income or gains for the final year only so far as the income or gains are attributable to so much of the final year as occurs before its apportioning day.

39(4) Apportioning limit on transferring company ' s loss for final year.
Despite section 170-45 of the Income Tax Assessment Act 1997 , the amount of a tax loss made for the final year by the company that can be transferred cannot exceed the amount worked out using the formula:

Limit on transferring the tax loss set by subsection
170-45(1) of that Act × Number of days in the company ' s final year before
its apportioning day
Number of days in the
company ' s final year

Note:

If the company ' s final year ends just before its apportioning day, this subitem does not reduce the amount of the tax loss the company can transfer.

39(5)
Despite section 170-145 of the Income Tax Assessment Act 1997 , a net capital loss made for the final year by the company:

(a) can be transferred only if the sum of the capital losses made by the company during the final year before its apportioning day exceeds the sum of the capital gains made by the company during the final year before its apportioning day; and

(b) cannot be transferred to an extent greater than that excess.
Note:

If the company ' s final year ends just before its apportioning day, this subitem does not reduce the amount of the net capital loss the company can transfer.

39(6) Apportioning limit based on transferee company ' s income or gains for final year.
Despite section 170-45 of the Income Tax Assessment Act 1997 , the amount of a tax loss (for the final year or an earlier income year) that can be transferred to the company for the final year cannot exceed the amount worked out using the formula:

Limit on transferring the loss set by whichever of subsections
170-45(2) and (3) of the Act applies × Number of days in the company ' s final year before
its apportioning day
Number of days in the company ' s final year

Note:

If the company ' s final year ends just before its apportioning day, this subitem does not reduce the amount of the tax loss that can be transferred to the company.

39(7)
Despite section 170-145 of the Income Tax Assessment Act 1997 , a net capital loss (for the final year or an earlier income year) can be transferred to the company for the final year:

(a) only if the company would have had a net capital gain for the final year apart from that section had the final year ended on the day before the company ' s apportioning day; and

(b) only to the extent to which it could have been transferred consistently with subsection 170-145(6) of that Act if the result of step 1 of the method statement had been the amount of the company ' s net capital gain worked out on the basis described in paragraph (a) of this subitem.
Note:

If the company ' s final year ends just before its apportioning day, this subitem does not reduce the amount of the net capital loss that can be transferred to the company.

39(8) Transfer not prevented by transferor joining consolidated group.
Subsections 170-45(1) and 170-145(1) of the Income Tax Assessment Act 1997 apply in relation to a transfer from a company (whether or not it is the company mentioned in subitem (4) or (5)) that becomes a member of a consolidated group or MEC group as if the fact that the company becomes such a member does not affect its ability to carry forward losses for the final year or an earlier income year.

39(9) Application to non-membership periods less than a year.
If, under section 701-30 of the Income Tax Assessment Act 1997 , the company has a non-membership period that ends just before the company first becomes a subsidiary member of a consolidated group or MEC group, Subdivisions 170-A and 170-B of that Act and subitems (3) to (8) (inclusive) apply in relation to the period as if it were the final year.

39(10)
To avoid doubt, section 701-30 of the Income Tax Assessment Act 1997 does not prevent a company from transferring under Subdivision 170-A or 170-B of that Act (applying as described in subitem (9)) a non-membership period loss described in that section for the non-membership period mentioned in that subitem.

Subdivision 170-B - Transfer of net capital losses within certain wholly-owned groups of companies

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Conditions for transfer

SECTION 170-145 Maximum amount that can be transferred
Loss company can only transfer what it cannot use itself

170-145(1)

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The amount transferred cannot exceed what would be the amount of the * loss company ' s * unutilised * net capital loss at the end of the application year if the loss company utilised the net capital loss to the greatest extent possible.

Note:

If the capital loss year and the application year are the same, the whole of the net capital loss would be unutilised, because section 102-5 does not allow a net capital loss to be applied in the income year in which it was made.

Example:

In the application year the loss company has:

• a net capital loss from an earlier income year of $25,000; and

• other capital losses totalling $10,000; and

• capital gains totalling $20,000;

Of the $25,000 loss, the loss company can transfer to the gain company no more than:

$25,000 − ($20,000 − $10,000) = $15,000

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170-145(2)

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(Repealed by No 169 of 1999)

170-145(3)

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(Repealed by No 169 of 1999)

170-145(4)

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(Repealed by No 169 of 1999)

Transferred loss must not exceed what the gain company can use

170-145(5)
No amount can be transferred if, apart from the operation of this section, the gain company would not have a *net capital gain for the application year.

170-145(6)
The amount transferred also cannot exceed the amount worked out as follows: Method statement

Step 1.

Work out what, apart from the operation of this section, would have been the gain company ' s *net capital gain for the application year.

Step 2.

Subtract each amount that:

(a) the gain company can apply under section 170-115 in working out its *net capital gain for the application year; and

(b) was transferred to the gain company (by the loss company or any other company) by an agreement made before the agreement by which the first amount is transferred.

Example:

In the application year:

• the gain company has capital gains totalling $60,000 and capital losses totalling $25,000; and

• another company, being a member of the same wholly-owned group as the gain company, transferred a net capital loss of $15,000 to the gain company; and

• the loss company incurred a net capital loss of $50,000.

Of the $50,000 loss, the loss company can transfer to the gain company no more than:

$60,000 − $25,000 − $15,000 = $20,000

170-145(7)

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Subsection (6) does not apply if the transfer occurs because either or both of the conditions in subsections 170-142(2) and (4) are met. In that case, the amount transferred also cannot exceed the amount worked out as follows: Method statement

Step 1.

Identify each *bundle of losses that, on the assumption in subsection 170-142(2) or (4) (as appropriate), would have included the *net capital loss.

Note 1:

There will be 2 or more bundles of losses identified if both of the conditions in subsections 170-142(2) and (4) are met.

Note 2:

There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph 170-142(4) if the conditions in subsections 170-130(1) and (2) are met in relation to the loss company and the gain company because of multiple applications of section 170-133 each involving a different first link company.

Step 2.

For each *bundle identified, work out how much of the *net capital loss the gain company would have been able to apply in working out its *net capital gain for the application year assuming that:

(a) the loss could have been applied in that year only after the application in that year of any other losses of that *sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the *loss company to the gain company for that year; and

(b) if the bundle would have included 2 or more transferable losses of that sort - those losses could have been applied only in the order in which the loss company made them.

Note 1:

If the assumption in subsection 170-142(2) is relevant to the bundle, it would have included losses made by the gain company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707-A .

Note 2:

If the assumption in paragraph 170-142(4) is relevant to the bundle, it would have included losses actually made by the first link company and transferred (by one or more transfers under Subdivision 707-A ) to the gain company.

Step 3.

Total every result of step 2 for the *net capital loss.

View history note