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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-A - Transfer of tax losses within certain wholly-owned groups of companies

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Conditions for transfer

SECTION 170-45 Maximum amount that can be transferred
Loss company can only transfer what it cannot use itself

170-45(1)

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

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Transferred loss must not exceed what the income company can use

170-45(2)
The amount transferred also cannot exceed the amount worked out as follows: Method statement

Step 1.

Add together the *income company ' s assessable income and *net exempt income (if any) for the *deduction year.

Step 2.

Subtract the *income company ' s deductions for the *deduction year, except deductions for amounts of *tax losses transferred to the income company (by the *loss company or any other company).

Step 3.

Subtract the *income company ' s deductions for the *deduction year for amounts of *tax losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.

Example:

In the deduction year:

• the income company has assessable income of $60,000, net exempt income of $10,000 and deductions of $25,000 (apart from the transferred loss); and

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

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

Of the $50,000 loss, the loss company can transfer no more than $30,000 ($60,000 + $10,000 − $25,000 − $15,000) to the income company.

170-45(3)
Subsection (2) does not apply if the *tax loss is a *film loss. In that case, the amount transferred also cannot exceed the amount worked out as follows: Method statement

Step 1.

Add together the *income company ' s *net assessable film income and *net exempt film income (if any) for the *deduction year.

Step 2.

Subtract the *income company ' s deductions for the *deduction year for amounts of *film losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.

170-45(4)

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Subsections (2) and (3) do not apply if the transfer occurs because either or both of the conditions in subsections 170-42(2) and (4) are met. In that case, the amount transferred also cannot exceed the amount worked out as follows: Method statement

Step 1.

Identify each *bundle of losses that, on the assumption in subsection 170-42(2) or (4) (as appropriate), would have included the *tax loss or *film loss (as appropriate).

Note 1:

There will be 2 or more bundles of losses identified if both of the conditions in subsections 170-42(2) and (4) are met.

Note 2:

There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph 170-42(4) if the conditions in subsections 170-30(1) and (2) are met in relation to the loss company and the income company because of multiple applications of section 170-33 each involving a different first link company.

Step 2.

For each *bundle identified, work out how much of the *tax loss or *film loss (as appropriate) the *income company would have been able to deduct in the *deduction year assuming that:

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

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

Note 1:

If the assumption in subsection 170-42(2) is relevant to the bundle, it would have included losses incurred by the income company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707-A .

Note 2:

If the assumption in paragraph 170-42(4) is relevant to the bundle, it would have included losses actually incurred by the first link company and transferred (by one or more transfers under Subdivision 707-A ) to the income company.

Step 3.

Total every result of step 2 for the *tax loss or *film loss (as appropriate).

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