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Taxation Laws Amendment Act (No. 3) 1997 (147 of 1997)

Schedule 14 Gains and losses

Part 2 Income Tax Assessment Act 1936 (capital gains and capital losses)

32 After Division 3 of Part IIIA

Insert:

Division 3A - Net capital gain or net capital loss of company in respect of year of income in which ownership or control of the company changed

Guide to Division 3A

160ZNA What this Division is about

A company that has not had the same ownership and control during the year of income, and has not satisfied the same business test, works out its net capital gain or net capital loss in respect of the year of income under this Division.

The tests for finding out whether a company has maintained the same owners, and the same business test, are set out in Divisions 3B, 3C, 3CB, 3CC and 3CD.

Table of sections

When a company must work out its net capital gain or net capital loss under this Division

160ZNB On a change of ownership, unless the company carries on the same business

160ZNC Who has more than a 50% stake in the company during a period

160ZND On a change of control of voting power in the company, unless the company carries on the same business

Working out the company's net capital gain or net capital loss

160ZNE First, divide the year of income into periods

160ZNF Next, calculate the notional net capital gain or notional net capital loss for each period

160ZNG How to calculate the company's net capital gain or net capital loss for the year of income

When a company must work out its net capital gain or net capital loss under this Division

160ZNB On a change of ownership, unless the company carries on the same business

(1) A company must calculate its net capital gain or net capital loss under this Division unless:

(a) there are persons who had more than a 50% stake in the company during the whole of the year of income; or

(b) there is onlypart of the year of income (a part that started at the start of the year of income) during which the same persons had more than a 50% stake in the company, but the company satisfies the same business test for therest of the year of income (the same business test period ).

(2) For the purposes of paragraph (1)(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: For the same business test: see Division 3C.

160ZNC 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 year of income 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.

(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.

Note: For the primary tests: see subsections 160ZNH(1), 160ZNI(1) and 160ZNJ(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.

Note: For the alternative tests: see subsections 160ZNH(2), 160ZNI(2) and 160ZNJ(2).

160ZND On a change of control of voting power in the company, unless the company carries on the same business

(1) A company must calculate its net capital gain or net capital loss under this Division if, during the year of income, 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 the 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.

(2) However, the person's control of the voting power, or ability to control it, does not require the company to calculate its net capital gain or net capital loss under this Division if the company satisfies the same business test for therest of the year of income (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.

Note: For the same business test: see Division 3C.

Working out the company's net capital gain or net capital loss

160ZNE First, divide the year of income into periods

(1) Divide the year of income into periods and treat each period as a year of income as follows.

(2) The first period starts at the start of the year of income. Each later period starts immediately after the end of the previous period.

(3) The last period ends at the end of the year of income. Each period (except the last) ends at theearlier of:

(a) thelatest time that would result in persons having more than a 50% stake in the company during the whole of the period; or

(b) theearliest 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.

(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: For the same business test: see Division 3C.

(5) Treat each period as if it were a year of income and work out the notional net capital gain or notional net capital loss in respect of that period.

160ZNF Next, calculate the notional net capital gain or notional net capital loss in respect of each period

(1) The company has a notional net capital gain in respect of a period if the sum of the capital gains that accrued to the company in the period exceeds the sum of the capital losses that were incurred by the company in the period.

(2) On the other hand, if the sum of those capital losses exceeds the sum of those capital gains, the company has a notional net capital loss in respect of the period.

(3) If the company has a notional net capital loss in respect ofnone of the periods in the year of income, this Division has no further application, and the company's net capital gain in respect of the year of income is calculated in the usual way.

Note: The usual way of working out a net capital gain is set out in section 160ZC.

(4) For the purposes of this section, so much of an amount included in the company's assessable income of the year of income under section 97 or 98A as is a capital gain that forms part of a net capital gain is taken to have accrued to the company in a period so far as the amount is reasonably related to the period.

160ZNG How to calculate the company's net capital gain or net capital loss in respect of the year of income

(1) If the sum of:

(a) the company's notional net capital gains in respect of any of the periods in the year of income; and

(b) so much of any amounts included in the company's assessable income of the year of income under section 97 or 98A as are capital gains that form part of a net capital gain, so far as the amounts are not reasonably related to a period;

exceeds the sum of any net capital losses incurred by the company in respect of earlier years of income that may be applied in respect of the year of income under section 160ZC, the excess is taken to be a net capital gain that accrued to the company in respect of the year of income.

(2) The sum of the company's notional net capital losses in respect of any of the periods in the year of income is taken to be a net capital loss that was incurred by the company in respect of the year of income.

Division 3B - Tests for finding out whether the company has maintained the same owners

Table of sections

The primary and alternative tests

160ZNH Who has more than 50% of the voting power in the company during a period

160ZNI Who has rights to more than 50% of the company's dividends during a period

160ZNJ Who has rights to more than 50% of the company's capital distributions during a period

160ZNK Rules about the primary test for a condition

160ZNL Tests can be satisfied by a single person

Rules affecting the operation of the tests

160ZNM Arrangements affecting beneficial ownership of shares

160ZNN Shares treated as never having carried rights

160ZNO Shares treated as always having carried rights

160ZNP Disregard redeemable shares

160ZNQ Rules do not affect totals of shares or rights

160ZNR Death of beneficial owner

The primary and alternative tests

160ZNH Who has more than 50% of the voting power in the company during a period

The primary test

(1) Applying the primary test: if there are persons who, at all times during the ownership test period, 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 during that period.

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 control, or are able to control, the voting power in the company at all times during the ownership test period (whether directly, or indirectly through one or more interposed entities), those persons have more than 50% of the voting power in the company during that period.

160ZNI Who has rights to more than 50% of the company's dividends during a period

The primary test

(1) Applying the primary test: if there are persons who, at all times during the ownership test period, 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 during that period.

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, at all times during the ownership test period, have between them the right to receive for their own benefit (whether directly, or indirectly through one or more interposed entities), more than 50% of any dividends that the company may pay, those persons have rights to more than 50% of the company's dividends during that period.

160ZNJ Who has rights to more than 50% of the company's capital distributions during a period

The primary test

(1) Applying the primary test: if there are persons who, at all times during the ownership test period, 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 during that period.

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, at all times during the ownership test period, have between them the right to receive for their own benefit (whether directly, or indirectly through one or more interposed entities), 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 during that period.

160ZNK Rules about the primary test for a condition

(1) A person need not beneficially own exactly the same shares at all times during the ownership test period for the primary test for a condition to be satisfied.

(2) A private company must satisfy the primary test for a condition in order for the test to be satisfied. A public company is taken to satisfy the primary test if it is reasonable to assume that the test is satisfied.

160ZNL 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

160ZNM 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 during the ownership test period if the conditions in subsections (2) and (3) are met.

(2) Before or during the year of income an arrangement must have been entered into 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

(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 year of income.

160ZNN Shares treated as never having carried rights

For the purposes of a test, shares are takennever to have carried particular rights during the year of income if the Commissioner is satisfied that:

(a) the sharesstopped carrying those rights after the year of income; or

(b) the shares will or maystop carrying those rights after the year of income;

because of:

(d) an arrangement entered into before or during the year of income.

160ZNO Shares treated as always having carried rights

For the purposes of a test, shares are taken to have carried particular rightsat all times during the year of income if the Commissioner is satisfied that:

(a) the sharesstarted to carry those rights after the year of income; or

(b) the shares will or maystart to carry those rights after the year of income;

because of:

(d) an arrangement entered into before or during the year of income.

160ZNP Disregard redeemable shares

For the purposes of a test, a person who beneficially owns redeemable shares at a time during the year of income, is taken not to own the shares beneficially at that time.

160ZNQ Rules do not affect totals of shares or rights

Sections 160ZNM, 160ZNN, 160ZNO and 160ZNP 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

160ZNR Death of beneficial owner

For the purposes of a test, after a person dies, shares that the person owned beneficially at the time of death are taken to continue to be owned beneficially by the person so long as:

(a) they are owned by the trustee of the person's estate; or

(b) they are owned beneficially by someone who received them as a beneficiary of the estate.

Division 3C - The same business test

160ZNS The test

(1) The 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 doesnot 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 doesnot 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) The company also doesnot 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.

Division 3CA - Net capital gain or net capital loss of listed public company or its 100% subsidiary for year of income in which ownership or control of the company changed

Guide to Division 3CA

160ZNSA What this Division is about

This Division modifies the way in which the rules in Division 3A apply to a listed public company (and also its 100% subsidiaries). It makes it easier for the company to comply with those 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.

The tests for finding out whether the company has maintained the same owners are set out in Divisions 3CB, 3CC and 3CD.

Table of sections

160ZNSB How Division 3A applies to a listed public company

160ZNSC How to work out the net capital gain or net capital loss

160ZNSD How Division 3A applies to 100% subsidiary of a listed public company

160ZNSE Companies can choose that this Division is not to apply to them

160ZNSB How Division 3A applies to a listed public company

(1) This Division modifies the way Division 3A applies to a company that is a listed public company at all times during the year of income (the test period ).

Note 1: Division 3A is about when a company must calculate its net capital gain or net capital loss for the year of income in a special way.

Note 2: This Division also modifies how Division 3A applies to a 100% subsidiary of a listed public company: see section 160ZNSD.

Note 3: A company can choose that this Division is not to apply to it: see section 160ZNSE.

No abnormal trading

(2) If there isno abnormal trading in shares in the listed public company during the test period, it is taken to have met the condition in paragraph 160ZNB(1)(a) (which is about there being persons having more than a 50% stake in it during the whole of the year of income).

Abnormal trading, but substantial continuity of ownership

(3) If thereis abnormal trading, but there is substantial continuity of ownership of the company as between the start of the test period and the time of each abnormal trading, the company is also taken to have met the condition in paragraph 160ZNB(1)(a).

Note: See section 160ZNSG to work out whether there is substantial continuity of ownership.

Abnormal trading without substantial continuity of ownership

(4) If thereis abnormal trading, and there isno substantial continuity of ownership of the company as between the start of the test period and the time of the abnormal trading, the company is taken to havefailed to meet the condition in paragraph 160ZNB(1)(a).

Satisfies the same business test

(5) However, if the company satisfies the same business test for the rest of the year of income (the same business test period ) after the first abnormal trading covered by subsection (4), it is taken to have satisfied the condition in paragraph 160ZNB(1)(b) (which is about the company carrying on the same business).

Note: For the same business test: see Division 3C.

(6) Apply the same business test to the business that the company carried on immediately before the time of the first abnormal trading (the test time ) covered by subsection (4).

160ZNSC How to work out the net capital gain or net capital loss

(1) If the listed public company must calculate its net capital gain or net capital loss for the year of income under Division 3A, then, in dividing the year of income into periods, apply subsection (2) instead of subsection 160ZNE(3).

(2) The last period ends at the end of the year of income. Each period (except the last) ends at theearlier of:

(a) theearliest time when there is an abnormal trading in shares in the listed public company (except one covered by subsection (3)); or

(b) theearliest time when a person begins to control, or becomes able to control, the voting power in the listed public 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.

(3) In working out when a period ends, disregard an abnormal trading if there is substantial continuity of ownership of the company as between the start of the period and the time of the abnormal trading.

Note: See section 160ZNSG to work out whether there is substantial continuity of ownership.

160ZNSD How Division 3A applies to 100% subsidiary of a listed public company

(1) This Division also modifies the way Division 3A applies to a company that isnot a listed public company, but only if the conditions in subsections (2) and (3) are met.

Note: Division 3A is about when a company must calculate its net capital gain or net capital loss for the year of income in a special way.

(2) The company (the subsidiary ) must be a 100% subsidiary of another company (the holding company ) at all times during the subsidiary's year of income.

(3) Also, the holding company must be a listed public company at all times during that year of income.

(4) If the conditions are met, then, for the purposes of applying Division 3A to the subsidiary, this Division applies to the subsidiary as if:

(a) the subsidiary were itself a listed public company at all times during the year of income; and

(b) an abnormal trading in shares in the holding company during the year of income were an abnormal trading in shares in the subsidiary.

(Divisions 3CB, 3CC and 3CD apply to the subsidiary in the same way and for the same purpose).

160ZNSE Companies can choose that this Division is not to apply to them

(1) The listed public company or subsidiary can choose that Division 3A is to apply to it for the year of incomewithout the modifications made by this Division.

(2) The company must choose on or before the day it lodges its return under section 161, 162 or 163 for the year of income, or before a later day if the Commissioner allows.

Division 3CB - Tests for finding out whether the listed public company has maintained the same owners

Guide to Division 3CB

160ZNSF What this Division is about

This Division has the tests to work out whether a listed public company has maintained the same owners as between different times.

Divisions 3CC and 3CD have rules that make it easier for the company to satisfy these ownership tests.

Note: The rules in this Division also apply to a company that is a 100% subsidiary of a listed public company: see section 160ZNSD.

Table of sections

Substantial continuity of ownership

160ZNSG Substantial continuity of ownership

The ownership tests

160ZNSH Who has more than 50% of the voting power in the listed public company at a particular time

160ZNSI Who has rights to more than 50% of the listed public company's dividends at a particular time

160ZNSJ Who has rights to more than 50% of the listed public company's capital distributions at a particular time

Rules affecting the operation of the ownership tests

160ZNSK Rules in Division 3B apply

Substantial continuity of ownership

160ZNSG Substantial continuity of ownership

(1) There is substantial continuity of ownership of the listed public 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.

Voting power

(2) There must be persons (none of them companies) who had more than 50% of the voting power in the listed public company at the start of the test period. Also, those persons must have had more than 50% of the voting power in the listed public company immediately after the other time in the test period.

Note: To work out who had more than 50% of the voting power: see section 160ZNSH.

Rights to dividends

(3) There must be persons (none of them companies) who had rights to more than 50% of the listed public company's dividends at the start of the test period. Also, those persons must have had rights to more than 50% of the listed public company's dividends immediately after the other time in the test period.

Note: To work out who had rights to more than 50% of the listed public company's dividends: see section 160ZNSI.

Rights to capital distributions

(4) There must be persons (none of them companies) who had rights to more than 50% of the listed public company's capital distributions at the start of the test period. Also, those persons must have had rights to more than 50% of the listed public company's capital distributions immediately after the other time in the test period.

Note: To work out who had rights to more than 50% of the listed public company's capital distributions: see section 160ZNSJ.

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 ownership test for that condition.

The ownership tests

160ZNSH Who has more than 50% of the voting power in the listed public company at a particular time

If it is the case, or it is reasonable to assume, that there are persons (none of them companies) who, at the ownership test time, between them control, or are able to control, the voting power in the listed public company (whether directly, or indirectly through one or more interposed entities), those persons have more than 50% of the voting power in the listed public company at that time.

160ZNSI Who has rights to more than 50% of the listed public company's dividends at a particular time

If it is the case, or it is reasonable to assume, that there are persons (none of them companies) who, at the ownership test time, have between them the right to receive for their own benefit (whether directly, or indirectly through one or more interposed entities), more than 50% of any dividends that the listed public company may pay, those persons have rights to more than 50% of the listed public company's dividends at that time.

160ZNSJ Who has rights to more than 50% of the listed public company's capital distributions at a particular time

If it is the case, or it is reasonable to assume, that there are persons (none of them companies) who, at the ownership test time, have between them the right to receive for their own benefit (whether directly, or indirectly through one or more interposed entities), more than 50% of any distribution of capital of the listed public company, those persons have rights to more than 50% of the listed public company's capital distributions at that time.

Rules affecting the operation of the ownership tests

160ZNSK Rules in Division 3B apply

(1) The rules in these sections also apply for the purposes of an ownership test in this Division:

(a) 160ZNL (which is about how an ownership test can be satisfied by a single person);

(b) 160ZNN (which treats some shares as never having carried rights);

(d) 160ZNP (which disregards redeemable shares);

(e) 160ZNQ (which is about how other rules do not affect how shares or rights are counted);

(f) 160ZNR (which deals with deaths of beneficial owners).

(2) The rule in section 160ZNM (which is about arrangements affecting beneficial ownership of shares) also applies for the purposes of an ownership test in this Division as if the reference to a particular time during the ownership test period were a reference to the ownership test time.

Division 3CC - How to treat shareholdings of less than 1%

Guide to Division 3CC

160ZNSL What this Division is about

This Division has rules that make it easier for the listed public company to satisfy the ownership tests in Division 3CB.

All shareholdings of less than 1% in the company are treated as if they were held by a single notional entity. This means that the company does not have to trace through to the persons who beneficially own those shares.

A similar rule applies if another listed public company is interposed between the company and those persons. All shareholdings of less than 1% in theinterposed company are treated as if they were held by a different single notional entity. This means that the company does not have to trace through the interposed company to the persons who beneficially own those shares in the interposed company.

Note 1: The rules in this Division also apply to a company that is a 100% subsidiary of a listed public company: see section 160ZNSD.

Note 2: The rules in this Division do not apply if they would hide a failure by the company to maintain the same owners: see sections 160ZNSR and 160ZNSS.

Table of sections

Special tracing rules for listed public companies

160ZNSM Shareholdings of less than 1% in the listed public company

160ZNSN Shareholdings of less than 1% in an interposed listed public company

160ZNSO Notional shareholder

160ZNSP Notional shareholder taken to have minimum voting control, dividend rights and capital rights

160ZNSQ Voting, dividend and capital shareholding of less than 1%

When the rules in this Division do not apply

160ZNSR Limit on listed public company splitting its shares into different classes

160ZNSS If listed public company would not have otherwise passed the ownership tests

Special tracing rules for listed public companies

160ZNSM Shareholdings of less than 1% in the listed public company

This Division modifies how the ownership tests are applied to the listed public company (the head company ) if the company has:

(a) voting shareholdings of less than 1%; or

(b) dividend shareholdings of less than 1%; or

Note: For the ownership tests: see sections 160ZNSH, 160ZNSI and 160ZNSJ.

160ZNSN Shareholdings of less than 1% in an interposed listed public company

(1) This Division also modifies how the ownership tests are applied to the head company if another listed public company (the interposed company ) meets the conditions in subsections (2) and (3).

Note: For the ownership tests: see sections 160ZNSH, 160ZNSI and 160ZNSJ.

(2) The interposed company must be interposed between the head company and persons (none of them companies) who:

(a) control (or are able to control) voting power in the head company indirectly through the interposed company; or

(b) have the right to receive, for their own benefit and indirectly through the interposed company, any dividends the head company may pay; or

(c) have the right to receive, for their own benefit and indirectly through the interposed company, any distributions of capital of the head company.

(3) The interposed company must have:

(a) voting shareholdings of less than 1%; or

(b) dividend shareholdings of less than 1%; or

160ZNSO Notional shareholder

Notional shareholder of the head company

(1) The ownership tests in sections 160ZNSH, 160ZNSI and 160ZNSJ are applied to the head company as if, at the ownership test time, a single notional entity (the notional shareholder ):

(a) directly controlled the voting power in the head company that is carried by each voting shareholding of less than 1% in the company at that time; and

(b) had the right to receive, for its own benefit and directly:

(i) any dividends the head company may pay in respect of each dividend shareholding of less than 1% in the company at that time; and

(ii) any distributions of capital of the head company in respect of each capital shareholding of less than 1% in the company at that time; and

Notional shareholder of the interposed company

(2) The tests are also applied to the head company as if, at the ownership test time, for each interposed company, a different single notional entity (the notional shareholder ):

(a) directly controlled the voting power in the interposed company that is carried by each voting shareholding of less than 1% in the interposed company at that time; and

(b) had the right to receive, for its own benefit and directly:

(i) any dividends the interposed company may pay in respect of each dividend shareholding of less than 1% in the interposed company at that time; and

(ii) any distributions of capital of the interposed company in respect of each capital shareholding of less than 1% in the interposed company at that time; and

Persons who actually control or have rights are taken not to

(3) The tests are also applied to the head company as if, at the ownership test time:

(a) the persons (other than companies) who control (or are able to control) the voting power in the head company or interposed company (whether directly, or indirectly through one or more interposed entities) that is carried by each voting shareholding of less than 1% in the company hadnot had that control; and

(b) the persons (other than companies) 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 head company or interposed company may pay in respect of each dividend shareholding of less than 1% in the company; and

(ii) any distributions of capital of the head company or interposed company in respect of each capital shareholding of less than 1% in the company;

hadnot had that right.

160ZNSP Notional shareholder taken to have minimum voting control, dividend rights and capital rights

Minimum control of voting power

(1) If the ownership test time isafter the start of the test period and:

(a) the voting power in the head company or interposed company that the notional shareholder controls at that time;

is greater than:

(b) the voting power in the company that the notional shareholder controlled at the start of that period;

the notional shareholder is taken to control voting power in the company at that time only to the extent that it controlled it at the start of that period.

Minimum percentage of rights to dividends and capital

(2) If the ownership test time isafter the start of the test period and:

(a) the percentage of the dividends or distributions of capital of the head company or interposed company that the notional shareholder has the right to receive at that time;

is greater than:

(b) the percentage (the lower percentage ) of the dividends or distributions of capital of the company that the notional shareholder had the right to receive at the start of that period;

the notional shareholder is taken to have the right to receive the lower percentage of the dividends or distributions of capital at that time.

160ZNSQ Voting, dividend and capital shareholding of less than 1%

Meaning of voting shareholding of less than 1%

(1) If all the shares in the head company or interposed company of which an entity is the registered holder at the ownership test time carry (between them) less than 1% of the voting power in the company, those shares (except shares that are part of a substantial shareholding) constitute a voting shareholding of less than 1% in the company at that time.

Meaning of dividend shareholding of less than 1%

(2) If all the shares in the head company or interposed company of which an entity is the registered holder at the ownership test time carry (between them) the right to receive less than 1% of any dividends that the company may pay, those shares (except shares that are part of a substantial shareholding) constitute a dividend shareholding of less than 1% in the company at that time.

Meaning of capital shareholding of less than 1%

(3) If all the shares in the head company or interposed company of which an entity is the registered holder at the ownership test time carry (between them) the right to receive less than 1% of any distribution of capital of the company, those shares (except shares that are part of a substantial shareholding) constitute a capital shareholding of less than 1% in the company at that time.

When the rules in this Division do not apply

160ZNSR Limit on listed public company splitting its shares into different classes

This Division does not apply unless, at the ownership test time, all the voting shares in the head company carry (between them):

(a) the right to receive more than 75% of any dividends the head company may pay; and

(b) the right to receive more than 75% of any distributions of capital of the head company.

160ZNSS If listed public company would not have otherwise passed the ownership tests

This Division does not apply for the purposes of section 160ZNSB if the Commissioner considers it reasonable to assume that the head company would not meet the conditions in that section if it were not for the rules in this Division.

Note: The conditions in section 160ZNSB require the listed public company to maintain the same owners at each ownership test time during the test period.

Division 3CD - How to treat interposed superannuation funds, approved deposit funds and special companies

Guide to Division 3CD

160ZNST What this Division is about

This Division has rules that make it easier for the listed public company to satisfy the ownership tests in Division 3CB.

The company does not have to trace through any complying superannuation funds, complying approved deposit funds or special companies that are interposed between the company and persons who control any of the voting power in the company or have rights to its dividends or capital.

Note: The rules in this Division also apply to a company that is a 100% subsidiary of a listed public company: see section 160ZNSD.

Table of sections

Special tracing rules for listed public companies

160ZNSU When fund or special company is taken to control voting power

160ZNSV When fund or special company is taken to have rights to dividends and capital

Special tracing rules for listed public companies

160ZNSU When fund or special company is taken to control voting power

Modification of application of ownership test about voting power

(1) This section modifies how the ownership test in section 160ZNSH (about control of voting) is applied to the listed public company if:

(a) a superannuation fund, approved deposit fund or special company is interposed, at the ownership test time, between persons (none of them companies) and the listed public company; and

(b) at the ownership test time, those persons control (or are able to control) any of the voting power in the listed public company indirectly through the fund or special company (or through entities including it); and

(c) the fund or special company is a complying superannuation fund, complying approved deposit fund or special company at all times during the year of income of the listed public company in which the ownership test time occurs.

If fund or special company has more than 50 members

(2) If the fund or special company has more than 50 members, the test is applied as if, at the ownership test time, the fund or special company were a person (other than a company) who controlled the voting power in the listed public company that those persons control (or are able to control).

If fund or special company has 50 members or less

(3) However, if the fund or special company has 50 members or less, the test is applied as if, at the ownership test time, each member were a person (other than a company) who controlled an equal proportion of the voting power in the listed public company that those persons control (or are able to control).

Persons who actually control are taken not to control

(4) The test is applied as if, at the ownership test time, the voting power in the listed public company that those persons control (or are able to control) werenot controlled by them (except as provided by subsection (3)).

160ZNSV When fund or special company is taken to have rights to dividends and capital

Modification of application of ownership test about dividend rights and capital rights

(1) This section modifies how the ownership test in section 160ZNSI (about dividend rights) or 160ZNSJ (about capital rights) is applied to the listed public company if:

(a) a superannuation fund, approved deposit fund or special company is interposed, at the ownership test time, between persons (none of them companies) and the listed public company; and

(b) at the ownership test time, those persons have the right to receive for their own benefit, and indirectly through the fund or special company (or through entities including it):

(i) a percentage of any dividends that the listed public company may pay; or

(ii) a percentage of any distributions of capital of the listed public company; and

If fund or special company has more than 50 members

(2) If the fund or special company has more than 50 members, the test is applied as if, at the ownership test time, the fund or special company were a person (other than a company) who had the right to receive, for the person's own benefit, that percentage of those dividends or distributions of capital of the listed public company.

If fund or special company has 50 members or less

(3) However, if the fund or special company has 50 members or less, the test is applied as if, at the ownership test time, each member were a person (other than a company) who had the right to receive, for the person's own benefit, an equal proportion of those dividends or distributions of capital.

Persons who actually control are taken not to have it

(4) The test is applied as if, at the ownership test time, the persons (other than companies) who have the right to receive that percentage of those dividends or distributions of capital didnot have that right (except as provided by subsection (3)).

Division 3D - Anti-avoidance measures for capital losses of companies

Table of sections

160ZNT Capital gain accruing to company because of available capital losses

160ZNU Deduction or capital loss injected into company because of available capital gain

160ZNV Someone else obtains a tax benefit because of a capital loss or capital gain available to company

160ZNW Loss resulting from disallowed deductions

160ZNX Net capital loss resulting from disallowed capital losses

160ZNT Capital gain accruing to company because of available capital losses

(1) The Commissioner may disallow capital losses of a company (or parts of them) for a year of income if:

(a) a capital gain accrued to the company and some or all of the capital gain (the injected capital gain ) would not have accrued if the company had not incurred those capital losses; and

(b) the capital gain accrued in that year of income.

The disallowed capital losses and parts of capital losses may exceed the amount of the injected capital gain.

Note: The disallowance may result in a net capital loss for the year of income (see section 160ZNX).

(2) The Commissioner cannot disallow the capital losses or parts of the capital losses if the continuing shareholders will benefit from the accrual of the injected capital gain to an extent that the Commissioner thinks fair and reasonable having regard to their respective shareholding interests in the company.

(3) A reference to disallowing a capital loss or a part of a capital loss for a year of income is a reference to determining that a capital loss or a part of a capital loss, as the case may be, is not to be applied in determining whether a net capital gain has accrued, or a net capital loss is incurred, in respect of the year of income.

(4) The continuing shareholders are the individuals who have shareholding interests in the company both immediately before the injected capital gain accrued, and immediately afterwards.

160ZNU Deduction or capital loss injected into company because of available capital gain

(1) The Commissioner may:

(a) disallow a deduction of a company for a year of income to the extent that the company would not have incurred the loss, outgoing or expenditure that the deduction is for; or

(b) disallow a capital loss of a company for a year of income to the extent that the company would not have incurred the capital loss;

if some or all of a capital gain that accrued to it in the year of income had not accrued.

Note: The disallowance may result in a loss or a net capital loss for the year of income (see sections 160ZNW and 160ZNX).

(2) The Commissioner cannot disallow any of the deduction or capital loss if:

(a) the continuing shareholders will benefit from any profit or advantage that has arisen or might arise directly or indirectly from the incurring of the loss, outgoing or expenditure or of the capital loss, as the case may be; and

(b) the Commissioner thinks that the extent to which they will benefit is fair and reasonable having regard to their respective shareholding interests in the company.

(4) The continuing shareholders are the individuals who had shareholding interests in the company both immediately before the loss, outgoing or expenditure, or the capital loss, as the case may be, was incurred, and immediately afterwards.

160ZNV Someone else obtains a tax benefit because of a capital loss or capital gain available to company

(1) The Commissioner may disallow a deduction or a capital loss of a company if:

(a) a person (other than the company) has obtained or will obtain a tax benefit in connection with a scheme; and

(b) the scheme would not have been entered into or carried out if the company had not incurred some or all (the available expense ) of:

(i) the loss, outgoing or expenditure that the deduction is for; or

(ii) the capital loss;

as the case may be.

However, the deduction or capital loss may be disallowed only to the extent of the available expense.

(2) The Commissioner may disallow deductions or capital losses of a company (or parts of them) if:

(a) a person has obtained or will obtain a tax benefit in connection with a scheme; and

(b) the scheme would not have been entered into or carried out if some or all (the available capital gains ) of the capital gains that accrued to the company had not accrued:

(i) before it incurred the losses, outgoings or expenditure that the deductions were for, or the capital losses, as the case may be; and

(ii) in the same year of income as it incurred them.

The disallowed deductions or capital losses and parts of deductions or capital losses may exceed the amount of the available capital gains.

Note: The disallowance may result in a loss or a net capital loss for the year of income (see sections 160ZNW and 160ZNX).

(3) The Commissioner cannot disallow under this section if:

(a) the person who has obtained or will obtain the tax benefit had a shareholding interest in the company at some time during the year of income; and

(b) the Commissioner considers the tax benefit to be fair and reasonable having regard to that shareholding interest.

(4) A reference to disallowing a capital loss or a part of a capital loss for a year of income is a reference to determining that a capital loss or a part of a capital loss, as the case may be, is not to be applied in determining whether a net capital gain has accrued, or a net capital loss is incurred, in respect of the year of income.

(5) An expression means the same in this section as in Part IVA.

160ZNW Loss resulting from disallowed deductions

(1) If a company has a taxable income for a year of income because the Commissioner disallows under this Division deductions of the company for the year of income (or parts of them), the company may also have a loss for the year of income.

(2) The company's loss for the income year is calculated as follows.

(3) Total what the Commissioner has disallowed under this Division.

(4) If the company has exempt income for the year of income, subtract its net exempt income.

(5) Any amount remaining is the company's loss for the year of income.

Note: For the allowance of the loss as a deduction in later years of income see subsection 50C(2).

160ZNX Net capital loss resulting from disallowed capital losses

(1) If a company has a net capital gain for a year of income because the Commissioner disallows under this Division capital losses of the company for the year of income (or parts of them), the company may also have a net capital loss in respect of the year of income.

(2) The company's net capital loss in respect of the year of income is the total of the amounts of the capital losses that the Commissioner has disallowed under this Division.

Note: To find out how the net capital loss is applied in determining whether the company has a net capital gain in a later year of income, see section 160ZC.

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