Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Act 2005 (147 of 2005)
Schedule 1 Loss recoupment rules for companies etc.
Income Tax Assessment Act 1997
79 Division 166
Repeal the Division, substitute:
Division 166 - Income tax consequences of changing ownership or control of a widely held or eligible Division 166 company
Table of Subdivisions
Guide to Division 166
166-AA The object of this Division
166-A Deducting tax losses of earlier income years
166-B Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change
166-C Deducting bad debts
166-CA Changeover times and alteration times
166-D Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners
166-E Concessional tracing rules
Guide to Division 166
166-1 What this Division is about
This Division modifies the way the rules in Division 165 apply to a widely held or eligible Division 166 company by making it easier for the company to apply the 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.
In certain cases, special concessional tracing rules deem entities to hold voting, dividend or capital stakes in the company so that the company does not have to trace through to the ultimate beneficial owners of the stakes.
Subdivision 166-AA - The object of this Division
166-3 The object of this Division
(1) The object of this Division is to make it easier for a *widely held company, or an *eligible Division 166 company, to apply the rules in Division 165 (because of the difficulty the company might have under that Division in actually tracing through to the ultimate beneficial owners of *voting stakes, *dividend stakes and *capital stakes in the company).
(2) This Division makes it easier to apply the rules in Division 165 by:
(a) making it unnecessary for the company to prove that it has maintained the same owners throughout a period, if the company had the same owners at certain test times; and
(b) making it unnecessary for the company to trace through to the ultimate beneficial owners of:
(i) *voting stakes, *dividend stakes and *capital stakes in the company held by certain entities (whether directly, or *indirectly through one or more interposed entities); and
(ii) small *voting stakes, *dividend stakes and *capital stakes in the company.
Subdivision 166-A - Deducting tax losses of earlier income years
Table of sections
166-5 How Subdivision 165-A applies to a widely held or eligible Division 166 company
166-15 Companies can choose that this Subdivision is not to apply to them
166-5 How Subdivision 165-A applies to a widely held or eligible Division 166 company
(1) This Subdivision modifies the way Subdivision 165-A applies to a company that is:
(a) a *widely held company at all times during the income year; or
(b) an *eligible Division 166 company at all times during the income year; or
(c) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.
Note 1: Subdivision 165-A is about the conditions a company must meet before it can deduct a tax loss for an earlier income year.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166-15.
Note 3: See section 165-255 for the rule about incomplete income years.
Meaning of test period
(2) The company's test period is the period consisting of the *loss year, the income year and any intervening period.
Note: See section 165-255 for the rule about incomplete test periods.
Substantial continuity of ownership
(3) The company is taken to have met the conditions in section 165-12 (which is about the company maintaining the same owners) if there is *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of each income year in that period; and
(b) the *end of each *corporate change in that period.
Note: See sections 166-145 and 166-175 to work out whether there is substantial continuity of ownership and a corporate change.
No substantial continuity of ownership
(4) The company is taken to have failed to meet the conditions in section 165-12 if there is no *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of an income year in that period; or
(b) the *end of a *corporate change in that period.
Satisfies the same business test
(5) However, if the company satisfies the *same business test for the income year (the same business test period ), it is taken to have satisfied the condition in section 165-13.
Note 1: For the same business test, see Subdivision 165-E.
Note 2: Companies whose total income for the income year is more than $100 million cannot satisfy the same business test for that year: see section 165-212A.
Note 3: See section 165-255 for the rule about incomplete test periods.
(6) Apply the *same business test to the *business that the company carried on immediately before the earlier of the following times (the test time ):
(a) the end of the first income year;
(b) the first time in the test period that a *corporate change in the company *ends;
for which there is no *substantial continuity of ownership of the company as between the start of the *test period and that time.
166-15 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165-A is to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166-B - Working out the taxable income, tax loss, net capital gain and net capital loss for the income year of the change
Table of sections
166-20 How Subdivisions 165-B and 165-CB apply to a widely held or eligible Division 166 company
166-25 How to work out the taxable income, tax loss, net capital gain and net capital loss
166-35 Companies can choose that this Subdivision is not to apply to them
166-20 How Subdivisions 165-B and 165-CB apply to a widely held or eligible Division 166 company
(1) This Subdivision modifies how Subdivisions 165-B and 165-CB apply to a company that is:
(a) a *widely held company at all times during the income year (the test period ); or
(b) an *eligible Division 166 company at all times during the income year (the test period ); or
(c) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year (the whole year being the test period ).
Note 1: Subdivision 165-B is about when a company must calculate its taxable income and tax loss for the income year in a special way. Subdivision 165-CB is about when a company must calculate its net capital gain and net capital loss for the income year in a special way.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166-35.
Note 3: See section 165-255 for the rule about incomplete test periods.
No corporate change etc.
(2) If:
(a) no *corporate change in the company *ends at any time in the *test period; or
(b) a corporate change in the company *ends during the test period, but there is *substantial continuity of ownership as between the start of the test period and immediately after the corporate change ends;
the company is taken to have met the condition in paragraph 165-35(a) (which is about there being persons having *more than a 50% stake in it during the whole of the income year).
Note: See sections 166-145 and 166-175 to work out whether there is substantial continuity of ownership and a corporate change.
Corporate change
(3) If:
(a) a *corporate change in the company *ends at any time in the *test period; and
(b) there is no *substantial continuity of ownership as between the start of the test period and immediately after the corporate change ends;
then the company is taken to have failed to meet the condition in paragraph 165-35(a).
Satisfies the same business test
(4) However, if the company satisfies the *same business test for the rest of the income year (the same business test period ) after the first time (the test time ) in the *test period that a *corporate change in the company *ended, the company is taken to have satisfied the condition in paragraph 165-35(b).
Note 1: For the same business test, see Subdivision 165-E.
Note 2: Companies whose total income for the income year is more than $100 million cannot satisfy the same business test for the rest of the year: see section 165-212A.
Note 3: See section 165-255 for the rule about incomplete test periods.
(5) Apply the *same business test to the *business that the company carried on immediately before the *test time.
166-25 How to work out the taxable income, tax loss, net capital gain and net capital loss
(1) If the company must calculate its taxable income and *tax loss for the income year under Subdivision 165-B, and its *net capital gain and *net capital loss under Subdivision 165-CB, then, in dividing the income year into periods, apply subsection (2) of this section instead of subsection 165-45(3).
(2) The last period ends at the end of the income year. Each period (except the last) ends at the earlier of:
(a) the earliest time when:
(i) a *corporate change in the company *ends; and
(ii) there is no *substantial continuity of ownership of the company as between the start of the *test period and that time; or
(b) the earliest 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.
Note: See sections 166-145 and 166-175 to work out whether there is substantial continuity of ownership and a corporate change.
166-35 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivisions 165-B and 165-CB are to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166-C - Deducting bad debts
Table of sections
166-40 How Subdivision 165-C applies to a widely held or eligible Division 166 company
166-50 Companies can choose that this Subdivision is not to apply to them
166-40 How Subdivision 165-C applies to a widely held or eligible Division 166 company
(1) This Subdivision modifies the way Subdivision 165-C applies to a company that is:
(a) a *widely held company at all times during the *current year; or
(b) an *eligible Division 166 company at all times during the current year; or
(c) a widely held company for a part of the current year and an eligible Division 166 company for the rest of the current year.
Note 1: Subdivision 165-C is about the conditions a company must meet before it can deduct a bad debt.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166-50.
Note 3: See section 165-255 for the rule about incomplete current years.
Meaning of test period
(2) The company's test period is the period:
(a) that begins at whichever of the following times the company chooses:
(i) the start of the income year in which the debt was incurred;
(ii) the start of the *first continuity period; and
(b) that ends at the end of the *second continuity period;
and includes any intervening period.
Note: See section 165-255 for the rule about incomplete test periods.
Substantial continuity of ownership
(3) The company is taken to have met the conditions in section 165-123 (about the company maintaining the same owners) if there is *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of each income year in that period; and
(b) the *end of each *corporate change in that period.
Note: See sections 166-145 and 166-175 to work out whether there is substantial continuity of ownership and a corporate change.
No substantial continuity of ownership
(4) The company is taken to have failed to meet the conditions in section 165-123 if there is no *substantial continuity of ownership of the company as between the start of the *test period and:
(a) the end of an income year in that period; or
(b) the *end of a *corporate change in that period.
Satisfies the same business test
(5) However, if the company satisfies the *same business test for the *second continuity period (the same business test period ), it is taken to have satisfied the condition in section 165-126.
Note 1: For the same business test, see Subdivision 165-E.
Note 2: Companies whose total income for the income year is more than $100 million cannot satisfy the same business test for the second continuity period: see section 165-212A.
Note 3: See section 165-255 for the rule about incomplete test periods.
(6) Apply the *same business test to the *business that the company carried on immediately before the earlier of the following times (the test time ):
(a) the end of the first income year;
(b) the first time in the test period that a *corporate change in the company *ends;
for which there is no *substantial continuity of ownership of the company as between the start of the *test period and that time.
166-50 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165-C is to apply to it for the income year without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows.
Subdivision 166-CA - Changeover times and alteration times
Table of sections
166-80 How Subdivision 165-CC or 165-CD applies to a widely held or eligible Division 166 company
166-90 Companies can choose that this Subdivision is not to apply to them
166-80 How Subdivision 165-CC or 165-CD applies to a widely held or eligible Division 166 company
(1) This Subdivision modifies the way in which:
(a) Subdivision 165-CC applies in determining whether a changeover time (within the meaning of section 165-115C) has occurred; or
(b) Subdivision 165-CD applies in determining whether an alteration time (within the meaning of section 165-115L) has occurred;
in relation to a company that is:
(c) a *widely held company at all times during the income year; or
(d) an *eligible Division 166 company at all times during the income year; or
(e) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.
Note 1: Subdivision 165-CC is about the conditions a company that has an unrealised net loss must satisfy before it can have capital losses taken into account or deduct revenue losses. Subdivision 165-CD provides for reductions in cost bases and certain other reductions after alterations have occurred in the ownership or control of a loss company.
Note 2: A company can choose that this Subdivision is not to apply to it: see section 166-90.
Note 3: See section 165-255 for the rule about incomplete income years.
Meaning of test period and test time
(2) The company's test period is the period starting at the time that is the reference time for the purposes of Subdivision 165-CC or section 165-115L, as the case may be, and ending at each of the following times (the test time ):
(a) the end of the income year in which the reference time occurred;
(b) the end of a later income year;
(c) the *end of a *corporate change in the company.
Note 1: See section 165-255 for the rule about incomplete test periods.
Note 2: See section 166-175 to work out whether there is a corporate change.
Substantial continuity of ownership
(3) A changeover time or an alteration time is taken not to have occurred in respect of the company during the test period if there is *substantial continuity of ownership of the company as between the start of the *test period and the *test time.
Note: See section 166-145 to work out whether there is substantial continuity of ownership.
No substantial continuity of ownership
(4) Subsections (5) and (6) have effect if there is no *substantial continuity of ownership of the company as between the start of the *test period and the *test time.
(5) The *test time is taken to have been a changeover time or an alteration time, as the case may be, in respect of the company.
(6) No other time during the *test period is a changeover time or an alteration time in respect of the company.
166-90 Companies can choose that this Subdivision is not to apply to them
(1) The company can choose that Subdivision 165-CC or 165-CD is to apply to it in respect of a *test period for the purposes of section 166-80 without the modifications made by this Subdivision.
(2) The company must choose on or before the day it lodges its *income tax return for the income year in which the *test period begins, or before a later day if the Commissioner allows.
Subdivision 166-D - Tests for finding out whether the widely held or eligible Division 166 company has maintained the same owners
Guide to Subdivision 166-D
166-135 What this Subdivision is about
This Subdivision has the tests to work out whether a widely held or eligible Division 166 company has maintained the same owners as between different times. (Subdivision 166-E has rules which make it easier for the company to satisfy these tests.)
This Subdivision also defines when there has been a corporate change in the company.
Table of sections
The ownership tests: substantial continuity of ownership
166-145 The ownership tests: substantial continuity of ownership
166-165 Relationship with rules in Division 165
Corporate change in a company
166-175 Corporate change in a company
The ownership tests: substantial continuity of ownership
166-145 The ownership tests: substantial continuity of ownership
(1) There is substantial continuity of ownership of the 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.
Note: Section 166-165, and Subdivision 166-E, affect how this section is applied.
Voting power
(2) There must be persons (none of them companies or trustees) who had *more than 50% of the voting power in the company at the start of the *test period. Also, those persons must have had *more than 50% of the voting power in the 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 165-150.
Rights to dividends
(3) There must be persons (none of them companies) who had rights to *more than 50% of the company's dividends at the start of the *test period. Also, those persons must have had rights to *more than 50% of the 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 company's dividends, see section 165-155.
Rights to capital distributions
(4) There must be persons (none of them companies) who had rights to *more than 50% of the company's capital distributions at the start of the *test period. Also, those persons must have had rights to *more than 50% of the 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 company's capital distributions, see section 165-160.
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 alterative test for that condition.
Note: For the alternative test, see subsections 165-150(2), 165-155(2) and 165-160(2).
Conditions in subsections (3) and (4) satisfied by non-profit and mutual companies
(6) If the company is:
(a) a *non-profit company; or
(b) a *mutual affiliate company; or
(c) a *mutual insurance company;
during the whole of the *test period, the conditions in subsections (3) and (4) are taken to have been satisfied by the company.
166-165 Relationship with rules in Division 165
(1) The provisions of Subdivision 165-D (other than section 165-165) apply for the purposes of the tests in section 166-145.
(2) The following provisions apply for the purposes of the tests in section 166-145 as if the reference to a particular time were a reference to the *ownership test time:
(a) section 165-180 (which is about arrangements affecting beneficial ownership of shares);
(b) subsection 165-185(2) (which treats some shares as never having carried rights);
(c) subsection 165-190(2) (which treats some shares as always having carried rights).
Corporate change in a company
166-175 Corporate change in a company
Meaning of corporate change
(1) There is a corporate change in a company if:
(a) there is a *takeover bid for *shares in the company; or
(b) there is a scheme of arrangement, involving more than 50% of the company's shares, that has been approved by a court; or
(c) there is any other arrangement, involving the acquisition of more than 50% of the company's shares, that is regulated under the Corporations Act 2001 or a *foreign law; or
(d) there is an issue of *shares in the company that results in an increase of 20% or more in:
(i) the issued share capital of the company; or
(ii) the number of the company's shares on issue; or
(e) there is a corporate change in another company which beneficially owns one or more of the following stakes in the first company:
(i) a *voting stake that carries rights to more than 50% of the voting power of the first company;
(ii) a *dividend stake that carries rights to receive more than 50% of any dividends the first company may pay;
(iii) a *capital stake that carries rights to receive more than 50% of any distribution of capital of the first company;
(whether the other company owns those stakes directly, or *indirectly through one or more interposed entities).
When a corporate change ends
(2) A *corporate change ends :
(a) if paragraph (1)(a) applies (or paragraph (1)(e) applies because of paragraph (1)(a)) - at the latest time when a *bid period of the *takeover bid ends; and
(b) if paragraph (1)(b) or (c) applies (or paragraph (1)(e) applies because of paragraph (1)(b) or (c)) - when the scheme of arrangement or other arrangement ends; and
(c) if paragraph (1)(d) applies (or paragraph (1)(e) applies because of paragraph (1)(d)) - when the offer period for the issue of *shares ends.
Subdivision 166-E - Concessional tracing rules
Guide to Subdivision 166-E
166-215 What this Subdivision is about
This Subdivision has rules which make it easier for a widely held or eligible Division 166 company to satisfy the ownership tests in Subdivision 166-D.
Special concessional tracing rules deem entities to hold the following stakes in the company so that the company does not have to trace through to the beneficial owners of the stakes:
(a) stakes of less than 10% in the company;
(b) stakes of between 10% and 50% that are held by widely held companies;
(c) stakes that are held by complying superannuation funds, complying approved deposit funds, special companies and managed investment schemes;
(d) stakes in interposed foreign listed companies that are held as bearer shares;
(e) stakes in interposed foreign listed companies that are held by depository entities.
Table of sections
Application of this Subdivision
166-220 Application of this Subdivision
Stakes of less than 10% in the tested company
166-225 Direct stakes of less than 10% in the tested company
166-230 Indirect stakes of less than 10% in the tested company
166-235 Voting, dividend and capital stakes
Stakes held directly and/or indirectly by widely held companies
166-240 Stakes held directly and/or indirectly by widely held companies
166-245 Stakes held by other entities
When identity of foreign stakeholders is not known
166-255 Bearer shares in foreign listed companies
166-260 Depository entities holding stakes in foreign listed companies
Other rules relating to voting power and rights
166-265 Persons who actually control voting power or have rights are taken not to control power or have rights
166-270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights
166-272 Same shares or interests to be held
When the rules in this Subdivision do not apply
166-275 Rules in this Subdivision intended to be concessional
166-280 Controlled test companies
Application of this Subdivision
166-220 Application of this Subdivision
This Subdivision applies to a company (the tested company ) that is:
(a) a *widely held company at all times during the income year; or
(b) an *eligible Division 166 company at all times during the income year; or
(c) a widely held company for a part of the income year and an eligible Division 166 company for the rest of the income year.
Note: See section 165-255 for the rule about incomplete income years.
Stakes of less than 10% in the tested company
166-225 Direct stakes of less than 10% in the tested company
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if:
(a) a *voting stake that carries rights to less than 10% of the voting power in the company is held directly in the company; or
(b) a *dividend stake that carries the right to receive less than 10% of any dividends that the company may pay is held directly in the company; or
(c) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the company is held directly in the company.
Note: Other rules might affect this provision: see sections 166-270, 166-275 and 166-280.
Notional shareholder
(2) The tests are applied to the tested company as if, at the *ownership test time, a single notional entity:
(a) directly controlled the voting power that is carried by each such *voting stake; and
(b) had the right to receive, for its own benefit and directly:
(i) any *dividends the tested company may pay in respect of each such *dividend stake; and
(ii) any distributions of capital of the tested company in respect of each such *capital stake; and
(c) were a person (other than a company).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
(3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165-207 and the one mentioned in section 166-255.
166-230 Indirect stakes of less than 10% in the tested company
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if it is the case, or it is reasonable to assume that:
(a) an entity (the stakeholder ) indirectly holds any of these stakes in the tested company:
(i) a *voting stake that carries rights to less than 10% of the voting power in the company; or
(ii) a *dividend stake that carries the right to receive less than 10% of any dividends that the company may pay; or
(iii) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the company; and
(b) either:
(i) the stakeholder indirectly holds the stake in the tested company by holding *shares directly in a company (the top interposed entity ) that is interposed between the stakeholder and the tested company; or
(ii) the stakeholder indirectly holds the stake in the tested company by holding another interest directly in an entity (the top interposed entity ) that is not a company and that is interposed between the stakeholder and the tested company.
Note 1: There might also be other entities interposed between the top interposed entity and the tested company.
Note 2: Other rules might affect this provision: see subsection (3) and sections 166-272, 166-275 and 166-280.
Top interposed entity deemed to hold stakes directly in the tested company
(2) The tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake - the top interposed entity controls, or is able to control, the voting power in the tested company that is carried by that stake at that time; and
(b) if the stake is a *dividend stake - the top interposed entity *indirectly had the right to receive, for its own benefit, any *dividends the tested company may pay in respect of that stake at that time; and
(c) if the stake is a *capital stake - the top interposed entity indirectly had the right to receive, for its own benefit, any distributions of capital of the tested company in respect of that stake at that time; and
(d) in any case - the top interposed entity were a person (other than a company).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
Acquisition of top interposed entity by another entity
(3) If:
(a) a new entity (the new interposed entity ) acquires all the *shares or other interests in the top interposed entity (the old interposed entity ); and
(b) the new interposed entity has the same classes of shares or other interests as the old interposed entity; and
(c) if the new interposed entity is a company - the shares are not *redeemable shares; and
(d) in any case - each stakeholder holds the same proportion of the total *voting stakes, *dividend stakes or *capital stakes in the new interposed entity immediately after the acquisition as the stakeholder held in the old interposed entity immediately before the acquisition;
then, at all times that the old interposed entity held or is taken to have held a stake in the tested company, the new interposed entity is taken to have held that stake.
(4) Except for the purposes of determining whether a time is an alteration time (within the meaning of section 165-115L), section 166-272 (which is about the same shares or interests) is to be disregarded when applying subsection (3).
166-235 Voting, dividend and capital stakes
Meaning of voting stake
(1) An entity holds a voting stake in a company if:
(a) the entity is the registered holder of *shares in the company; and
(b) the shares carry rights to exercise voting power in the company.
(2) An entity (the stakeholder ) also holds a voting stake in a company if:
(a) one or more other entities are interposed between the company and the stakeholder; and
(b) the stakeholder controls, or is able to control, voting power in the company indirectly through the interposed entity or entities.
Meaning of dividend stake
(3) An entity holds a dividend stake in a company if:
(a) the entity is the registered holder of *shares in the company; and
(b) the shares carry rights to all or any *dividends that the company may pay.
(4) An entity (the stakeholder ) also holds a dividend stake in a company if:
(a) one or more other entities are interposed between the company and the stakeholder; and
(b) the stakeholder has the right to receive, for its own benefit and *indirectly through the interposed entity or entities, all or any *dividends that the company may pay.
Meaning of capital stake
(5) An entity holds a capital stake in a company if:
(a) the entity is the registered holder of *shares in the company; and
(b) the shares carry rights to all or any of a distribution of capital of the company.
(6) An entity (the stakeholder ) also holds a capital stake in a company if:
(a) one or more other entities are interposed between the company and the stakeholder; and
(b) the stakeholder has the right to receive, for its own benefit and *indirectly through the interposed entity or entities, all or any of a distribution of capital of the company.
Stakes held by nominees
(7) For the purposes of sections 166-225 and 166-230, if:
(a) an entity (the nominee entity ) holds a *voting stake, a *dividend stake, or a *capital stake, in a company; and
(b) the nominee entity is itself a company; and
(c) the nominee entity holds the stake as a nominee for more than one other entity;
then, for each entity for whom a part of the stake is held by the nominee entity, that entity's part of the stake may be treated instead as a separate stake.
Stakes held directly and/or indirectly by widely held companies
166-240 Stakes held directly and/or indirectly by widely held companies
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if a *widely held company directly or indirectly (through one or more interposed entities), or both directly and indirectly, holds any of the following:
(a) a *voting stake that carries rights to between 10% and 50% (inclusive) of the voting power in the company;
(b) a *dividend stake that carries the right to receive between 10% and 50% (inclusive) of any dividends that the company may pay;
(c) a *capital stake that carries the right to receive between 10% and 50% (inclusive) of any distribution of capital of the company.
Note: Other rules might affect this provision: see subsections (3) and (4) and sections 166-272, 166-275 and 166-280.
(2) The tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake - the *widely held company controls, or is able to control, the voting power in the tested company that is carried by that stake at that time; and
(b) if the stake is a *dividend stake - the widely held company had the right to receive (whether directly or *indirectly), for its own benefit, any *dividends the tested company may pay in respect of that stake at that time; and
(c) if the stake is a *capital stake - the widely held company had the right to receive (whether directly or indirectly), for its own benefit, any distributions of capital of the tested company in respect of that stake at that time; and
(d) in any case - the widely held company were a person (other than a company).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
Exception
(3) This section does not apply in respect of a *widely held company if the company is not a widely held company for the whole income year in which the *ownership test time occurs.
Note: See section 165-255 for the rule about incomplete periods.
Acquisition of widely held company by another entity
(4) If:
(a) a new company acquires all the *shares in the *widely held company; and
(b) immediately before the acquisition, the shares in the widely held company were listed for quotation in the official list of an *approved stock exchange; and
(c) immediately after the acquisition, the shares in the new company are listed for quotation in the official list of an approved stock exchange; and
(d) the new company has the same classes of shares (not being *redeemable shares) as the widely held company; and
(e) each entity that held stakes in the widely held company immediately before the acquisition holds the same proportion of the total *voting stakes, *dividend stakes or *capital stakes in the new company immediately after the acquisition as the entity held in the widely held company immediately before the acquisition;
then, at all times that the widely held company held or is taken to have held a stake in the tested company, the new company is taken to have held that stake.
(5) Except for the purposes of determining whether a time is an alteration time (within the meaning of section 165-115L), section 166-272 (which is about same shares or interests) is to be disregarded when applying subsection (4).
166-245 Stakes held by other entities
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if:
(a) an entity mentioned in subsection (2) directly or indirectly (through one or more interposed entities) holds a *voting stake, a *dividend stake or a *capital stake in the company; and
(b) neither the entity nor another entity has, under section 166-225, 166-230 or 166-240, been taken to control voting power or have rights in respect of the stake; and
(c) the entity mentioned in subsection (2) satisfies the condition in subsection (3).
Note: Other rules might affect this provision: see sections 166-272, 166-275 and 166-280.
(2) For the purposes of subsection (1), these are the entities:
(a) a *superannuation fund; and
(b) an *approved deposit fund; and
(c) a *special company; and
(d) a *managed investment scheme; and
(e) any other entity, or entity of a kind, prescribed by the regulations.
(3) For the purposes of paragraph (1)(c), an entity satisfies the condition in this subsection if at all times during the income year of the tested company in which the *ownership test time occurs:
(a) if the entity is a *superannuation fund:
(i) the fund is a *complying superannuation fund; or
(ii) the fund is a superannuation fund that is established in a foreign country and is regulated under a *foreign law; or
(b) if the entity is an *approved deposit fund - the fund is a *complying approved deposit fund; or
(c) if the entity is a *special company - the company is a special company; or
(d) if the entity is a *managed investment scheme:
(i) the scheme is registered under the Corporations Act 2001; or
(ii) the entity is recognised, under a *foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme; or
(e) if the entity is an entity, or an entity of a kind, prescribed by the regulations - the entity meets any conditions prescribed by the regulations.
Note: See section 165-255 for the rule about incomplete periods.
If the entity has 10 members or fewer
(4) If the entity has 10 *members or fewer, the tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake - each member controls, or is able to control, an equal proportion of the voting power in the tested company that is carried by that stake at that time; and
(b) if the stake is a *dividend stake - each member had the right to receive (whether directly or *indirectly), for its own benefit, an equal proportion of any *dividends the tested company may pay in respect of that stake at that time; and
(c) if the stake is a *capital stake - each member had the right to receive (whether directly or indirectly), for its own benefit, an equal proportion of any distributions of capital of the tested company in respect of that stake at that time; and
(d) in any case - each member were a person (other than a company or a trustee).
Note 1: If each member's proportion of the voting power, the dividends or the distributions is less than 10%, then subsections (5) and (6) apply instead.
Note 2: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
If the entity has more than 10 members etc.
(5) The ownership tests are applied as set out in subsection (6) if:
(a) the entity has more than 10 *members; or
(b) under subsection (4):
(i) the proportion of the voting power in the company that each member controls, or is able to control, is less than 10% of the total voting power; or
(ii) the proportion of the *dividends that the tested company may pay for the benefit of each member is less than 10% of the total dividends; or
(iii) the proportion of the distributions of capital that the tested company may pay for the benefit of each member is less than 10% of the total distributions.
(6) The ownership tests are applied to the tested company as if, at the *ownership test time:
(a) if the stake is a *voting stake - the entity controls, or is able to control, the voting power in the tested company that is carried by that stake at that time; and
(b) if the stake is a *dividend stake - the entity had the right to receive (whether directly or *indirectly), for its own benefit, any *dividends the tested company may pay in respect of that stake at that time; and
(c) if the stake is a *capital stake - the entity had the right to receive (whether directly or indirectly), for its own benefit, any distributions of capital of the tested company in respect of that stake at that time; and
(d) in any case - the entity were a person (other than a company or a trustee).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
When identity of foreign stakeholders is not known
166-255 Bearer shares in foreign listed companies
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if:
(a) at the *ownership test time, it is the case, or it is reasonable to assume, that persons (none of them companies or trustees) hold a *voting stake, a *dividend stake or a *capital stake in the tested company; and
(b) an entity has not, under section 166-225, 166-230, 166-240 or 166-245, been taken to control voting power or have rights in respect of the stake; and
(c) another company (the foreign listed company ) is interposed, at that time, between those persons and the tested company; and
(d) at all times during the income year of the tested company in which the ownership test time occurs, the *principal class of shares in the foreign listed company is listed for quotation in the official list of an *approved stock exchange; and
(e) at the ownership test time:
(i) voting stakes that carry rights to 50% or more of the voting power in the foreign listed company; or
(ii) dividend stakes that carry rights to receive 50% or more of any dividends that the foreign listed company may pay; or
(iii) capital stakes that carry rights to receive 50% or more of any distribution of capital of the foreign listed company;
as the case requires, are directly held by way of bearer shares; and
(f) the beneficial owners of some or all of those bearer shares have not been disclosed to the foreign listed company.
Note 1: See section 165-255 for the rule about incomplete test periods.
Note 2: Other rules might affect this provision: see sections 166-270, 166-275 and 166-280.
(2) The tests are applied to the tested company as if, at the *ownership test time, for each of those bearer shares whose owners have not been disclosed:
(a) a single notional entity controls, or is able to control, the voting power in the tested company that is carried by those shares at that time; and
(b) the entity *indirectly had the right to receive, for its own benefit:
(i) any *dividends the tested company may pay in respect of those shares at that time; and
(ii) any distributions of capital of the tested company in respect of those shares at that time; and
(c) the entity were a person (other than a company).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
(3) To avoid doubt, the single notional entity mentioned in subsection (2) is a different single notional entity from the one mentioned in section 165-207 and the one mentioned in section 166-225.
166-260 Depository entities holding stakes in foreign listed companies
(1) This section modifies how the ownership tests in section 166-145 are applied to the tested company if:
(a) at the *ownership test time, it is the case, or it is reasonable to assume, that persons (none of them companies or trustees) have a *voting stake, a *dividend stake or a *capital stake in the tested company; and
(b) an entity has not, under section 166-225, 166-230, 166-240, 166-245 or 166-255, been taken to control voting power or have rights in respect of the stake; and
(c) another company (the foreign listed company ) is interposed, at that time, between those persons and the tested company; and
(d) at all times during the income year of the tested company in which the ownership test time occurs, the *principal class of shares in the foreign listed company is listed for quotation in the official list of an *approved stock exchange; and
(e) at the ownership test time:
(i) voting stakes that carry rights to 50% or more of the voting power in the foreign listed company; or
(ii) dividend stakes that carry rights to receive 50% or more of any dividends that the foreign listed company may pay; or
(iii) capital stakes that carry rights to receive 50% or more of any distribution of capital of the foreign listed company;
as the case requires, are directly held by one or more *depository entities (see subsection (3)); and
(f) a law of a foreign country, or a part of a foreign country, in which the approved stock exchange is located, prevents the disclosure of the beneficial owners of some or all of those shares that are held by the depository entities; and
(g) the beneficial owners of some or all of the shares held by the depository entities have not been disclosed to the foreign listed company.
Note 1: See section 165-255 for the rule about incomplete test periods.
Note 2: This rule might not apply in all circumstances: see sections 166-275 and 166-280.
(2) The tests are applied to the tested company as if, at the *ownership test time, for each of those *shares held by a *depository entity whose owners have not been disclosed, the depository entity:
(a) controls, or is able to control, the voting power in the tested company that is carried by those shares at that time; and
(b) *indirectly had the right to receive, for its own benefit:
(i) any *dividends the tested company may pay in respect of those shares at that time; and
(ii) any distributions of capital of the tested company in respect of those shares at that time; and
(c) were a person (other than a company).
Note: The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights: see section 166-265.
(3) If the effect of subsection (2) is that the *depository entity is taken to hold:
(a) a *voting stake that carries rights to less than 10% of the voting power in the tested company; or
(b) a *dividend stake that carries the right to receive less than 10% of any dividends that the tested company may pay; or
(c) a *capital stake that carries the right to receive less than 10% of any distribution of capital of the tested company;
then neither section 166-225 nor section 166-230 applies in respect of that stake.
(4) If the *depository entity (the old depository entity ) is subsequently replaced by another depository entity (the new depository entity ), then, at all times that the old depository entity held or is taken to have held a stake in the tested company, the new entity is taken to have held that stake.
(5) A depository entity is an entity:
(a) that is a central securities repository; and
(b) that provides custody of share certificates; and
(c) that provides services for the exchange of shares.
Other rules relating to voting power and rights
166-265 Persons who actually control voting power or have rights are taken not to control power or have rights
If any of sections 166-225, 166-230, 166-240, 166-245, 166-255 or 166-260 apply, the ownership tests in section 166-145 are also applied to the tested company as if, at the *ownership test time:
(a) the persons who control, or are able to control, the voting power in the tested company (whether directly, or indirectly through one or more interposed entities) that is carried by each *voting stake in the tested company mentioned in that section had not had that control; and
(b) the persons 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 tested company may pay in respect of each *dividend stake in the tested company mentioned in that section; and
(ii) any distributions of capital of the tested company in respect of each *capital stake in the tested company mentioned in that section;
had not had that right.
166-270 Single notional entity stakeholders taken to have minimum voting control, dividend rights and capital rights
Minimum control of voting power
(1) If:
(a) the *ownership test time is after the start of the *test period; and
(b) a single notional entity mentioned in section 166-225 or 166-255 has voting power in a company; and
(c) the voting power that the entity has at the ownership test time is greater than the voting power that the entity had at the start of the test period;
then the entity is taken to have voting power in the company at the ownership test time only to the extent that it had it at the start of the test period.
Minimum percentage of rights to dividends and capital
(2) If:
(a) the *ownership test time is after the start of the *test period; and
(b) a single notional entity mentioned in section 166-225 or 166-255 has a percentage of rights to the *dividends or distributions of capital of a company; and
(c) the percentage that the entity has rights to at the ownership test time is greater than the percentage (the lower percentage ) of the dividends or distributions of capital of the company that the entity had rights to at the start of the test period;
then the entity is taken to have rights to the lower percentage of the dividends or distributions of capital at the ownership test time.
166-272 Same shares or interests to be held
Application
(1) This section modifies how the ownership tests in section 166-145 are applied to a *voting stake, a *dividend stake or a *capital stake in the tested company held by one of the following entities (the stakeholder ):
(a) a top interposed entity mentioned in section 166-230 (which is about indirect stakes of less than 10%);
(b) a *widely held company mentioned in section 166-240;
(c) an entity mentioned in subsection 166-245(2) (which is about stakes held by other entities);
(d) a *depository entity mentioned in section 166-260;
(whether directly, or *indirectly through one or more interposed entities).
Exactly the same shares or interests must continue to be held
(2) For the purpose of determining whether the tested company has satisfied a condition or whether a time is a changeover time or an alteration time in respect of the tested company:
(a) a condition that has to be satisfied is not satisfied; or
(b) a time that, apart from this subsection, would not be a changeover time or alteration time is taken to be a changeover time or alteration time, as the case may be;
unless, at all relevant times:
(c) the only *shares in the tested company that are taken into account are exactly the same shares and are held by the same persons; and
(d) the only interests (including shares) in any other entity that is interposed between the stakeholder and the tested company that are taken into account are exactly the same interests and are held by the same persons.
What happens in case of share splitting
(3) If:
(a) a particular *share (an old share ) in a company of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period is divided into 2 or more new shares during that period; and
(b) the stakeholder or entity becomes the holder of each of the new shares immediately after the division takes place and remains the holder until the end of that period;
the new shares are taken to be exactly the same shares as the old share.
What happens in case of splitting of units in a unit trust
(4) If:
(a) a particular unit (an old unit ) in a unit trust of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period is divided into 2 or more new units during that period; and
(b) the stakeholder or entity becomes the holder of each of the new units immediately after the division takes place and remains the holder until the end of that period;
the new units are taken to be exactly the same units as the old unit.
What happens in case of consolidation of shares
(5) If:
(a) a particular *share (an old share ) in a company of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period, and other shares (each of which is also called an old share ) in the company of which the stakeholder or entity is the holder at the start of that period, are consolidated into a new share during that period; and
(b) the stakeholder or entity becomes the holder of the new share immediately after the consolidation takes place;
the new share is taken to be exactly the same share as the old shares.
What happens in case of consolidation of units in a unit trust
(6) If:
(a) a particular unit (an old unit ) in a unit trust of which the stakeholder, or an entity interposed between the stakeholder and the tested company, is the holder at the start of the *test period and other units (each of which is also called an old unit ) in the trust of which the stakeholder or entity is the holder at the start of that period are consolidated into a new unit during that period; and
(b) the stakeholder or entity becomes the holder of the new unit immediately after the consolidation takes place;
the new unit is taken to be exactly the same unit as the old units.
Totals of shares or rights not affected
(7) This section does not affect how *shares, and rights carried by shares, are counted for the purpose of determining:
(a) the total voting power in the tested company; or
(b) the total dividends that the tested company may pay; or
(c) the total distributions of capital of the tested company.
Conditions in section 166-145 may be treated as having been satisfied in certain circumstances
(8) If any of the conditions in section 166-145 have not been satisfied, those conditions are taken to have been satisfied if:
(a) they would have been satisfied except for the operation of subsection (2) of this section; and
(b) the tested company has information from which it would be reasonable to conclude that less than 50% of:
(i) the *tax loss; or
(ii) the *notional loss; or
(iii) the bad debt; or
(iv) the unrealised net loss (within the meaning of section 165-115E);
as the case requires, has been reflected in deductions, capital losses, or reduced assessable income, that occurred, or could occur in future, because of the happening of any *CGT event in relation to any direct or indirect equity interests held in the tested company by the stakeholder, or an entity interposed between the stakeholder and the tested company, during the *test period.
Note: See subsection (11) for the definitions of direct equity interests and indirect equity interests .
Subsection (8) not to apply for purpose of determining whether an alteration time has occurred
(9) However, subsection (8) does not apply in relation to any of the conditions in section 166-145 in so far as those conditions have effect for the purpose of determining whether an alteration time (within the meaning of section 165-115L) has occurred.
Time of happening of CGT event
(10) The happening of any *CGT event in relation to a direct or indirect equity interest in the tested company that results in the failure of the tested company to satisfy a condition in section 166-145 is taken, for the purposes of paragraph (8)(b), to have occurred during the *test period.
Note: See subsection (11) for the definitions of direct equity interests and indirect equity interests .
Meaning of direct and indirect equity interests
(11) For the purposes of subsections (8) and (10):
(a) the direct equity interests in the tested company are *shares in the tested company; and
(b) the indirect equity interests in the tested company are shares or other interests in entities interposed between the tested company and stakeholder.
When the rules in this Subdivision do not apply
166-275 Rules in this Subdivision intended to be concessional
A company is taken to have met the conditions in section 165-12, paragraph 165-35(a) or section 165-123, or a changeover time or an alteration time is taken not to have occurred in respect of a company, (as the case requires), if:
(a) a *tracing rule modifies how the ownership tests in section 166-145 apply to the tested company in respect of a *voting stake, a *dividend stake or a *capital stake; and
(b) the company fails the tests (whether at the time of applying the tracing rule or at another time); and
(c) the company believes, on reasonable grounds, that if the tracing rule did not modify how the tests apply to the company in respect of that stake, it would not fail the tests.
Example: 11 people own shareholdings of 9% in the listed company. Under section 166-225, one notional shareholder is deemed to hold all of those shareholdings. 2 of the people sell their shareholdings so that 9 of the original 11 people now own shareholdings of 11%. Without the rule in this section, the company would fail the ownership tests (as the rule in section 166-225 no longer applies).
166-280 Controlled test companies
(1) A *tracing rule does not modify how the ownership tests in section 166-145 apply to the tested company in respect of all or part of the voting power in the tested company, or all or some of the rights to *dividends of, or capital in, the tested company, if:
(a) either:
(i) an entity (the controlling entity ) directly holds that power or has those rights; or
(ii) an entity (the controlling entity ) indirectly holds that power or has those rights through one or more interposed entities; and
(b) the tested company is sufficiently influenced (within the meaning of paragraph 318(6)(b) of the Income Tax Assessment Act 1936) by the controlling entity.
Note: However, a tracing rule can modify how the ownership tests in section 166-145 apply to the tested company in respect of voting power or dividend or capital rights held by entities other than controlling entities.
(2) A *tracing rule does not modify how the ownership tests in section 166-145 apply to the tested company in respect of all or part of the voting power in the tested company if:
(a) the tested company is a *widely held company; and
(b) that voting power:
(i) is more than 25% of the total voting power in the tested company and is controlled (whether directly, or indirectly through one or more interposed entities) by a natural person, together with his or her *associates; or
(ii) is more than 50% of the total voting power in the tested company and is controlled (whether directly, or indirectly through one or more interposed entities) by a trustee or company, together with its associates.