Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS

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

History

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

Division 170 - Treatment of company groups for income tax purposes

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

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

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

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

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

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

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

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

(ii) before 1 July 2004; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Note:

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

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

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

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

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

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

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

Note:

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

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

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

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

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

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

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

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

Subdivision 170-C - Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly-owned groups of companies

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Operative provisions

SECTION 170-220 Transfer of net capital loss: direct and indirect interests in the loss company

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170-220(1)

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If:

(a) an amount of a *net capital loss is transferred by a company to another company; and

(b) Subdivision 170-B applies in respect of the transfer; and

(c) a company (the group company ) holds a *share in the loss company or is owed a debt by the loss company in respect of a loan; and

(d) the group company *acquired the share or debt on or after 20 September 1985; and

(e) throughout the application year, the group company is a member of the same *wholly-owned group as the loss company (disregarding a period when either was not in existence); and

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(f) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;

the *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced in accordance with subsection (3).

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170-220(2)

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If:

(a) an amount of a *net capital loss is transferred by a company to another company; and

(b) Subdivision 170-B applies in respect of the transfer; and

(c) a company (the group company ) holds a *share in another company or is owed a debt by another company in respect of a loan; and

(d) the group company *acquired the share or debt on or after 20 September 1985; and

(e) the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):

(i) in the other company or a third company acquiring shares in the loss company; or

(ii) in a *borrowing by the loss company from the other company or from a third company; and

(f) throughout the application year, the group company, the other company and the third company (if any) are all members of the same *wholly-owned group as the loss company (disregarding, for a particular company, a period when it was not in existence); and

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(g) the relevant agreement referred to in section 170-150 is made on or after the commencement of this section;

the *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced in accordance with subsection (3).

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170-220(3)

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The *cost base and *reduced cost base of the share or the reduced cost base of the debt is reduced by an amount that is appropriate having regard to:

(aa) the main object of this Subdivision and other matters mentioned in subsections 170-205(1) and (2); and

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(a) the group company ' s direct or indirect interest in the loss company; and

(ba) any reduction in the reduced cost base made under Subdivision 165-CD ; and

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(b) the amount of the loss transferred; and

(c) the extent to which the loss reduced the *market value of the share or debt; and

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(d) any consideration received by the loss company for the loss transferred; and

(e) whether, because of a dividend or dividends paid by the loss company, the consideration is no longer reflected (wholly or partly) in the market value of the share or debt when a *CGT event happens in relation to it.

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170-220(3A)

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To avoid doubt in applying paragraph (3)(c) in relation to a *share or debt, if factors other than the loss altered the *market value of the share or debt, the extent to which the loss reduced that market value is taken to be the extent to which that market value would have been reduced apart from those other factors.

Note:

An example of a factor other than the loss is the unrealised value of assets (including assets in respect of which there is an unrealised gain) of the loss company, whether or not generated by outlays or economic losses reflected in the loss for income tax purposes.

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170-220(3B)

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This section applies to a *net capital loss only to the extent that the loss represents an outlay or loss of any of the economic resources of the *loss company.

Note:

Where the income tax law allows, as all or part of a loss, an amount for the decline in value of a depreciating asset that exceeds the actual economic depreciation or depletion of the asset concerned, the excess is not to be regarded for the purposes of this subsection as representing an outlay or loss of economic resources of the company.

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170-220(4)
Any reduction is to be made immediately before a *CGT event happens in relation to the share or debt and is to have effect from that time or the end of the application year, whichever is the earlier.

Note 1:

Subsection (4) is relevant for indexing elements of a cost base (see sections 114-1 and 114-15 ).

Note 2:

Reductions under former subsection 160ZP(13) of the Income Tax Assessment Act 1936 are also relevant: see section 170-220 of the Income Tax (Transitional Provisions) Act 1997 .

Note 3:

For applicable year see subsection 170-115(1) .

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