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 170-225 Transfer of net capital loss: direct and indirect interests in the gain company

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170-225(1)
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

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

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

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(e) throughout the application year, the group company is a member of the same *wholly-owned group as the gain 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; and

(g) there are shares in, or debts owed by, the *loss company the *cost base and *reduced cost base of at least one of which have been reduced by subsection 170-220(1) or (2);

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

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170-225(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 gain company; or

(ii) in a *borrowing by the gain 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 gain 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; and

(h) there are shares in, or debts owed by, the *loss company the *cost base and *reduced cost base of at least one of which have been reduced by subsection 170-220(1) or (2);

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

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170-225(3)
The *cost base and *reduced cost base are increased by an amount that is appropriate having regard to:

(aa) the matters mentioned in subsections 170-205(3) and (4); and

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(ab) the amounts of any reductions to the cost base and reduced cost base of *shares, and to the reduced cost base of debts, under subsection 170-220(3) ; and

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

(b) the amount of the loss transferred; and

(c) any consideration given by the gain company for the loss transferred.

Note:

This is because the consideration may be less than the commercial value of the loss transferred.

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170-225(4)

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However, the increase cannot exceed the increase in the *market value of the *share or debt that results from the transfer of the loss. (If no increase in that market value results, for example because the consideration paid for the transfer of the loss equals the commercial value of the loss transferred, then there is no increase in the *cost base and *reduced cost base.)

170-225(4A)

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No increase is to be made to the extent that the *net capital loss transferred does not represent an outlay or loss of any of the economic resources of the company that transferred the net capital loss.

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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170-225(5)
Any increase 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:

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

170-225(6)

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No increase is to be made to the *cost base and *reduced cost base of a share or debt to the extent to which, because of a dividend or dividends paid by the gain company, the increase in the *market value of the share or debt that resulted from the transfer of the loss is no longer in existence at the time when a *CGT event happens in relation to the share or debt.

Note:

Increases under former subsections 160ZP(14) and (15) of the Income Tax Assessment Act 1936 are also relevant: see section 170-225 of the Income Tax (Transitional Provisions) Act 1997 .

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