Taxation Laws Amendment Act (No. 1) 1999 (16 of 1999)

Schedule 1   Denial of certain capital losses

Part 1   Specific past rollover scheme amendment

Income Tax Assessment Act 1936

1   After section 160ZP

Insert:

160ZPA Denial of duplicated capital loss where section 160ZZO rollover relief

Operative provision - first case

(1) Subject to subsection (3), if a company has incurred or incurs any eligible rollover losses and paragraphs (2)(a) and (b) do not apply:

(a) if:

(i) any of the eligible rollover losses was incurred in the 1995-96 year of income or an earlier year of income; and

(ii) the company incurred a net capital loss in the 1995-96 year of income; and

(iii) there are one or more unused amounts for that year of income in respect of the eligible rollover losses;

the net capital loss is reduced by the sum of the unused amounts; and

(b) if:

(i) any of the eligible rollover losses was incurred or is incurred in the 1996-97 year of income or any later year of income; and

(ii) assuming section 160ZZO had not applied to the rollover disposal mentioned in paragraph (4)(a), the eligible rollover loss would have been a lesser amount or there would have been no eligible rollover loss;

the eligible rollover loss is reduced so that it equals the lesser amount, or is reduced to nil, as the case requires.

Note: The expressions eligible rollover loss , net capital loss and unused amount are defined in subsections (4), (8) and (6) respectively.

Operative provision - second case

(2) Subject to subsection (3), if:

(a) a company has incurred any eligible rollover losses in the 1996-97 year of income or an earlier year of income; and

(b) the company furnished its return for the 1996-97 year of income before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997;

the following apply:

(c) if:

(i) the company incurred a net capital loss in the 1995-96 year of income; and

(ii) there are one or more unused amounts for that year of income in respect of the eligible rollover losses; and

(iii) if, in the company's return for the 1996-97 year of income, Step 4 in subsection 160ZC(1) was applied in working out whether a net capital gain accrued to the company in respect of that year of income - there is some of the net capital loss incurred in the 1995-96 year of income that has not been applied in accordance with Step 4;

then, for the purpose of any application of Step 4 in working out whether a net capital gain accrued to the company in respect of the 1997-98 or any later year of income, the net capital loss incurred in the 1995-96 year of income, or so much of the net capital loss as was not applied as mentioned in subparagraph (iii), is reduced by the sum of the unused amounts; and

(d) if the company incurred a net capital loss in the 1996-97 year of income and any of the eligible rollover losses was also incurred in that year of income - the net capital loss is reduced by the unused amount, for that year of income, in respect of the eligible rollover losses incurred in that year of income.

Commissioner to reduce amount under subsection (1) or (2)

(3) If:

(a) the whole or part of the net capital loss of the company, or of an eligible rollover loss of the company, is reduced under subsection (1) or (2); and

(b) the Commissioner, on application by the company, determines that it is fair and reasonable that the amount should not be so reduced, or should be reduced by a lesser amount, having regard to the following:

(i) whether the company has disposed of, or is likely to dispose of, the interest, right or debt mentioned in paragraph (4)(c);

(ii) the extent to which any eligible rollover losses incurred by the company are related, directly or indirectly, to any other capital losses incurred, or that may be incurred, by the company or any other company that is related to the company;

(iii) the respective amounts of the losses mentioned in subparagraph (ii);

(iv) the content and timing of any information provided to the Commissioner by the company in the application or otherwise;

(v) any other matter that the Commissioner considers relevant;

the amount is not so reduced, or is reduced by the lesser amount.

Eligible rollover loss

(4) A capital loss incurred by a company (the loss company ) in a year of income in respect of the disposal (the loss disposal ) of an asset is an eligible rollover loss if:

(a) the loss company acquired the asset from another company (the transferor ) and section 160ZZO applied to the disposal (the rollover disposal ) constituting the acquisition by the loss company; and

(b) if section 160ZZO had not applied to the rollover disposal, there would have been no capital loss or a smaller capital loss; and

(c) when the rollover disposal took place, the loss company:

(i) had an interest (see subsection (7)) either directly, or indirectly through successive interests in interposed companies, in the transferor; or

(ii) was owed a debt by the transferor or had a right to acquire an interest in the transferor; or

(iii) had an interest either directly, or indirectly through successive interests in interposed companies, in a company, partnership or trust to which the transferor owed a debt or that had a right to acquire an interest in the transferor; and

(d) the loss company:

(i) acquired the interest mentioned in subparagraph (c)(i) or (iii) or the right mentioned in subparagraph (c)(ii); or

(ii) began to be owed the debt mentioned in subparagraph (c)(ii);

after 19 September 1985; and

(e) immediately after the rollover disposal, the market value of the interest, right or debt was less than its reduced cost base or what would be its reduced cost base if the interest, right or debt were an asset to whose disposal this Part applied; and

(f) the rollover disposal took place before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997; and

(g) the loss disposal took place no more than 5 years after the rollover disposal.

Exclusion for small businesses and manufacturing business assets

(5) However, a capital loss is not an eligible rollover loss if:

(a) the requirement in subsection 160ZZPP(4) (which relates to the net value of the transferee's assets etc.) would be satisfied at the time of the loss disposal, assuming the loss company were the taxpayer mentioned in that section; or

(b) the asset is plant, machinery, or a building, used in a manufacturing business:

(i) by the transferor immediately before the rollover disposal; and

(ii) by the loss company for a period of at least 12 months that commences immediately after the rollover disposal.

Unused amount of all eligible rollover losses incurred in a particular year of income

(6) The unused amount , for a year of income (the test year ), of all of the eligible rollover losses incurred by a company in a particular year of income (being the test year or an earlier year of income) is:

(a) if the company did not incur a net capital loss in the test year - nil; or

(b) if the test year is the one in which the company incurred the eligible rollover losses, and the company incurred a net capital loss in that year of income - the amount by which:

(i) the net capital loss;

exceeds:

(ii) the amount that would be the net capital loss assuming section 160ZZO had not applied to any of the rollover disposals concerned or, if there would be no net capital loss on that assumption, nil; or

(c) if the test year is after the one in which the company incurred the eligible rollover losses, and the company incurred a net capital loss in the test year - the amount worked out by reducing the unused amount, for the previous year of income, of the eligible rollover losses by the amount calculated using the formula:

[Capital gains for test year + Any 160ZP transfer amount for test year(see subsection (8))] * [Unused amount for previous year of income/(Capital losses for test year + Net capital loss for previous year of income)]

Note 1: If the test year is e.g. 2 years after the year of income in which the eligible rollover losses were incurred, it will be necessary first to apply subsection (6) to work out the unused amount for the year in which the losses were incurred, then to work out the unused amount for the next year of income and finally to work out the unused amount for the test year. This will involve applying more than one of the paragraphs in the subsection.

Note 2: The operative provisions (subsections (1) and (2)) refer to the sum of the unused amounts, for e.g. 1995-96, in relation to eligible rollover losses. To work out the sum, it is first necessary to apply subsection (6) separately to the eligible rollover losses incurred in each year of income in order to work out, for 1995-96, the unused amount of each, and then to add together all of the unused amounts.

Interest

(7) In this section:

interest means a share in a company or an interest in the income or capital of a partnership or trust.

Net capital loss

(8) For the purposes of this section, a company's net capital loss is worked out after applying section 160ZP if:

(a) the agreement mentioned in that section was made; and

(b) the gain year mentioned in that section ended;

before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997. Otherwise it is worked out before applying section 160ZP.

160ZP transfer amount

(9) For the purposes of this section, if a company's net capital loss for a year of income is worked out in accordance with subsection (8) after applying section 160ZP, the company has a 160ZP transfer amount for the year of income equal to the sum of the amounts by which its net capital loss for the year of income is deemed to be reduced under subsection 160ZP(7).