3.

3 Company Losses
Taxable Income or Tax Loss?

TAXABLE INCOME
Applying for prior year losses

TAX LOSS

TL = 100k
AI = 300k
Same Owners Test Period
s165(1)

Consider current year loss rules:

Apply rules if:
1) Co does not pass SOT or SBT
for income year s165-35, OR
2) Where person begins control
where purpose to get tax benefit
s165-40
YES

Was change in ownership >50% for:

1) Voting rights (s165-12(2))
2) Rights to dividend (s165-12(3))
3) Rights to capital distributions (s165-12(4))

Same Owners Test

(SOT) s165-12

YES: Failed

Apply current
year tax loss

NO

Primary test direct ownership s165-150(1), s165-155(1),

s165-160(1),
Alternative test indirect ownership (co owns another co)
s165-150(2), s165-155(2), s165-160(2)
Family trust concession s165-207 trustee is the individual
holding the interest
Alternative condition (165-F) satisfied if a) there is no change
in persons holding fixed entitlements b) every non-fixed trust that
holds a fixed interest satisfies ownership test itself

Partition income year

s165-45
-split income yr
according to change in
ownership or control

NO

Refer to CLP 7677

Apply tax loss to

taxable income

TL = 100k
Breached SOT

AI = 300k

Same Business
Test Period

Avondale Motors Pty Ltd v FCT

Business immediately before MUST EQUAL business in the year you are claiming deduction
Same Business Test (SBT) s16513(1)
- if company fails SOT, it can
deduct TL if it satisfies SBT
-For TL occurring after 1/07/2005,
cos and consolidated groups with
total income (s165-212B) >$100M
cannot satisfy SBT s165-212A

Same Business Test (s165-210(1)) +ve

Requires co to carry on same business in both periods
TR 99/9 para 13
- imports identity and not merely similarity
(Avondale Motors Pty Ltd v FCT)
-sense of identical business
- same kind (lecture notes)
- if evolution process changes essential character, or sudden and
dramatic change
fail!
SATISFY
Look at negative tests.
Was AI (s165-210(2)) or expenditure
(s165-210(4)) derived from:

New Business Test (s165-210(2)(a) & (4)(a)) -ve

Fails test if co carried on a business of a kind that it did not carry
on immediately before
TR 99/9 para 14
- reference to business of a kind Refers to each kind of
enterprise or undertaking comprised in the overall business
carried on by the co during the period
SATISFY
New Transactions Test (s165-210(2)(b) &(4)(a)) -ve
Fails test if co entered into a transaction of a kind that it had not entered into in
the course of its business operations before test time
TR 99/9 para 15
- directed to preventing the injection of income into loss co that has satisfied
above 2 tests
- transaction entered into which is outside the course of the business operations
before the change over, or which us extraordinary or unusual relative to course
of business operations
Fail!

SATISFY

Apply to tax loss

FAIL

Cannot apply tax loss

to taxable income

Control Test: Widely held co/Div 166 Company

-Div 166 modifies rules in Div 165, however cos may
choose to ignore s166-15
Widely Held Company
1) >50 members, unless:
a)<20 members have 75% voting, value, dividend
Div 166 Company
>50% of voting, dividends/capital held by one or more:
widely held cos, superfund, ADF, non-profit companies
etc CLP73
Benefits:
Only require maintenance of same owners between certain
points of time (rather than throughout period)
1) Start of loss year
2) End of each corporate change s166-175
3) End of loss year
*Div 175 outlines anti-avoidance provisions CLP74
Ken Choi 2007