Commonwealth Consolidated Acts

INCOME TAX (CONSEQUENTIAL AMENDMENTS) ACT 1997 - SCHEDULE 4

1 Paragraph 10(a)

After " Income Tax Assessment Act 1936 ", insert "or the Income Tax Assessment Act 1997 ".

2 Section 13

After " Income Tax Assessment Act 1936 ", insert "and the Income Tax Assessment Act 1997 ".

3 Paragraph 15(1)(a)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

4 Paragraph 15(1)(b)

Omit "that Act", substitute "the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997 ".

5 Subsection 15(2)

After " Income Tax Assessment Act 1936 ", insert "or section 8-1 of the Income Tax Assessment Act 1997 ".

6 Paragraph 15(3)(a)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

7 Paragraph 15(3)(b)

Omit "that Act", substitute "the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997 ".

8 Paragraph 16(1)(a)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

9 Paragraph 16(1)(b)

Omit "that Act", substitute "the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997 ".

10 Subsection 16(2)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

11 Paragraph 16(3)(a)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

12 Paragraph 16(3)(b)

Omit "that Act", substitute "the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997 ".

13 Subparagraph 17(1)(b)(i)

After " Income Tax Assessment Act 1936 ", insert "or section 6-5 of the Income Tax Assessment Act 1997 ".

14 Subparagraph 17(1)(b)(ii)

After " Income Tax Assessment Act 1936 ", insert "or section 8-1 of the Income Tax Assessment Act 1997 ".

15 Subsection 17(1)

Omit "that Act has", substitute "those Acts have".

16 Paragraph 17(2)(b)

After " Income Tax Assessment Act 1936 ", insert "or section 8-1 of the Income Tax Assessment Act 1997 ".

17 Subsection 17(2)

Omit "that Act has", substitute "those Acts have".

18 Paragraph 21(1)(d)

After " Income Tax Assessment Act 1936 ", insert "or section 8-1 of the Income Tax Assessment Act 1997 ".

19 Paragraph 21(2)(c)

After " Income Tax Assessment Act 1936 ", insert "or the Income Tax Assessment Act 1997 ".

20 Paragraph 21(2)(d)

After " Income Tax Assessment Act 1936 ", insert "or section 8-1 of the Income Tax Assessment Act 1997 ".

21 Before section 24 in Division 8

Insert:

Subdivision A—Tax losses and the Income Tax Assessment Act 1936
22 Before subsection 24(1)

Insert:

(1A)

This section does not enable a right to a deduction for an amount of a loss to be transferred in the 1997-98 year of income or a later year of income.

23 Section 26

Add at the end:

(2)

This section does not apply to assessments for the 1997-98 year of income and later years of income.

24 After section 26

Insert in Division 8:

Subdivision B—Tax losses and the Income Tax Assessment Act 1997
26A Application of this Subdivision

This Subdivision applies to assessments for the 1997-98 income year or a later income year.

26B Transfer of tax loss from transferring corporation to receiving corporation

In addition to its effect apart from this section, the Income Tax Assessment Act 1997 also has the effect it would have if Subdivision 170-A (which is about transferring tax losses within wholly-owned company groups) of that Act were replaced by Subdivision 170-A (which is a modified version of the rules in that Subdivision) in Schedule 1 to this Act.

26C Deduction for tax loss—easing of restrictions on transferring corporation

If:

(a)

this Act applies to one or more transfers by the transferring corporation to the receiving corporation; and

(b)

the transferring corporation is taken (otherwise than because of a transfer of a tax loss under section 80G of the Income Tax Assessment Act 1936 or Subdivision 170-A of the Income Tax Assessment Act 1997 ) to have incurred a tax loss for a year of income (the loss year ); and

(c)

the loss year is the income year in which section 26 of this Act commenced or an earlier income year; and

(d)

Subdivision 165-A or 175-A, or both, of the Income Tax Assessment Act 1997 prevent the transferring corporation from deducting an amount of that tax loss for an income year (the deduction year ); and

(e)

the transferring corporation did not, at any time in the deduction year, derive income from:

(i)

a business of a kind that it did not carry on; or

(ii)

a transaction of a kind that it had not entered into in the course of its business operations;

before the transfer, or the earliest of the transfers, occurred;

neither Subdivision 165-A nor 175-A of that Act prevents the transferring corporation from deducting that amount.

Note: Subdivision 165-A of the Income Tax Assessment Act 1997 is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.

Subdivision 175-A of the Income Tax Assessment Act 1997 is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.

25 At the end of the Act

Add:

Schedule 1—Tax losses and the Income Tax Assessment Act 1997
Subdivision 170-A—Transfer of tax losses from a transferring corporation to a receiving corporation
Guide to Subdivision 170-A
170-1 What this Subdivision is about

A transferring corporation (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 ) can transfer a tax loss to a receiving corporation (within the meaning of that Act) so that the receiving corporation can deduct it. The corporations must be related in such a way that that Act would apply to a transfer of assets from the transferring corporation to the receiving corporation.

Table of sections
170-5 Basic principles for transferring tax losses
Effect of transferring a tax loss
170-10 When a company can transfer a tax loss
170-15 Income company is taken to have incurred transferred loss
170-20 Who can deduct transferred loss
170-23 When income company must maintain same owners and control
170-25 Tax treatment of payment for transferred tax loss

Conditions for transfer
170-28 The Financial Corporations (Transfer of Assets and Liabilities) Act 1993 must apply to asset transfer from loss company to income company
170-32 The loss year
170-33 The transfer year
170-35 The loss company
170-50 Transfer by written agreement
170-55 Losses must be transferred in order they are incurred
170-60 Income company cannot transfer transferred tax loss
Effect of agreement to transfer more than can be transferred
170-65 Agreement transfers as much as can be transferred
170-70 Amendment of assessments
170-5 Basic principles for transferring tax losses

(1)

A transferring corporation (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 ) can transfer a tax loss to a receiving corporation (within the meaning of that Act) so that the receiving corporation can deduct it.

(2)

The corporations must be related in such a way that that Act would apply to a transfer of assets from the transferring corporation to the receiving corporation.

(3)

The receiving corporation need not have enough assessable income to offset the transferred tax loss.

(4)

The tax loss is transferred by an agreement between the 2 corporations.

Effect of transferring a tax loss
170-10 When a corporation can transfer a tax loss

(1)

A transferring corporation within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 (the loss company ) can transfer an amount of its ^* tax loss for an income year of the loss company (the loss year ) to a receiving corporation within the meaning of that Act (the income company ) if the conditions in this Subdivision are met.

(2)

The amount transferred can be the whole or part of the ^* tax loss.

Note: A PDF cannot transfer a tax loss, except one for a period before it became a PDF: see section 195-10.

(3)

However, the ^* loss company cannot transfer so much of the ^* tax loss as the loss company has deducted, or can deduct, for an income year before the one in which the amount is transferred.

170-15 Income company is taken to have incurred transferred loss

(1)

If an amount of a ^* tax loss is transferred, the ^* amount is taken to be a tax loss incurred by the ^* income company in the ^* loss year.

(2)

However, if the ^* loss year is the same as the income year of the ^* income company for which the amount is transferred (the transfer year ), the ^* income company is taken to have incurred the ^* tax loss in the income year before the loss year.

Note: This rule is needed because Division 36 allows a tax loss to be deducted only if it was incurred in an earlier income year.

170-20 Who can deduct transferred loss

(1)

If an amount of a ^* tax loss is transferred, the ^* income company can deduct the amount in accordance with section 36-15 (which is about how to deduct a tax loss), but only if Subdivision 165-A (as modified by section 170-23) and Subdivision 175-A do not prevent it from doing so.

Note: Subdivision 165-A is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.

Subdivision 175-A is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.

(2)

The ^* loss company can no longer deduct the transferred amount and is taken not to have incurred the ^* tax loss to the extent of that amount.

170-23 When income company must maintain same owners and control

(1)

Ordinarily, Subdivision 165-A prevents a company from deducting for an income year (the deduction year ) a tax loss if there has been a change in the ownership or control of the company between the loss year and the deduction year.

Note: Subdivision 165-A is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.

(2)

However, subsection (3) modifies that Subdivision so that the ^* income company is prevented from deducting for the deduction year a transferred amount of a ^* tax loss only if there has been a change in ownership or control in the income company between the transfer year and the deduction year.

(3)

That Subdivision applies to the transferred amount as if all references to " ^* loss year" in that Subdivision were references to " ^* transfer year".

170-25 Tax treatment of payment for transferred tax loss

(1)

A payment received for an amount of a ^* tax loss is neither assessable income nor exempt income of the ^* loss company.

(2)

The ^* income company cannot deduct a payment it makes for an amount of a ^* tax loss.

Conditions for transfer
170-28 Financial Corporations (Transfer of Assets and Liabilities) Act 1993 must apply to asset transfer from loss company to income company

If it were assumed that:

(a)

an asset (within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 ) had been transferred by the ^* loss company to the ^* income company on the last day of a particular income year of the ^* loss company (the notional transfer year ); and

(b)

the requirements of paragraphs 7(6)(a) and (b) of that Act were satisfied in relation to that transfer;

then it must be the case that that Act would have applied to that transfer.

170-32 The loss year

The ^* loss year must be either:

(a)

the income year in which the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced; or

(b)

an earlier income year.

170-33 The transfer year

(1)

The ^* transfer year must either:

(a)

end at the end of the ^* notional transfer year; or

(b)

correspond to the income year of the ^* loss company that next follows the ^* notional transfer year.

(2)

Also, the ^* transfer year must be one of the 5 income years after the income year in which the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 commenced.

170-35 The loss company

If the ^* loss year and the ^* transfer year are the same, it must be the case that the ^* loss company was not required to calculate the ^* tax loss under section 165-70 or 175-35.

170-50 Transfer by written agreement

(1)

The transfer must be made by a written agreement between the ^* loss company and the ^* income company.

(2)

The agreement must:

(a)

specify the ^* transfer year (which may be earlier than the income year in which the agreement is made); and

(b)

specify the amount of the ^* tax loss being transferred; and

(c)

be signed by the public officer of each company; and

(d)

be made on or before the day of lodgment of the ^* income company's ^* income tax return for the ^* transfer year, or within such further time as the Commissioner allows.

Note: The agreement will usually be made in the next income year after the one in which the tax loss is transferred.

170-55 Losses must be transferred in order they are incurred

(1)

If the ^* loss company has 2 or more ^* tax losses (other than ^* film losses) that it can transfer in the ^* transfer year, it can transfer them only in the order in which it incurred them.

(2)

If the ^* loss company has 2 or more ^* film losses that it can transfer in the ^* transfer year, it can transfer them only in the order in which it incurred them.

170-60 Income company cannot transfer transferred tax loss

The ^* income company cannot transfer an amount of a ^* tax loss transferred to it, or any part of the amount.

Effect of agreement to transfer more than can be transferred
170-65 Agreement transfers as much as can be transferred

(1)

If the amount specified in an agreement exceeds the maximum amount that the ^* loss company can transfer to the ^* income company in the ^* transfer year, only that maximum amount is taken to have been transferred.

(2)

One reason why an agreement might specify more than can be transferred is that an assessment has been amended since the agreement.

170-70 Amendment of assessments

The Commissioner may amend an assessment to disallow a deduction for a transferred amount of a ^* tax loss:

(a)

if the agreement to transfer the tax loss is ineffective because the ^* loss company did not actually incur the loss; or

(b)

to the extent that section 170-65 reduces the transferred amount of a tax loss because the loss company did not actually incur some of it.

The Commissioner may do so despite section 170 (Amendment of assessments) of the Income Tax Assessment Act 1936 .