Group company loss transfers - incorporation of income company in the deduction year

Can a prior year tax loss be transferred between two companies in the same wholly-owned group, pursuant to Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997), if the income company was incorporated during the income year of the transfer (the 'deduction year')?

No. A prior year tax loss cannot be transferred if the income company was incorporated during the income year of the transfer (the 'deduction year') because the income company does not meet the requirement of being in existence during the loss year and any intervening income year in terms of subsections 170-30(1) and 975-100(1) of the ITAA 1997.

A holding company and its 100 per cent subsidiary company are Australian residents.

The subsidiary company (the 'loss company') had surplus carry forward tax losses at the end of the current income year. The tax losses had been incurred in income years prior to that year.

At the commencement of the current income year another company (the 'income company') was incorporated as a 100 per cent subsidiary of the holding company. The income company made a profit during the current income year.

Subdivision 170-A of the ITAA 1997 allows for the transfer of tax losses within wholly-owned company groups if certain conditions are met.

One of the conditions for the transfer of losses is that both the loss company and the income company must be in existence during at least part of each of the loss year, the deduction year and any intervening year (subsection 170-30(1) of the ITAA 1997). The phrase 'in existence' is defined in subsection 975-100 of the ITAA 1997 as follows:

A company is in existence if: (a) it has been incorporated; and (b) has not been dissolved.

In this case, the income company was not in existence during the loss year(s) and intervening years. Accordingly, the loss company cannot transfer its prior year losses to the income company.