Issue
Can a prior year net capital loss be transferred between two companies in the same wholly-owned group, pursuant to Subdivision 170-B of the Income Tax Assessment Act 1997 (ITAA 1997), if the gain company was incorporated during the income year of the transfer (the 'application year').
Decision
No. The requirements of subsection 170-130(1) of the ITAA 1997 have not been satisfied as the gain company was not in existence during the capital loss year.
Facts
A loss company and a gain company are members of the same wholly-owned group.
The loss company had a surplus net capital loss available for transfer in respect of a particular income year (the 'application year'). The net capital loss had been made in an income year prior to the application year.
The gain company, which was incorporated during the application year, had an excess capital gain in that year.
Reasons for Decision
To transfer net capital losses between two companies within the same wholly-owned group, subsection 170-130(1) of the ITAA 1997 requires both companies to be in existence during at least part of each of the following years: the capital loss year, the application year and any intervening income year.
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.
As the gain company was not in existence during the year when the net capital loss was incurred , the prior year net capital loss cannot be transferred to the gain company.