Group company loss transfers: two companies wholly-owned by a corporate unit trust

Can a loss company transfer a tax loss to an income company under Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997) as it applied in respect of an income year starting before 30 June 2003, if both companies were wholly-owned at all relevant times by a corporate unit trust?

No. Section 170-30 of the ITAA 1997 as it applied in respect of income years starting before 30 June 2003 only allowed a tax loss to be transferred between companies within the same wholly-owned group. The two companies would not be members of the same wholly-owned group within the meaning of section 975-500 of the ITAA 1997.

A company (the 'loss company') incurred a tax loss in an income year (the 'loss year') which started before 30 June 2003. Another company (the 'income company') derived assessable income in the same income year.

Both companies were wholly-owned by a corporate unit trust during the whole of that year. The trust had not made a choice under section 703-50 of the ITAA 1997 to form a consolidated group.

Subdivision 170-A of the ITAA 1997 as it applied in respect of income years starting before 30 June 2003 operated to allow a loss company to transfer an amount of its tax loss to another company within the 'same wholly-owned group' if the conditions for transfer in Subdivision 170-A of the ITAA 1997 were satisfied. The 'same wholly-owned group' conditions were contained in section 170-30 of the ITAA 1997 as it then applied.

Section 975-500 of the ITAA 1997 defines that two companies are members of the 'same wholly-owned group' if: (a) one of the companies is a 100% subsidiary of the other company; or (b) each of the companies is a 100% subsidiary of the same third company.

Although the 'corporate unit trust' (as defined at section 102J of the Income Tax Assessment Act 1936 (ITAA 1936)) would be treated like a company for certain tax purposes, it is not a company and, hence, it cannot be regarded as a holding company for the loss company and the income company. It follows that the corporate unit trust cannot be 'the same third company' referred to in paragraph 975-500(b) of the ITAA 1997.

As a result, the loss company and the income company were not members of the same wholly-owned group within the meaning of section 975-500 of the ITAA 1997, and therefore, no loss transfer is permitted under Subdivision 170-A of the ITAA 1997 as it applied in respect of the relevant income year. Note 1: A loss company also would not be able to transfer a tax loss to an income company in respect of an income year starting before 30 June 2003 if both companies were wholly-owned by a public trading trust, as defined at section 102R of the ITAA 1936. Note 2: Tax Laws Amendment (2004 Measures No. 2) Act 2004 inserted the new Subdivision 713-C of the ITAA 1997 effective from 1 July 2002. This Subdivision allows a public trading trust or a corporate unit trust to choose to be a head company of a consolidated group under section 703-50 of the ITAA 1997 as if the trust were a company. Once a public trading trust or a corporate unit trust has made the choice, it will continue to be treated like a company for income tax and related purposes for the rest of its existence. However, this treatment under the new Subdivision 713-C will not be relevant for the purposes of this interpretive decision.