Meaning of tax loss: 'Saving Rule'- Part of tax loss transferred in an earlier income year

Where a Loss company has transferred part of its tax loss under Subdivision 170-A of the Income Tax Assessment 1997 (ITAA 1997) is the relevant 'tax loss' for the purposes of applying subsection 165-12(7) of the ITAA 1997 to the loss company the amount of the tax loss not transferred?

Yes. Pursuant to subsection 170-20(2) of the ITAA 1997 a loss company is taken not to have incurred the amount of tax loss that has been transferred under Subdivision 170-A of the ITAA 1997.

In the relevant loss year Loss Company incurred a tax loss of $100 under section 36-10 of the ITAA 1997.

In the first succeeding income year after the loss year, Loss Company could not deduct all or part of the $100 tax loss carried forward and transferred an amount of $70 under Subdivision 170-A of the ITAA 1997.

In the second succeeding income year after the loss year, Loss Company was not able to satisfy the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 because of the operation of the 'same share same interest rule' in section 165-165 of the ITAA 1997. Loss Company was not able to deduct the $30 tax loss carried forward unless the requirements of subsection 165-12(7) of the ITAA 1997 (the 'saving rule') were met enabling the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 to be treated as having been satisfied.

Subsection 165-12(7) of the ITAA 1997 provides that where a condition in subsection 165-12(2), 165-12(3) or 165-12(4) is not satisfied, only because of the operation of section 165-165 of the ITAA 1997, the condition can be taken as being satisfied where: the company has information from which it would be reasonable to conclude that less than 50% of the *tax loss has been reflected in deductions, capital losses or reduced assessable income, that occurred, or could occur in future, because of the happening of any *CGT event in relation to any direct or indirect equity interests in the company during the *ownership test period. *denotes a term defined in subsection 995-1(1) of the ITAA 1997

In satisfying the 'less than 50% of the tax loss' requirement in subsection 165-12(7) of the ITAA 1997, the relevant tax loss amount is the Loss Company's tax loss as defined in section 36-10 of the ITAA 1997.

Pursuant to subsection 170-20(2) of the ITAA 1997, the Loss Company can no longer deduct the amount of tax loss transferred under Subdivision 170-A of the ITAA 1997, and is taken not to have incurred the tax loss to the extent of that amount. Accordingly the relevant tax loss amount is $30, that is, $100 less $70.