Issue
If Debtor company and another company were not under common ownership at the times specified in subsection 245-225(2) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) can they still constitute a group of related companies for the purposes of Subdivision 245-G of Schedule 2C to the ITAA 1936?
Decision
Yes. Paragraph 245-225(3)(b) of Schedule 2C to the ITAA 1936 provides that the other company is taken to be included in the group of related companies for the purposes of subsection 245-225(2) if the two companies were under common ownership at any time within paragraph 245-225(3)(b) of Schedule 2C and the further conditions in either paragraph 245-225(3)(c) or paragraph 245-225(3)(d) of Schedule 2C are met.
Facts
Debtor Company has a net forgiven amount for the purpose of subsection 245-85(2) of Schedule 2C to the ITAA 1936 to be applied as a result of a forgiveness of a debt after 27 June 1996.
Debtor Company and Company R do not constitute a group of related companies for the purposes of subsection 245-225(2) of Schedule 2C to the ITAA 1936 as they were not under common ownership at the time the debt was forgiven nor at any time on the last day of the year of income immediately preceding the forgiveness year of income.
Debtor Company and Company R were under common ownership for part of the two years of income immediately preceding the forgiveness year of income but were not under common ownership during the income year in which the debt was forgiven.
Individual X was a 'controller' of Company R immediately before, and immediately after, Debtor Company and Company R ceased to be under common ownership and was also a controller of Debtor Company and Company R at the time when the debt was forgiven.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C applies where the forgiveness of a commercial debt occurs after 27 June 1996.
Pursuant to section 245-225 of Schedule 2C to the ITAA 1936 special rules in Subdivision 245-G of Schedule 2C apply in respect of the relevant debt if Debtor Company and at least one other company constitute a group of related companies.
Companies can be taken to constitute a group of related companies for the purposes of applying subsection 245-225(2) of Schedule 2C to the ITAA 1936 if they are historically related within the meaning of subsection 245-225(3) of Schedule 2C.
Paragraphs 245-225(3)(a), 245-225(3)(b) and 245-225(3)(c) of Schedule 2C to the ITAA 1936 apply as: (a) Subsection 245-225(2) of Schedule 2C does not apply. (b) Debtor Company and Company R were under common ownership at a time within the two years of income immediately preceding the forgiveness year of income. (c) Individual X was a common controller of Debtor Company and Company R at the relevant times specified in paragraph 245-225(3)(c) of Schedule C.
Accordingly, as Debtor Company and Company R constitute a group of related companies, Subdivision 245-G of Schedule 2C to the ITAA 1936 has application in respect of the relevant debt forgiveness.