Company losses: company deregistration - incorporation of a new company

Can a company that bears the same characteristics as a company that was deregistered by the Australian Securities and Investments Commission (ASIC) claim deductions for tax losses incurred by the deregistered company?

No. A company that is incorporated with the same fundamental characteristics as a previously deregistered company, is a new company, and therefore, cannot claim deductions for prior year tax losses incurred by the deregistered company.

A company with prior year tax losses ceased its trading activities pursuant to the sale of its business to another entity. The company failed to lodge returns and other documentation with ASIC within the prescribed periods and ASIC deregistered the company in accordance with section 601AB of the Corporations Act 2001. Some time later, the principals of the company decided that the company should reacquire its previous business.

The principals initially sought reinstatement of the company by ASIC, but settled on registration of a new company that had the same name, underlying documentation, public officer, directors and shareholders (with the same proportionate shareholdings) as the deregistered company.

The deregistration of a company has the effect that the company ceases to exist on deregistration (subsection 601AD(1) of the Corporations Act 2001). ASIC may reinstate the registration of a company with effect that the company is taken to have continued in existence as if it had not been deregistered (section 601AH of the Corporations Act 2001).

The registration of a company, so that it may carry on the business previously carried on by the deregistered company, does not serve to reinstate the deregistered company. Instead, it establishes the existence of another company, albeit that it may bear the same characteristics as the deregistered company with the same persons having ownership and control.

Subdivision 36-A of the Income Tax Assessment Act 1997 allows a tax loss of an entity to be deducted by that entity in later income years. It does not allow the tax loss to be deducted by another entity. Common ownership and control of the deregistered company and the 'replacement' company do not negate the fact that the companies are separate entities. The replacement company is, therefore, prevented from claiming deductions for tax losses incurred by the deregistered company.