Group company loss transfers: excess franking offset converted into tax loss

Can a corporate tax entity transfer a tax loss, for the 2002-03 year of income, resulting from an excess franking offset under section 36-55 of the Income Tax Assessment Act 1997 (ITAA 1997) where the conditions for transfer under Subdivision 170-A of the ITAA 1997, as then applied, are satisfied?

Yes. A tax loss resulting from an excess franking offset can be transferred under Subdivision 170-A of the ITAA 1997, as then applied, where the conditions for transfer are satisfied.

For the 2002-03 year of income, corporate tax entity (loss company) has an excess franking offset under section 36-55 of the ITAA 1997 which is converted into a tax loss.

Loss company wishes to transfer this tax loss to income company for the 2002-03 year of income. Both loss company and income company satisfy the conditions for transfer under Subdivision 170-A of the ITAA 1997 as then applied.

Section 36-10 of the ITAA 1997 defines a tax loss and a loss year for the purposes of the income tax law including Subdivision 170-A of the ITAA 1997. Note 2 to section 36-10 provides that the meanings of tax loss and loss year are modified by section 36-55 of the ITAA 1997 (for the income year including 1 July 2002 and each later income year).

Section 36-55 of the ITAA 1997 provides for the conversion of an excess franking offset into a tax loss applying the method statement under subsection 36-55(2).

Subdivision 170-A of the ITAA 1997 as then applied for the 2002-03 year of income provided for the transfer of a tax loss from a loss company to an income company where the conditions for transfer are satisfied. This tax loss may represent a converted excess franking offset under the modified meaning of tax loss provided by section 36-55 of the ITAA 1997.