Issue
Where a loss company cannot show that it satisfies the continuity of ownership test (COT) for any period from the start of the loss year, does the loss company have a test time for the purpose of applying the same business test (SBT), in order to deduct a tax loss?
Decision
Yes. Pursuant to Item 2 of subsection 165-13(2) of the Income Tax Assessment Act 1997 (ITAA 1997), a loss company's test time for the purpose of applying the SBT is the start of the loss year, where it is not practicable for the loss company to show that it satisfies the COT for any period from the start of the loss year.
Facts
Loss company incurred a tax loss in the 1999-2000 income year (the loss year).
Loss company was in being throughout the loss year.
The majority shareholder in Loss company is Company X which is not a resident in terms of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Under the laws of the jurisdiction in which it is registered, Company X may disclose the names of its shareholders but it is not legally obliged to do so. Company X has refused to disclose that information in the present case.
For the 2003-04 income year Loss company's total assessable income exceeds its total deductions (except tax losses). Loss company seeks to deduct the tax loss that it incurred in the 1999-2000 income year.
Division 166 of the ITAA 1997 does not apply to Loss company.
Reasons for Decision
Section 165-13 of the ITAA 1997 provides that in order to deduct a tax loss, a company must satisfy the SBT if it fails to meet the COT or it is not practicable for it to show that it meets the COT.
Further, pursuant to Item 2 of subsection 165-13(2) of the ITAA 1997, if it is not practicable for a company to show that it has satisfied the COT for any period from the start of the loss year, and the company was in being throughout the loss year, the test time for the purpose of applying the SBT is the start of the loss year.
As Company X has refused to disclose the names of its shareholders, it is not practicable for Loss company to show that it has satisfied the COT for any period from the start of the loss year.
Accordingly, Loss company's test time for the purpose of applying the SBT is the start of the loss year as Loss company was in being at all times during the loss year.