Issue
Where a loss company is able to demonstrate some period when it satisfied the continuity of ownership test (COT), but is unable to identify the precise time when it failed to meet the test, 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. The loss company's test time for the purpose of applying the SBT is the latest time it is practicable to show it satisfied the COT pursuant to Item 1 of subsection 165-13(2) of the Income Tax Assessment Act 1997 ( ITAA 1997).
Facts
Loss company incurred tax losses for the 2000-01 and 2001-02 income years.
For the 2002-03 income year, Loss company's total assessable income exceeds its total deductions (except tax losses). Loss company wishes to deduct an amount of tax loss incurred for the 2000-01 income year.
Loss company is able to demonstrate that the COT was satisfied for the period 1 July 2000 to 30 April 2002. Immediately after 30 April 2002, there was a change in ownership of a significant shareholding in Loss company and, in the circumstances, it is not practicable for Loss company to trace ultimate beneficial ownership of another significant shareholding in Loss company held by a listed non-resident company, to demonstrate that it continued to satisfy the COT from that date.
Division 166 of the ITAA 1997 does not apply to Loss company.
Reasons for Decision
Section 165-12 of the ITAA 1997 requires the conditions of the COT to be satisfied at all times during the ownership test period from the start of the loss year (being 1 July 2000 in this instance) to the end of the income year (being 30 June 2003). If this test cannot be satisfied, a company must satisfy the SBT to be able to deduct a tax loss.
Item 1 of subsection 165-13(2) of the ITAA 1997 provides that where the COT conditions are satisfied for some period of the ownership test period starting at the start of the ownership test period (being 1 July 2000), the test time for the purposes of the SBT is the latest time that it is practicable to show is in the period. In this instance, the test time is 30 April 2002.