Transfer of tax losses from a company limited by shares to a company limited other than by shares

Can losses be transferred from a company limited by shares to a company limited other than by shares?

Yes. Losses can be transferred from a company limited by shares to a company limited other than by shares.

PCo (Inc) was a company limited other than by shares. It owned 100% of the shares in a subsidiary company, SCo Pty Limited.

The notice of assessment in relation to PCo (Inc) for a certain year of income showed an amount of taxable income. In arriving at that figure, tax losses had been transferred to PCo (Inc) from SCo Pty Limited. A further loss became available for transfer in that year when assessments of SCo Pty Limited were amended.

PCo (Inc) requested an amendment to its assessment, for the year of income in which the further loss became available, which would reduce taxable income by the amount of that loss.

Throughout the relevant year there was continuity of membership of PCo (Inc) of 50% or more.

Section 170-5 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines certain basic principles for transferring tax losses. Subsection 170-5(4) of the ITAA 1997 provides that neither the loss company nor the income company must be prevented from deducting the loss by Division 165 or Division 175 of that Act.

On the basis of the particular facts of the case, and in accordance with long-established ATO administrative practices, it is considered that Division 165 of the ITAA 1997does not prevent PCo (Inc) from deducting its own carry forward losses. Consequently, the two companies are able to make an agreement for the transfer of an additional amount of loss from SCo Pty Limited to PCo (Inc).