Continuity of ownership test: listed public company - arrangements affecting beneficial ownership of shares

Is a listed public company within Division 166 of the Income Tax Assessment Act 1997 (ITAA 1997) that is seeking to deduct a tax loss, subject to section 165-180 of the ITAA 1997 where, for the purposes of a test, the Commissioner may treat a person as not having beneficially owned particular shares at a particular time if the conditions in subsections 165-180(2) and 165-180(3) of the ITAA 1997 are met?

Yes. Subsection 166-165(2) of the ITAA 1997 states that section 165-180 of the ITAA 1997 also applies for the purposes of an ownership test in Subdivision 166-D of the ITAA 1997.

The taxpayer, Company S, has a tax loss from an earlier income year which it is seeking to deduct.

Company S is a listed public company within Division 166 of the ITAA 1997.

Company S meets the conditions in section 165-12 of the ITAA 1997 as modified by Division 166 of the ITAA 1997. Company C and Company D collectively have more than 50% of the voting power in Company S and rights to more than 50% of the dividends and capital distributions of Company S at each of the times in the test period specified in subsection 166-5(2) of the ITAA 1997.

In the 2004-05 income year, Company C acquires most of the shares that Company D beneficially owns in Company S. Company D holds on to a small number of shares in Company S following this transaction.

Subsection 166-5(1) of the ITAA 1997 states that Subdivision 166-A of the ITAA 1997 modifies the way Subdivision 165-A of the ITAA 1997 applies to listed public companies within Division 166 of the ITAA 1997. Accordingly, it cannot be said that Subdivision 166-A replaces or denies the application of Subdivision 165-A.

Under section 165-10 of the ITAA 1997 a company cannot deduct a tax loss unless it meets either the conditions in section 165-12 of the ITAA 1997 (which is about the company maintaining the same owners) or section 165-13 of the ITAA 1997 (which is about the company carrying on the same business).

For the purposes of a test, the Commissioner may pursuant to section 165-180 of the ITAA 1997 treat a person as not having beneficially owned particular shares at a particular time if the conditions in subsections 165-180(2) and 165-180(3) are met.

Subsection 166-165(2) of the ITAA 1997 states that section 165-180 of the ITAA 1997 also applies for the purposes of an ownership test in Subdivision 166-D of the ITAA 1997. The reference to a 'particular time' in section 165-180 is treated as if it were a reference to the ownership test time provided for in section 166-145 of the ITAA 1997.

In the circumstances of the present case, section 165-180 of the ITAA 1997 would apply if it were determined that by virtue of Company D retaining a small number of shares in Company S, an arrangement that meets the conditions specified in subsections 165-180(2) and 165-180(3) had been entered into.