Commonwealth Consolidated Acts Commonwealth Consolidated ActsPart 1 -- Income Tax Assessment Act 1997
1 Section 165 - 115
Repeal the section, substitute:
165 - 115 What this Subdivision is about
If a change occurs in the ownership or control of a company that has an unrealised net loss, the company cannot, to the extent of the unrealised net loss, have capital losses taken into account, or deduct revenue losses, in respect of CGT events that happen to CGT assets that it owned at the time of the change, unless it satisfies the same business test.
165 - 115AA Special rules to save compliance costs
(1) A company is exempt from these rules if, at the time of the change in ownership or control, it (together with certain related entities) has a net asset value of not more than $5,000,000 under the test in section 152 - 15 (for small business CGT relief).
(2) In working out whether it has an unrealised net loss, a company can choose to work out the market value of each of its assets individually, or of all of its assets together.
(3) If a company works out the market value of each of its assets individually, it may choose to exclude every asset that it acquired for less than $10,000, in which case:
(a) unrealised losses and gains on the excluded assets will not be taken into account in calculating the company's unrealised net loss; and
(b) losses on the excluded assets will be allowed without the company being subject to the same business test.
2 At the end of subsection 165 - 115A(1B)
Add:
However, the choice does not affect the application of the * global method of working out whether the company has an unrealised net loss (see subsection 165 - 115E(2)).
3 Section 165 - 115E
After "this way", insert "(the individual asset method ), unless the company chooses to work it out using the * global method (set out in subsection ( 2))".
4 At the end of section 165 - 115E
Add:
(2) The global method of working out whether the company has an unrealised net loss at the relevant time is as follows:
Method statement
Step 1. Work out the total market value of all * CGT assets that the company owned at the relevant time (including those it * acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.
Step 2. Work out the total of the * cost bases of those * CGT assets at the relevant time.
Note: If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection ( 3) of this section.
Step 3. If the step 2 amount exceeds the step 1 amount, the excess is the company's preliminary unrealised net loss at the relevant time.
Step 4. Add up the company's preliminary unrealised net loss and any * capital loss, deduction or share of a deduction disregarded under section 170 - 270 in relation to an asset referred to in paragraph 165 - 115A(1A)(b). The total is the company's unrealised net loss at the relevant time.
(3) If:
(a) a * CGT asset that the company owned at the relevant time was also * trading stock or a * revenue asset at that time; and
(b) the asset's * cost base at the relevant time is less than the amount that would be compared under section 165 - 115F with the asset's market value in working out a notional revenue gain or notional revenue loss that the company has at the relevant time in respect of the asset;
then, for the purposes of step 2 of the method statement in subsection ( 2) of this section, the amount that would be so compared is to be taken into account instead of that cost base.
(4) A choice to use the * global method must be made on or before:
(a) the day on which the company lodges its income tax return for the income year in which the relevant time occurred; or
(b) such later day as the Commissioner allows.
5 Subsection 165 - 115F(7)
Repeal the subsection.
6 Section 165 - 115G
Repeal the section, substitute:
165 - 115GA What this Subdivision is about
This Subdivision prevents multiple recognition of a company's losses when significant equity and debt interests that entities (not individuals) have in the company are realised.
165 - 115GB When adjustments must be made
(1) The operation of this Subdivision is triggered at an alteration time, which is when:
(a) an alteration takes place in the ownership or control of the company; or
(b) the liquidator of the company declares that shares in the company are worthless ( CGT event G3).
(2) An alteration time is the trigger for making reductions and other adjustments to the reduced cost base of significant equity and debt interests in the company that are owned by an entity (not an individual) that, alone or with its associates, has a controlling stake in the company and either:
(a) has a direct or indirect equity interest of at least 10% in the company; or
(b) is owed a debt of at least $10,000 by the company or by another entity that has a significant equity or debt interest in the company.
Deductions that relate to such interests held as trading stock or otherwise on revenue account are also reduced.
(3) Adjustments may also be made when such an entity's interests in the company are partly realised within 12 months before an alteration time or if, under an arrangement, such interests are realised partly within that period or at the alteration time and partly at an earlier time.
(4) However, entities in which there are no interests in respect of which the company's losses have been, or can be, duplicated are not affected by this Subdivision.
165 - 115GC How adjustments are calculated
(1) Adjustments are based on the overall loss of the company. This comprises its realised losses and unrealised losses on CGT assets.
(2) Special rules, directed at saving compliance costs, apply to determine whether unrealised losses have to be counted at an alteration time and, if so, how to work them out.
(3) The company may not have to calculate its unrealised losses if the alteration time is not also a changeover time for the purposes of Subdivision 165 - CC (about change of ownership or control of a company that has an unrealised net loss), and the company has no realised losses.
(4) The company does not have to count unrealised losses at an alteration time if (together with certain related entities) it has a net asset value of not more than $5,000,000 under the test in section 152 - 15 (for small business CGT relief).
(5) In working out its unrealised losses on CGT assets, the company can choose to work out the market value of each of its assets individually, or of all of its assets together.
(6) If the company works out the market value of each of its assets individually, unrealised losses on assets acquired for less than $10,000 do not have to be calculated at any time.
(7) Amounts (whether realised or unrealised) counted at a previous alteration time are not counted again at a later alteration time. (This does not apply to unrealised losses worked out by reference to the market value of all the company's assets together.)
(8) However, if unrealised amounts are not counted at a previous alteration time (for example, because of the $10,000 or small business entity exclusions) and are not required to be taken into account in adjustments made at that time, they may be counted at a later time as part of a realised loss.
(9) A formula is provided for making adjustments in straightforward cases if applying the formula gives a reasonable result having regard to the object of the Subdivision. Otherwise, reasonable adjustments must be made having regard to a number of stated factors.
(10) To help entities to make the adjustments, any entity that, in its own right, has a controlling stake in the company is required to provide a written notice to its associates setting out relevant information. In limited circumstances, the company itself may have to provide a written notice to entities that, to its knowledge, have a significant equity or debt interest in it.
7 After subsection 165 - 115R(6)
Insert:
(6A) Subsection ( 6) does not apply to paragraphs ( 3)(e) and (5)(e) if the company has chosen to use the * global method of working out whether it has an adjusted unrealised loss at the alteration time.
8 After subsection 165 - 115S(6)
Insert:
(6A) Subsection ( 6) does not apply to paragraphs ( 3)(c) and (5)(c) if the company has chosen to use the * global method of working out whether it has an adjusted unrealised loss at the current alteration time.
9 At the end of section 165 - 115T
Add:
(2) Subsection ( 1) does not apply to an adjusted unrealised loss that the company had at a previous alteration time if the company has chosen to use the * global method of working out whether it has an adjusted unrealised loss at that previous time.
10 Subsection 165 - 115U(1)
After "this way", insert "(the individual asset method ), unless the company chooses to work it out using the * global method (set out in subsection ( 1B))".
11 After subsection 165 - 115U(1)
Insert:
(1A) Step 1 in the method statement in subsection ( 1) does not apply to an amount that was counted at an earlier alteration time if the company has chosen to use the * global method of working out whether it has an adjusted unrealised loss at that earlier time.
(1B) The global method of working out whether the company has an adjusted unrealised loss at the relevant alteration time is as follows:
Method statement
Step 1. Work out the total market value of all * CGT assets that the company owned at the relevant alteration time (including those it * acquired for less than $10,000), using a valuation method that would generally be regarded as appropriate in the circumstances.
Step 2. Work out the total of the * cost bases of those * CGT assets at the relevant time.
Note: If a CGT asset that the company owned at the relevant time was also trading stock or a revenue asset at that time, see subsection ( 1C) of this section.
Step 3. If the step 2 amount exceeds the step 1 amount, the excess is the company's adjusted unrealised loss at the relevant time.
(1C) If:
(a) a * CGT asset that the company owned at the relevant alteration time was also * trading stock or a * revenue asset at that time; and
(b) the asset's * cost base at the relevant alteration time is less than the amount that, if the relevant alteration time were a changeover time, would be compared under section 165 - 115F with the asset's market value in working out a notional revenue gain or notional revenue loss that the company would have at the changeover time in respect of the asset;
then, for the purposes of step 2 of the method statement in subsection ( 1B) of this section, the amount that would be so compared is to be taken into account instead of that cost base.
(1D) A choice to use the * global method must be made on or before:
(a) the day on which the company lodges its income tax return for the income year in which the relevant alteration time occurred; or
(b) such later day as the Commissioner allows.
12 Subsection 165 - 115V(8)
Repeal the subsection.
13 After subsection 165 - 115W(1)
Insert:
(1A) Step 2 in the method statement in subsection ( 1) does not apply to an amount counted at an earlier alteration time if the company has chosen to use the * global method of working out whether it has an adjusted unrealised loss at that earlier time.
14 At the end of subsection 165 - 115ZA(1)
Add:
Note: This section and section 165 - 115ZB can apply differently for a company that has used the global method of working out whether it has an adjusted unrealised loss at an alteration time. See section 165 - 115ZD.
15 At the end of Subdivision 165 - CD
Add:
(1) This section affects how sections 165 - 115ZA and 165 - 115ZB apply to an interest (the equity ) in, or a debt owed by, a company if, apart from this section, a loss:
(a) would be * realised for income tax purposes by a * realisation event that happens to the equity or debt; or
(b) would be so realised but for Subdivision 170 - D (which defers realisation of capital losses and deductions);
and the company chose to use the * global method of working out whether it had an adjusted unrealised loss at the last alteration time:
(c) that happened for the company before the realisation event; and
(d) immediately before which the equity or debt was, or was part of:
(i) if the company was a * loss company at that alteration time--a relevant equity interest, or a relevant debt interest, that an entity had in the company; or
(ii) otherwise--what would have been such an interest if the company had been a loss company at that alteration time.
Note: If that last alteration time is before the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent, the owner of the equity or debt may choose to apply section 165 - 115ZD of the Income Tax (Transitional Provisions) Act 1997 instead of this section.
(2) In addition to any application to the equity or debt, in relation to that last alteration time, that sections 165 - 115ZA and 165 - 115ZB have apart from this section, those sections apply (and are taken always to have applied) to the equity or debt, in relation to that last alteration time, as if:
(a) the company had an adjusted unrealised loss at that time worked out under this section; and
(b) the company were therefore a * loss company at that time; and
(c) that adjusted unrealised loss were the company's overall loss at that time.
(3) For the purposes of how sections 165 - 115ZA and 165 - 115ZB apply because of this section, the adjustment amount under section 165 - 115ZB is to be worked out and applied in accordance with subsection 165 - 115ZB(6) (the non - formula method).
Adjusted unrealised loss worked out under this section
(4) The adjusted unrealised loss referred to in paragraph ( 2)(a) is worked out using this method statement:
Method statement
Step 1. Add up the amount or value of each thing covered by subsection ( 5).
Step 2. If the step 1 amount exceeds the loss referred to in paragraph ( 1)(a), reduce the step 1 amount by the excess.
Step 3. Reduce the step 2 amount by so much of the loss referred to in paragraph ( 1)(a) as it is reasonable to conclude is attributable to none of these:
(a) a notional capital loss, or a notional revenue loss, that the company has at that last alteration time in respect of a * CGT asset;
(b) a trading stock decrease in relation to that time for a CGT asset that was * trading stock of the company at that time.
(5) This subsection covers each thing covered by an item in the table, except to the extent that:
(a) it is reasonable to conclude that the thing was not attributable to value that is reflected in a notional capital gain or notional revenue gain that the company has at that last alteration time in respect of a * CGT asset; or
(b) the thing has resulted in a reduction of the * reduced cost base of the equity or debt.
Things that might expose an unrealised loss netted off by use of global method | |
Item | Thing covered |
1 | A * dividend that the company pays during the period referred to in subsection ( 6) |
2 | A thing that is taken under this Act to be a dividend and that the company pays during the period referred to in subsection ( 6) |
3 | A distribution of income or capital to a * member that the company makes during the period referred to in subsection ( 6) and is not covered by item 1 or 2 |
4 | An amount of income tax to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event that happens, during the period referred to in subsection ( 6), to a * CGT asset (in its character as a CGT asset, * trading stock or a * revenue asset) that the company owned at that last alteration time and * acquired for not less than $10,000 |
5 | A loss or outgoing to which the company becomes liable at any time, to the extent that it is reasonably attributable to a realisation event of the kind referred to in item 4 |
6 | The difference between: (a ) the * capital proceeds (as worked out under subsection ( 7)) of a * CGT event: (i ) that happens, during the period referred to in subsection ( 6), to a * CGT asset that the company owned at that last alteration time and * acquired for not less than $10,000; and (ii ) as a result of which the asset is * acquired by an entity that is an * associate of the company at the time of the CGT event; and (b ) the market value of the asset at the time of the CGT event; but only if those capital proceeds are less than that market value |
(6) The period starts at that last alteration time and ends at the earlier of:
(a) the time of the * realisation event referred to in paragraph ( 1)(a); or
(b) the time immediately before the earliest time when the equity or debt is no longer, or is no longer part of:
(i) if the company was a * loss company at that last alteration time--a relevant equity interest, or a relevant debt interest, that an entity has in the company; or
(ii) otherwise--what would have been such an interest if the company had been a loss company at that last alteration time.
(7) For the purposes of item 6 of the table in subsection ( 5), the * capital proceeds of the * CGT event are to be worked out:
(a) under subsection 116 - 20(1) only; and
(b) disregarding subsection 103 - 10(1) and paragraph 103 - 10(2)(a) (about entitlement to receive money or property).
Notices under section 165 - 115ZC not affected
(8) To avoid doubt:
(a) a notice need not be given under section 165 - 115ZC because of this section; and
(b) this section does not affect the requirements that apply to a notice that otherwise must be given under that section.
Part 2 -- Income Tax (Transitional Provisions) Act 1997
16 Before Subdivision 165 - C
Insert:
Subdivision 165 - CC -- Change of ownership or control of company that has an unrealised net loss
165 - 115E Choice to use global method to work out unrealised net loss
A choice under section 165 - 115E of the Income Tax Assessment Act 1997 to use the global method of working out whether a company has an unrealised net loss at a particular time must be made within 6 months after the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent if:
(a) that time is before that day; and
(b) subsection 165 - 115E(4) of that Act would otherwise require the choice to be made before the end of those 6 months.
Subdivision 165 - CD -- Reductions after alterations in ownership or control of loss company
Table of sections
165 - 115U Choice to use global method to work out adjusted unrealised loss
165 - 115ZC When certain notices to be given
165 - 115ZD Adjustment (or further adjustment) for interest realised at a loss after global method has been used
165 - 115U Choice to use global method to work out adjusted unrealised loss
A choice under section 165 - 115U of the Income Tax Assessment Act 1997 to use the global method of working out whether a company has an adjusted unrealised loss at a particular time must be made within 6 months after the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent if:
(a) that time is before that day; and
(b) subsection 165 - 115U(1D) of that Act would otherwise require the choice to be made before the end of those 6 months.
165 - 115ZC When certain notices to be given
(1) A notice under subsection 165 - 115ZC(4) or (5) of the Income Tax Assessment Act 1997 must be given within 6 months after the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent if the alteration time is before that day.
(2) If, because of amendments made by Schedule 14 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 , a notice already given under subsection 165 - 115ZC(4) or (5) of the Income Tax Assessment Act 1997 before the day referred to in subsection ( 1) of this section no longer complies with section 165 - 115ZC of the Income Tax Assessment Act 1997 , the entity required to give the notice may comply with that section 165 - 115ZC by giving a further notice.
(3) The further notice:
(a) must vary the notice referred to in subsection ( 2) in such a way (which may include setting out additional information) that the notice as varied complies with section 165 - 115ZC of the Income Tax Assessment Act 1997 as affected by the amendments; and
(b) must be given within the 6 months referred to in subsection ( 1) of this section, or within a further period allowed by the Commissioner; and
(c) must otherwise be given in accordance with that section.
(1) This section affects how sections 165 - 115ZA and 165 - 115ZB of the Income Tax Assessment Act 1997 apply to an interest (the equity ) in, or a debt owed by, a company if apart from this section, a loss:
(a) would be realised for income tax purposes by a realisation event that happens to the equity or debt; or
(b) would be so realised but for Subdivision 170 - D of that Act (which defers realisation of capital losses and deductions);
and the company chose to use the global method of working out whether it had an adjusted unrealised loss at the last alteration time:
(c) that happened for the company, before the realisation event; and
(d) immediately before which the equity or debt was, or was part of:
(i) if the company was a loss company at that alteration time--a relevant equity interest, or a relevant debt interest, that an entity had in the company; or
(ii) otherwise--what would have been such an interest if the company had been a loss company at that alteration time;
and these conditions are satisfied:
(e) that last alteration time is before the day on which the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 received the Royal Assent; and
(f) the entity that owns the equity or debt immediately before the realisation event chooses to apply this section to the equity or debt, in relation to that last alteration time, instead of section 165 - 115ZD of the Income Tax Assessment Act 1997 ; and
(g) the choice is made on or before the latest of these:
(i) the last day of the period of 6 months after the day referred to in paragraph ( c) of this subsection;
(ii) the day on which the entity lodges its income tax return for the income year in which the realisation event occurred;
(iii) such later day as the Commissioner allows.
If the entity makes that choice, this section applies accordingly instead of that section.
(2) In addition to any application to the equity or debt, in relation to that last alteration time, that sections 165 - 115ZA and 165 - 115ZB of the Income Tax Assessment Act 1997 have apart from this section, those sections apply (and are taken always to have applied) to the equity or debt, in relation to that last alteration time, as if:
(a) the company had an adjusted unrealised loss at that time equal to the loss referred to in paragraph ( 1)(a) of this section, except so much of the loss as it is reasonable to conclude is attributable to none of these:
(i) a notional capital loss, or a notional revenue loss, that the company has at that last alteration time in respect of a CGT asset;
(ii) a trading stock decrease in relation to that time for a CGT asset that was trading stock of the company at that time; and
(b) the company were therefore a * loss company at that time; and
(c) that adjusted unrealised loss were the company's overall loss at that time.
(3) For the purposes of how sections 165 - 115ZA and 165 - 115ZB of the Income Tax Assessment Act 1997 apply because of this section, the adjustment amount under section 165 - 115ZB of that Act is to be worked out and applied in accordance with subsection 165 - 115ZB(6) (the non - formula method) of that Act.
(4) To avoid doubt:
(a) a notice need not be given under section 165 - 115ZC of the Income Tax Assessment Act 1997 because of this section; and
(b) this section does not affect the requirements that apply to a notice that otherwise must be given under that section.
Part 3 -- Dictionary amendments
Income Tax Assessment Act 1997
17 Subsection 995 - 1(1)
Insert:
"global method" :
(a) of working out whether a company has an unrealised net loss at a particular time, has the meaning given by section 165 - 115E; and
(b) of working out whether a company has an adjusted unrealised loss at a particular time, has the meaning given by section 165 - 115U.
18 Subsection 995 - 1(1)
Insert:
"individual asset method" :
(a) of working out whether a company has an unrealised net loss at a particular time, has the meaning given by section 165 - 115E; and
(b) of working out whether a company has an adjusted unrealised loss at a particular time, has the meaning given by section 165 - 115U.
Part 4 -- Application of amendments
19 Application
The amendments made by this Schedule apply to a time at or after 1 pm (by legal time in the Australian Capital Territory) on 11 November 1999.