Division 170—Treatment of company groups for income tax purposes
Table of Subdivisions
170-A Transfer of tax losses within wholly-owned groups of companies
Subdivision 170-A—Transfer of tax losses within wholly-owned groups of companies
170-1 What this Subdivision is about
A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. Both companies must be members of the same wholly-owned group.
Table of sections
170-5 Basic principles for transferring tax losses
Effect of transferring a tax loss
170-10 When a company can transfer a tax loss
170-15 Income company is taken to have incurred transferred loss
170-20 Who can deduct transferred loss
170-25 Tax treatment of payment for transferred tax loss
Conditions for transfer
170-30 Companies must be in existence and members of the same wholly-owned group
170-35 The loss company
170-40 The income company
170-45 Maximum amount that can be transferred
170-50 Transfer by written agreement
170-55 Losses must be transferred in order they are incurred
170-60 Income company cannot transfer transferred tax loss
Effect of agreement to transfer more than can be transferred
170-65 Agreement transfers as much as can be transferred
170-70 Amendment of assessments
170-5 Basic principles for transferring tax losses
(1) A company can transfer a tax loss to another company so that the other company can deduct it in the income year of the transfer.
(2) Both companies must be members of the same *wholly-owned group. There are other eligibility requirements that they must also satisfy.
(3) The transferred loss must be "surplus" in the sense that the transferring company cannot use it because there is not enough assessable income to offset it. The other company must have enough assessable income to offset the transferred tax loss.
(4) Neither company must be prevented from deducting the loss by Division 165 or 175.
Note: Division 165 deals with the income tax consequences of changing ownership or control of a company. Division 175 deals with using a company’s tax losses to avoid income tax.
(5) The tax loss is transferred by an agreement between the 2 companies.
(6) The tax loss can be transferred in the same year as it is incurred. In that case different rules apply.
Effect of transferring a tax loss
170-10 When a company can transfer a tax loss
(1) A company (the loss company) can transfer an amount of its *tax loss for an income year (the loss year) to another company (the income company) if the conditions in this Subdivision are met.
(2) The amount transferred can be the whole or part of the *tax loss.
Note: A PDF cannot transfer a tax loss, except one for a period before it became a PDF: see section 195-10.
170-15 Income company is taken to have incurred transferred loss
(1) If an amount of a *tax loss is transferred, the *amount is taken to be a tax loss incurred by the *income company in the *loss year.
(2) However, if the *loss year is the same as the *income year of the transfer, the *income company is taken to have incurred the *tax loss in the income year before the loss year.
Note: This rule is needed because Division 36 allows a tax loss to be deducted only if it was incurred in an earlier income year.
170-20 Who can deduct transferred loss
(1) If an amount of a *tax loss is transferred, the *income company can deduct the amount in accordance with section 36-15 (which is about how to deduct a tax loss), but only for the income year of the income company for which the amount is transferred. That income year is called the deduction year.
(2) The *loss company can no longer deduct the transferred amount and is taken not to have incurred the *tax loss to the extent of that amount.
170-25 Tax treatment of payment for transferred tax loss
(1) A payment received for an amount of a *tax loss is neither assessable income nor exempt income of the *loss company.
(2) The *income company cannot deduct a payment it makes for an amount of a *tax loss.
Conditions for transfer
170-30 Companies must be in existence and members of the same wholly-owned group
(1) Both companies must be *in existence during at least part of each of the following income years:
(a) the *loss year; and
(b) the *deduction year; and
(c) any intervening income year.
(2) Also, both companies must be members of the same *wholly-owned group during the whole or part of those income years when both companies were *in existence.
(1) The *loss company:
(a) must be an Australian resident; and
(b) must not be a *dual resident investment company in either the *loss year or the *deduction year.
(2) If the *loss year and the *deduction year are the same, it must be the case that the *loss company was not required to calculate the *tax loss:
(a) under section 165-70 (because of a change in ownership or control); or
(b) under section 175-35 (because of injected income or deductions).
(3) Also, it must be the case that neither Subdivision 165-A nor Subdivision 175-A would have prevented the *loss company from deducting the *tax loss in the *deduction year if it had had enough assessable income (including *assessable film income) to offset the tax loss.
Note: Subdivision 165-A deals with the deductibility of a company’s tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year. Subdivision 175-A is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.
(1) The *income company must be an Australian resident.
(2) It must not be prevented by Division 165 or 175 from deducting the transferred amount in the *deduction year. Those Divisions do not apply to the *income company if the *loss year and the *deduction year are the same.
Note: Division 165 deals with the income tax consequences of changing ownership or control of a company. Division 175 deals with using a company’s tax losses to avoid income tax.
170-45 Maximum amount that can be transferred
Loss company can only transfer what it cannot use itself
(1) The amount transferred cannot exceed the amount of the *loss company’s *tax loss that, apart from the transfer, the loss company would carry forward to the next income year after the *deduction year.
Note: If the loss year and the deduction year are the same, the loss company would carry forward the whole of the tax loss, because Division 36 does not allow a tax loss to be deducted in the income year in which it was incurred.
Example: In the deduction year the loss company has:
·
a tax loss from an earlier income year of $25,000; and·
other deductions totalling $10,000; and·
assessable income of $20,000; and·
net exempt income of $3,000.Of the $25,000 loss, the loss company can transfer no more than $12,000 ($25,000 - (($20,000 + $3,000) - $10,000) to the income company.
Transferred loss must not exceed what the income company can use
(2) The amount transferred also cannot exceed the amount worked out as follows:
Method statement
Step 1. Add together the *income company’s assessable income and *net exempt income (if any) for the *deduction year.
Step 2. Subtract the *income company’s deductions for the *deduction year, except deductions for amounts of *tax losses transferred to the income company (by the *loss company or any other company).
Step 3. Subtract the *income company’s deductions for the *deduction year for amounts of *tax losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.
Example: In the deduction year:
Of the $50,000 loss, the loss company can transfer no more than $30,000 ($60,000+$10,000-$25,000-$15,000) to the income company.
(3) Subsection (2) does not apply if the *tax loss is a *film loss. In that case, the amount transferred also cannot exceed the amount worked out as follows:
Method statement
Step 1. Add together the *income company’s *net assessable film income and *net exempt film income (if any) for the *deduction year.
Step 2. Subtract the *income company’s deductions for the *deduction year for amounts of *film losses transferred to the income company (by the *loss company or any other company) by agreements made before the agreement by which the first amount is transferred.
170-50 Transfer by written agreement
(1) The transfer must be made by a written agreement between the *loss company and the *income company.
(2) The agreement must:
(a) specify the income year of the transfer (which may be earlier than the income year in which the agreement is made); and
(b) specify the amount of the *tax loss being transferred; and
(c) be signed by the public officer of each company; and
(d) be made on or before the day of lodgement of the *income company’s *income tax return for the *deduction year, or within such further time as the Commissioner allows.
Note: The agreement will usually be made in the next income year after the one for which the income company will deduct the loss.
170-55 Losses must be transferred in order they are incurred
(1) If the *loss company has 2 or more *tax losses (other than *film losses) that it can transfer in the *deduction year, it can transfer them only in the order in which it incurred them.
(2) If the *loss company has 2 or more *film losses that it can transfer in the *deduction year, it can transfer them only in the order in which it incurred them.
170-60 Income company cannot transfer transferred tax loss
The *income company cannot transfer an amount of a *tax loss transferred to it, or any part of the amount.
Effect of agreement to transfer more than can be transferred
170-65 Agreement transfers as much as can be transferred
(1) If the amount specified in an agreement exceeds the maximum amount that the *loss company can transfer to the *income company in the *deduction year, only that maximum amount is taken to have been transferred.
(2) One reason why an agreement might specify more than can be transferred is that an assessment has been amended since the agreement.
170-70 Amendment of assessments
The Commissioner may amend an assessment to disallow a deduction for a transferred amount of a *tax loss:
(a) if the agreement to transfer the tax loss is ineffective because the *loss company did not actually incur the loss; or
(b) to the extent that section 170-65 reduces the transferred amount of a tax loss because the loss company did not actually incur some of it.
The Commissioner may do so despite section 170 (Amendment of assessments) of the Income Tax Assessment Act 1936.
[The next Division is Division 175.]