ATO ID 2003/659: Company losses: test time for same business test when a company has more than one majority change of ownership
Date of decision: 27 June 2003
Year of income: Year ending 30 June 2003
Business line: Public Groups and International

Issue
Does the test time for a company claiming a prior year tax loss under the same business test (SBT) in section 165-13 of the Income Tax Assessment Act 1997 (ITAA 1997) alter, where the company has undergone a majority ownership change for a second time during the ownership test period?

Decision
No. Under section 165-13 of the ITAA 1997, the test time under the SBT for a particular tax loss, is the time the company first had a majority ownership change during the ownership test period and not the time of a subsequent change of majority ownership.

Facts
A company incurred a tax loss in Year 1 and underwent a change of majority ownership in Year 2 followed by a second change of majority ownership in Year 3. The company continued to incur tax losses in Years 2 and 3. In Year 4 the company's assessable income exceeded deductions and it sought to deduct part of the tax loss carried forward from Year 1.

Reasons for decision
Summary: The SBT in section 165-13 of the ITAA 1997 is an alternative test when a company fails to meet a condition in section 165-12, which is about the company maintaining the same owners during the ownership test period. The ownership test period is the period from the start of the loss year to the end of the income year. If the company satisfies the SBT, it is entitled to claim a deduction for prior year tax losses. The SBT is set out in subsections 165-210(1), (2) and (3) of the ITAA 1997. The SBT compares the business carried on by the company throughout the income year (the same business test period) with the business it carried on immediately before the time when the COT is failed (the test time). The company in this case has undergone two changes of majority ownership during the ownership test period. The test time for the application of the SBT in relation to the Year 1 tax loss is the time in year 2 when the company first had a change of majority ownership and failed the continuity of ownership test. The subsequent change of majority ownership during the ownership test period does not alter the test time for the application of the SBT.

Legislative references: Income Tax Assessment Act 1997 section 165-12 section 165-13 subsection 165-210(1) subsection 165-210(2) subsection 165-210(3)
Subject references: Carry forward losses Company losses Continuity of ownership Same business test Test time