ATO ID 2003/502: Meaning of tax loss: 'saving rule'- loss not restricted to amounts deducted in the income year
Date of decision: 7 May 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Where a loss company has transferred part of its tax loss under Subdivision 170-A of the Income Tax Assessment 1997 (ITAA 1997) is the relevant 'tax loss' for the purposes of applying subsection 165-12(7) of the ITAA 1997 to the loss company, that part of the tax loss not transferred that is seeks to deduct in the income year?

Decision
No. The relevant tax loss figure is the whole of the tax loss that was not transferred under Subdivision 170-A of the ITAA 1997 and not just the part sought to be deducted in the relevant income year.

Facts
In the relevant loss year, Loss Company incurred a tax loss of $100 under section 36-10 of the ITAA 1997. In the first succeeding income year after the loss year, Loss Company could not deduct all or part of the $100 tax loss carried forward and transferred an amount of $70 under Subdivision 170-A of the ITAA 1997. In the second succeeding income year after the loss year, Loss Company was not able to satisfy the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 because of the operation of the 'same share same interest rule' in section 165-165 of the ITAA 1997. Loss Company was not able to deduct a part of the $30 tax loss carried forward unless the requirements of subsection 165-12(7) of the ITAA 1997 (the 'saving rule') were met, enabling the conditions in subsection 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 to be treated as having been satisfied.

Reasons for decision
Summary: Subsection 165-12(7) of the ITAA 1997 provides that where a condition in subsection 165-12(2), 165-12(3) or 165-12(4) is not satisfied, only because of the operation of section 165-165 of the ITAA 1997, that the condition can be taken as being satisfied where: the company has information from which it would be reasonable to conclude that less than 50% of the *tax loss has been reflected in deductions, capital losses or reduced assessable income, that occurred, or could occur in future, because of the happening of any *CGT event in relation to any *direct equity interests or *indirect equity interests in the company during the *ownership test period. *denotes a term defined in subsection 995-1(1) of the ITAA 1997 In satisfying the 'less than 50% of the tax loss' arrangement in subsection 165-12(7) of the ITAA 1997, the relevant tax loss amount is the Loss Company's tax loss as defined in section 36-10 of the ITAA 1997. Pursuant to subsection 170-20(2) of the ITAA 1997, the Loss Company can no longer deduct the amount of tax loss transferred under Subdivision 170-A of the ITAA 1997 and it is taken not to have incurred the tax loss to the extent of that amount. The relevant tax loss figure to be taken into account in satisfying the 'less than 50% of the tax loss' requirement in subsection 165-12(7) of the ITAA 1997 is the amount of tax loss not transferred, that is $30, and not just the amount sought to be deducted by the Loss Company in the particular income year.

Legislative references: Income Tax Assessment Act 1997 section 36-10 subsection 165-12(2) subsection 165-12(3) subsection 165-12(4) subsection 165-12(7) section 165-165 Subdivision 170-A subsection 170-20(2) section 995-1
Subject references: Company losses