ATO ID 2003/493: Meaning of tax loss: 'Saving Rule'- Part of tax loss deducted in an earlier income year
Date of decision: 22 May 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Where a loss company seeks to deduct the undeducted amount of a tax loss, is the relevant 'tax loss' for the purposes of subsection 165-12(7) of the Income Tax Assessment Act 1997 (ITAA 1997) that undeducted amount?

Decision
No. In satisfying the 'less than 50% of the tax loss' requirement in subsection 165-12(7) of the ITAA 1997, the relevant tax loss is the loss company's tax loss as calculated under section 36-10 of the ITAA 1997 and not any lesser undeducted amount thereof.

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 was able to deduct $60 of the $100 tax loss amount carried forward. In the second succeeding income year after the loss year, Loss Company was not able to satisfy the conditions in subsections 165-12(2), 165-12(3) and 165-12(4) of the ITAA 1997 due to the operation of the 'same share same interest rule' in section 165-165 of the ITAA 1997. Loss company was able to deduct the undeducted tax loss amount of $40 carried forward if the requirements of subsection 165-12(7) of the ITAA 1997 (the 'saving rule') were met, enabling the conditions in subsections 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 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' requirement in subsection 165-12(7) of the ITAA 1997, the relevant tax loss is the Loss Company's tax loss as calculated under section 36-10 of the ITAA 1997, that is $100, and not the undeducted $40 amount thereof. [HISTORY: This ATOID has been amended to include the (*) asterisk in subsection 165-12(7) that is a minor amendment to the provisions providing useful interpretation with reference to direct equity interests and indirect equity interests by making them defined terms under subsection 995-1(1) of ITAA 1997 with effect from 24 September 2007.]

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 subsection 995-1(1)
Subject references: Company losses