ATO ID 2005/8: Continuity of ownership test: listed public company - same people must control the voting power or company must carry on same business
Date of decision: 20 December 2004
Year of income: Year ended 30 June 2005
Business line: Public Groups and International

Issue
Is a listed public company within Division 166 of the Income Tax Assessment Act 1997 (ITAA 1997) that is seeking to deduct a tax loss, subject to section 165-15 of the ITAA 1997 which requires that the same people must control the voting power, or the company must carry on the same business?

Decision
Yes. Subdivision 166-A of the ITAA 1997 does not modify the way section 165-15 of the ITAA 1997 applies to a company that is a listed public company.

Facts
The taxpayer, Company S, incurred a tax loss in an earlier income year which it is now seeking to deduct. Company S is a listed public company within Division 166 of the ITAA 1997. Company S meets the conditions in section 165-12 of the ITAA 1997 as modified by Division 166 of the ITAA 1997. Company G and Company H collectively have more than 50% of the voting power and rights to more than 50% of the dividends and capital distributions in respect of Company S at each of the times in the test period referred to in subsection 166-5(2) of the ITAA 1997. In an income year following the loss year, Company H acquires additional shares in Company S. Following this transaction Company H has more than 50% of the shares in Company S.

Reasons for decision
Summary: Subsection 166-5(1) of the ITAA 1997 states that Subdivision 166-A of the ITAA 1997 modifies the way Subdivision 165-A of the ITAA 1997 applies to listed public companies within Division 166 of the ITAA 1997. Accordingly, it cannot be said that Subdivision 166-A replaces or denies the application of Subdivision 165-A. Under section 165-10 of the ITAA 1997, a company cannot deduct a tax loss unless it meets either the conditions in section 165-12 of the ITAA 1997 (which is about the company maintaining the same owners) or section 165-13 of the ITAA 1997 (which is about the company carrying on the same business). Even if a company meets the conditions in section 165-12 or section 165-13 of the ITAA 1997, it cannot deduct a tax loss unless it meets the requirements in section 165-15 of the ITAA 1997 that the same people must control the voting power, or the company must carry on the same business. Subdivision 166-A of the ITAA 1997 does not modify the way that section 165-15 of the ITAA 1997 applies to a company that is a listed public company. Accordingly, listed public companies under Division 166 of the ITAA 1997 must meet the requirements in section 165-15. In the terms of the present case, Company S will be subject to section 165-15 of the ITAA 1997 even if it satisfies section 165-12 of the ITAA 1997. Accordingly, Company S would not be able to deduct the tax loss if Company H began to control, or became able to control, the voting power in Company S for the purpose of getting some benefit or advantage in relation to how the ITAA 1997 applies, or getting such a benefit or advantage for someone else, or for purposes including that purpose. However, Company S would be able to deduct the tax loss in these circumstances if it satisfies the same business test.

Legislative references: Income Tax Assessment Act 1997 Subdivision 165-A section 165-10 section 165-12 section 165-13 section 165-15 Division 166 Subdivision 166-A subsection 166-5(1) subsection 166-5(2)
Subject references: Prior year losses Tax loss