Private ruling: Application of total net forgiven amount against transferred tax losses
Date of advice: 26 February 2026
Published: 13 April 2026
Ruling period: Years ending XX/XX/20XX to XX/XX/20XX inclusive
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Can the Company make a choice under section 245-120 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply the total net forgiven amount of $XX million that arose in the 20XX income year against losses transferred to the Company on its ITCG formation date (Transferred Tax Losses), pursuant to section 245-115 of the ITAA 1997? | A1: Yes, the Company can make a choice under section 245-120 to apply the total net forgiven amount of $XX million that arose in the 20XX income year against the Transferred Tax Losses, in accordance with section 245-115.

Relevant facts and circumstances: Overview 1. The Company is the head company of an income tax consolidated group (ITCG) which was formed on XX/XX/20XX. 2. The Company entered into an agreement with another entity in which it was accepted that the other entity would subscribe for XX% of the Company's equity in exchange for payment of the consideration amount ('the transaction'). 3. The transaction was completed on the implementation date when the entity subscribed for shares in the Company and the consideration amount was paid by the other entity. 4. As part of the agreement, the Company was required to reduce its liabilities in connection with a prior issue of capital notes which had been made available to noteholders for a face value amount of $XX million. 5. Agreement was reached with noteholders for the capital notes to be settled in full for an amount less than their face value which provided a discount to the Company. This resulted in a debt forgiveness amount of $XX in favour of Company. This became the 'total net forgiven amount' for the Company's 20XX income year. Transferred tax losses and the available fraction 6. Just prior to the implementation date, the Company had approximately $XX million of unutilised carried forward tax losses which were transferred to the Company's ITCG upon its formation (Transferred Tax Losses). The Company originally calculated that the available fraction applicable to the Transferred Tax Losses was approximately 0.XXX (subsection 707-320(1)). 7. As a result of the transaction and pursuant to subsection 707-320(2), the Company recalculated its available fraction applicable to the Transferred Tax Losses to be approximately 0.XXX (which was less than the original fraction of 0.XXX). This was based on the premise of a market value for the Company's equity immediately before the transaction of approximately $XX million. Calculation of the revised available fraction by the Company 8. In accordance with the formula set out in subsection 707-320(2) (noted below), the Company recalculated the available fraction for its Transferred Tax Losses to be 0.XXX based on an estimated market value of the Company of $XX million. /> Other relevant matters 9. A valuation assessment of the Company's equity was required to be undertaken by the ATO Valuation Services Group during late 2025 to assess the Company's market value presentation of its shareholder equity just before the transaction event on the implementation date. It was concluded that based on an assessment of the information provided, the principal approach presented by the Company provides a reasonably acceptable market value for the Company's equity prior to the occurrence of the transaction. 10. The Company has both group tax losses and transferred tax losses available for recoupment. • Group tax losses were incurred by the Company after the Company's ITCG formation date, however these losses have since been substantially recouped by the Company over the period to date • The Transferred Tax Losses of approximately $XX million remain available for recoupment by the Company, and • The existence of the group tax losses is the main reason why recoupment of the Transferred Tax Losses has not yet occurred (due to the ordering rule in section 707-310). 11. The Transferred Tax Losses satisfy the company tax loss integrity tests (i.e. continuity of ownership test and / or continuity of business test) to enable the tax losses to be utilised by the Company.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 245-115 | Income Tax Assessment Act 1997 section 245-120 | Income Tax Assessment Act 1997 subsection 245-120(1) | Income Tax Assessment Act 1997 section 707-310 | Income Tax Assessment Act 1997 section 707-315 | Income Tax Assessment Act 1997 subsection 707-320(1) | Income Tax Assessment Act 1997 subsection 707-320(2)

Reasons for decision: Detailed Reasoning - Question 1: Can the Company make a choice under section 245-120 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply the total net forgiven amount of $XX million that arose in the 20XX income year against losses transferred to the Company on its ITCG formation date (Transferred Tax Losses), pursuant to section 245-115 of the ITAA 1997? | Summary: Yes, the Company can make a choice under section 245-120 to apply the total net forgiven amount of $XX million that arose in the 20XX income year against the Transferred Tax Losses, in accordance with section 245-115. | Detailed Reasoning - Detailed reasoning: 1. Section 245-115 specifies how a total net forgiven amount is applied in reducing your tax losses. 2. Section 245-115 states that: The * total net forgiven amount is applied first, to the maximum extent possible, in reduction, in accordance with section 245-120, of your * tax losses (if any) for any income years, if the tax losses could, if you had enough assessable income, be deducted in: (a) the * forgiveness income year; or (b) a later income year. 3. Section 245-120 also outlines the method used in allocating a total net forgiven amount in respect of your tax losses from previous income years. 4. Subsection 245-120(1) states that you may choose: (a) the order in which your • tax losses are reduced; and (b) the amount applied to reduce each of those losses so long as the * total net forgiven amount is applied, to the maximum extent possible, in reduction of those losses. 5. The Company had a total net forgiven amount of $XX million in its 20XX income year resulting from the debt forgiveness that arose when the Company redeemed its corporate notes. The Company is seeking confirmation that it is entitled to apply this total net forgiven amount against its Transferred Tax Losses for its 20XX income year. 6. Since formation of the Company's ITCG, the Company also incurred significant 'group tax losses' which have been substantially recouped by the Company over the period to date. The existence of these group tax losses is the key reason why recoupment of the Transferred Tax Losses has not yet occurred, due to the ordering rule in section 707-310. 7. The Transferred Tax losses comprise unutilised carried forward tax losses which had been incurred prior to being transferred to the Company's ITCG upon its formation. All the Transferred Tax Losses are recognised by the Company as forming a 'single loss bundle' in accordance with section 707-315. The tax losses also satisfy the company tax loss integrity tests (i.e. continuity of ownership test and / or continuity of business test) to enable the tax losses to be utilised by the Company. 8. The original available fraction calculated for the loss bundle which contained the Transferred Tax Losses was approximately 0.XXX. Because of the transaction, the Company was required to recalculate a new available fraction for the loss bundle. 9. In calculating a revised available fraction for the Transferred Tax losses, subsection 707-320(2) (Item 4 in the table) requires an available fraction for a bundle of losses to be reduced or maintained just after a capital injection by multiplying it by the following factor: /> The Company has provided additional information stating that its market value just before the capital injection was approximately $XX million. Using the above formula and the Company's pre-existing available fraction, this results in an available fraction for the Company of 0.XXX 10. Based on the above calculation method and the market value review undertaken, the Commissioner is comfortably satisfied that the post-transaction available fraction for the loss bundle containing the Transferred Tax Losses was greater than nil. This means that the test in section 245-115 that the Transferred Tax Losses could be deducted in the forgiveness year was satisfied such that the total net forgiven amount was able to be applied against those losses in the Company's 20XX income year. 11. The Company is therefore able to make a choice under section 245-120 to apply the total net forgiven amount of $XX million against the Transferred Tax Losses in its 20XX income year.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar. | Reasons for decision: These reasons for decision accompany the Notice of private ruling for Mackay Sugar Limited. | This is to explain how we reached our decision. This is not part of the private ruling.