Private ruling: Continuity of ownership test
Published: November 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2012

Ruling: Q1: Does the company satisfy the continuity of ownership test as a result of the transfer of shares? | A1: No.

Relevant facts and circumstances: You are a company. You commenced with X ordinary shares being issued equally between two different family trusts. One family trust will purchase all the shares of the other family trust. The family trust purchasing all the shares made a family trust election several years ago.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 165-12

Reasons for decision: Summary: For a loss to be deductible in an income year the same persons must hold more that 50% of the voting power, more than 50% of the rights to dividends and more than 50% of the rights to capital distributions of a company from the start of the loss year to the end of an income year. This means that in order to pass the same ownership test a company must be able to show that the same owners held, individually or together, more than 50% of all of the rights attaching to those shares throughout the loss year and the income year and any intervening years. If all the shares are transferred by one family trust to the other family trust, the company will fail the continuity of ownership test as the company will not have the same owners holding more than 50% of the rights attaching to those shares from the start of the loss year to the end of the income year.

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