Private ruling: Tax losses - modified continuity of ownership test
Date of advice: 29 June 2021
Published: September 2021
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q3: Will the Commissioner apply section 175-10 or section 175-15 of the ITAA 1997 to deny Company A a deduction in the year ending 30 June 20XX in respect of losses incurred in the years ended 30 June 20XX to 30 June 20XX? Answer No

Relevant facts and circumstances: Company A Company A is listed on the Australian Securities Exchange. Company A is the head company of an income tax consolidated group. During the year ended 30 June 20XX, Company A acquired Company B and its subsidiaries (Company B Acquisition). During the year ended 30 June 20XX, Company A acquired Company C from Company D (Company C Acquisition). On certain dates, Company A had share issues that resulted in increases of 20% or more in the number of Company A's shares. Shareholdings During the year ended 30 June 20XX, Company A issued shares to Stakeholder 1 as consideration for the Company B Acquisition. Stakeholder 1 applied scrip for scrip rollover relief in respect of its initial acquisition of shares in Company A. Stakeholder 1 divested its interests in Company A by the year ended 30 June 20XX. From the year ended 30 June 20XX, a nominee company, Stakeholder 2, has held shares in Company A. Four individual shareholders beneficially own less than 10% of shares in Company A via Stakeholder 2. During the year ended 30 June 20XX, Company A issued shares to Company D as consideration for the Company C Acquisition. Stakeholder 3 is a common shareholder of Company A Company D. At all relevant testing times, the beneficial owners of Stakeholder 3 have held indirect stakes in Company A of less than 10%. Company A has only had ordinary shares on issue from the date of listing. All Company A shares have the same voting, dividend and capital rights. In respect of voting, dividend and capital stakes held in Company A during the period beginning 1 July 20XX to 30 June 20XX, none of the directors of Company A have an overarching authority, nor are they accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of any of the shareholders and their respective economic groups. Assumptions Company A will remain a listed company, and it is a 'widely held company' for the purposes of Division 166 of the ITAA 1997 for the period of the ruling. Company A's shareholdings as at 30 June 20XX will be the same as Company A's shareholdings as at 31 March 2021. Company A will not make an election under section 166-15 of the ITAA 1997 to apply Subdivision 165-A of the ITAA 1997 to it for the current income year without modifications made by Subdivision 166-A of the ITAA 1997. Company A will have total assessable income that exceeds it total deductions (except tax losses) in the income year ended 30 June 2021. Company A has carried forward group losses from each of the loss years. In respect of voting, dividend and capital stakes held in Company A during the period of the ruling:


Reasons for decision: Summary: Company A has continued to satisfy the COT in section 165-12 as modified by section 166-5 in respect of its losses incurred in the 20XX to 20XX income years. Detailed reasoning COT - section 165-12 Section 165-12 provides the COT which a company must satisfy in order to be able to deduct losses incurred in earlier income years. The test requires there to be persons who hold more than 50% of the voting, dividend and capital rights in the company at all times during the ownership test period. The ownership test period is the period from the start of the loss year to the end of the income year in which the loss is to be deducted. There are two mutually exclusive tests for determining whether persons hold more than 50% of the relevant power or rights. The primary test applies if no other companies beneficially own shares or interests in shares in the loss company at any time during the ownership test period (subsection 165-12(4)). The alternative test applies in any other case (subsection 165-12(6)). As Company A is beneficially owned by one or more companies, the alternative test applies for tax losses incurred during the years ended 30 June 20XX to 30 June 20XX. Concessional rules Division 166 modifies the operation of the standard COT to make it easier for a widely held company to apply the rules of Division 165 unless the company chooses otherwise. Subsection 995-1(1) defines a widely held company to include a company whose shares are listed on an approved stock exchange. As it is assumed that Company A will remain a listed company, and it is a 'widely held company' for the purposes of Division 166 of the ITAA 1997 for the period of the ruling, Company A is eligible to apply the modified COT. The substantial COT Section 166-5(3) provides that a company is taken to have met the conditions in section 165-12, about a company maintaining the same owners, if there is substantial continuity of ownership as between the start of the test period and: Section 166-145 provides that there will be substantial continuity of ownership as between the start of the ownership test period and another time in the test period if there are persons who had more than 50% of the rights to voting, dividends and capital distributions in the company and will be determined in accordance with the alternative tests contained in sections 165-150, 165-155 and 165-160 respectively and Subdivision 166-E (concessional tracing rules). Ownership test times The meaning of 'test period' is defined in subsection 166-5(2) as the period consisting of the loss year, the income year and any intervening period. Under subsection 166-175(1) a 'corporate change' includes an issue of shares in the company that results in an increase of 20% or more in the company's issued share capital or the number of the company's shares on issue (paragraph 166-175(1)(d)). In accordance with paragraph 166-175(2)(c), a corporate change of this kind ends when the offer period for the issue of shares ends. Company A has issued shares of greater than 20% on certain dates. Therefore, it will need to satisfy the substantial COT at each of these dates. To recoup losses incurred during each of the loss years, Company A will need to satisfy the substantial COT at each of the times, from the start of each relevant test period until the end of the income year ended 30 June 20XX. Subdivision 166-E - Concessional tracing rules Subdivision 166-E provides a number of concessional tracing rules to assist in determining whether the ownership tests are satisfied. Special concessional tracing rules deem entities to hold the following stakes in the company so that the company does not have to trace through to the beneficial owners of the stakes including: • stakes of less than 10% in the company (sections 166-225 and 166-230) • stakes of between 10% and 50% that are held by widely held companies (section 166-240) • stakes that are held by complying superannuation funds, complying approved deposit funds, special companies and managed investment schemes (section 166-245) • stakes in interposed foreign listed companies that are held as bearer shares (section 166-255) • stakes in interposed foreign listed companies that are held by depository entities (section 166-260). The following concessional tracing rules are applicable to Company A: Section 166-280 provides that in certain circumstances, a tracing rule does not modify how the ownership tests in section 166-145 apply to the tested company. Section 166-280 prevents a tracing rule from modifying how the ownership test in section 166-145 applies where: The term 'tracing rule' is defined by subsection 995-1(1) to include the concessional tracing rules in section 166-225 and 166-230. Concessional tracing rules - Direct stakes Section 166-225 allows all shareholders with a direct stake of less than 10% to be attributed to a single notional entity (SNE). This removes the need for widely held companies to trace ownership interests of less than 10%. For all registered shareholdings carrying less than 10% of the voting power, the voting power is taken to be controlled by the SNE. The same rule applies in relation to rights to dividends and distributions of capital. The SNE is taken to be a person (other than a company) and is therefore regarded as an ultimate owner for the purpose of the alternative test in Division 165. The persons who actually hold power or rights attributed to the SNE are taken not to hold those rights for the purposes of the alternative test (see section 166-265). This prevents double counting of the voting power and rights to dividends and capital. Subsection 166-235(7) provides that for the purposes of sections 166-225 and 166-230, where a nominee company holds a voting, dividend or capital stake in a company but holds the stake as a nominee for more than one other entity, the parcels of shares held by the nominee company may be treated as separate stakes. This means that if the nominee company's registered shareholding carries 10% or more of the voting power or rights, but the entities for which it holds the shares each have less than 10% of voting power or rights, each of the stakes of less than 10% can be attributed to the SNE. The Explanatory Memorandum to the Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 (EM) illustrates this in Example 1.4: Beta Nominees Ltd is the registered holder of 30% of shares in the tested company (widely held company). It holds these shares on behalf of five different entities, each of which beneficially own 6% of the tested company's shares. Each stake of 6% may be attributed to the single notional entity. Stakeholder 2 holds a stake of more than 10% of Company A's voting power or rights on behalf of a number of different entities. The stake held by Stakeholder 2 includes shares which are beneficially owned by four related individual shareholders who have each held less than 10% of the voting power or dividend or capital rights in Company A. As section 166-280 does not apply in the current circumstances, the Commissioner accepts that each stake held by Stakeholder 2 as nominee for each of the four individual shareholders may be treated as a separate stake under subsection 166-235(7) and attributed to the SNE. Minimum interests rule The minimum interest rule under section 166-270 restricts the total proportion of voting power, dividend rights or capital rights attributed to the SNE under section 166-225 at an ownership test time that is after the start of the test period to the relevant proportion attributed at the beginning of the test period. Subsection 166-270(1) states that the entity is taken to have voting power in the company at the ownership test time only to the extent that it had it at the start of the test period if all of the following apply: • the ownership test time is after the start of the test period • the SNE mentioned in section 166-225 or 166-255 has voting power in a company • the voting power that the entity has at the ownership test time is greater than the voting power that the entity has at the start of the test period. In calculating the substantial continuity of ownership and modifying as per the limit imposed by section 166-270, the stake attributed to the SNE which includes those held by Stakeholder 2 where appropriate, the SNE held less than 50% of the shares and attached rights at some of the ownership test times. Therefore, it is necessary to also consider the interest attributed to Stakeholder 3 as a top interposed entity (TIE) for Company A to meet the substantial COT. Concessional tracing rules - Indirect stakes Section 166-230 contains a concessional tracing rule whereby an indirect stake of less than 10% is attributed to a TIE. The TIE is interposed between the indirect stakeholder and the tested company and is the entity in which the stakeholder with a less than 10% interest has a direct interest. The TIE is taken to be a person (other than a company) and is therefore regarded as an ultimate owner for the purpose of the alternative test in Division 165. The persons who actually control the voting power and have rights to dividends and capital are taken not to control that power or have those rights for the purposes of the alternative test (as per section 166-265). The tested company does not need (as a consequence) to trace the beneficial owners of indirect interests in the company that carries less than 10% of the rights to voting, dividends and capital distributions. As the beneficial owners of Stakeholder 3 have held indirect stakes in Company A of less than 10% at all relevant testing times, Stakeholder 3's stake will be attributed to a TIE and no further tracing of ownership of Stakeholder 3 will be required for the purposes of the substantial COT. However, on 1 July 20XX, Stakeholder 3 had a direct interest of less than 10%. This means that the concessional tracing rule relating to direct stakes will apply, rather than that relating to indirect stakes, to attribute Stakeholder 3's stake to the SNE at the start of the test period for losses incurred in the year ending 30 June 20XX. As Stakeholder 3's stake will then be attributed to a TIE at all other relevant testing times, the substantial COT will not be satisfied for losses incurred in the year ending 30 June 20XX. In respect of losses incurred in the years ending 30 June 20XX to 30 June 20XX, substantial COT will be satisfied as the ownership maintained by the SNE and the TIE will be greater than 50% at each relevant testing time. Same share same interest rule and savings provision The 'same share same interest rule' in section 166-272 only applies to voting, dividend and capital stakes held by a TIE, a widely held company, an entity deemed to be a beneficial owner or a depository entity in the tested company. It requires: • the same shares to be held by the same persons (paragraph 166-272(2)(c)) Section 166-272 contains rules to ensure that the following transactions to not affect continuity of ownership: • share splits: the new shares are taken to be exactly the same as the old shares (subsection 166-272(3)) • share consolidation: the new shares are taken to be exactly the same as the old shares (subsection 166-272(5)). The same share same interest rule may potentially apply to Company A's transactions during the period of the ruling and cause Company A to fail the substantial COT under section 166-145. The same share same interest rule is subject to a savings provision in subsection 166-272(8) which in effect negates the same share same interest rule if the tested 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 a CGT event happened in relation to any direct or indirect equity interests in the company during the ownership test period. ATO Interpretative Decision ATO ID 2003/381 Deducting Tax Loss: Saving Rule - More than one tax loss being deducted provides that if a company is seeking to recoup tax losses from two years in the one income year, testing of the 50% threshold extent to which the tax loss is reflected is done separately for each tax loss. In Company A's case, testing of the 50% threshold extent to which the tax loss has been reflected must be done separately for the tax losses Company A incurred in each of the income years ended 30 June 20XX to 30 June 20XX. Paragraph 1.123 of the EM provides that in determining whether loss duplication has occurred, the only interests taken into account are those held by TIEs, widely held companies, entities deemed to be beneficial owners and depository entities. Therefore, the interests attributed to Stakeholder 3 as a TIE are relevant in determining whether loss duplication has occurred. Stakeholder 3 did not reduce its stake in Company A over the ownership test period, except during the income year ended 30 June 20XX. Company A has also provided analysis in respect of the application of the same share same interest rule and savings provision to Stakeholder 1's interests in Company A. Based on Company A's shareholding analysis, during the years ended 30 June 20XX and 30 June 20XX Stakeholder 1 was a TIE, with stakes in Company A held indirectly through and attributed to Stakeholder 1. Stakeholder 1 applied scrip for scrip rollover relief in respect of its initial acquisition of shares in Company A. Section 124-785 sets out the consequences of a scrip for scrip rollover. Relevantly, the first element (acquisition cost) of the cost base of the replacement interest is calculated on the basis of a reasonable apportionment of the cost base of the original interest. The cost base of Stakeholder 1's shares acquired in Company A was less than 50% of the tax losses Company A incurred in each of the income years ended 30 June 20XX and 30 June 20XX. In this case, we accept that Company A has information from which it would be reasonable to conclude that less than 50% of the tax losses for the income years ended 30 June 20XX to 30 June 20XX respectively have been reflected in deductions, capital losses, or reduced assessable income, that occurred, or could occur in future, because a CGT event happened in relation to any direct or indirect equity interests in the company during the ownership test period. ATO Interpretative Decision ATO ID 2012/64 Tax losses: savings rule - deductions and capital losses that 'could occur in future' provides that the application of the savings rule cannot be anticipated before the end of the relevant test period. It is only once the test period has ended that the company can establish with certainty the requirements to apply the savings provision in subsection 166-272(8). This ruling is made on the assumption that the shareholdings as at 30 June 20XX will be the same as the shareholdings as at 31 March 20XX. Consequently, subsection 166-272(8) would apply to counteract any application of the same share same interest rule. Accordingly, section 166-272 will have no material effect in determining whether the conditions in section 166-145 are satisfied. No detrimental rule You propose to apply section 166-275 to stakes held by Stakeholder 3 to disregard the outcome, described above, pursuant to which the application of sections 166-225 and 166-230 cause Stakeholder 1 to fail the substantial COT. Under section 166-275 a company is taken to have met the conditions in section 165-12 where all of the following apply: As stated above, the term 'tracing rule' is defined by subsection 995-1(1) to include the concessional tracing rules in section 166-225 and 166-230. The EM provides the following guidance on how a company is to form the necessary belief, on reasonable grounds, under paragraph 166-275(c): 1.123 The purpose of the tracing rules is to assist a company trace its ownership interests to determine whether it satisfies the COT. However, there may be cases where these rules make it more difficult for a company to satisfy the COT. While the company could choose not to apply the modified COT, that would not allow the company to use any of the tracing rules. 1.124 The modified COT allows a tracing rule to be disregarded in respect of a particular stake if it would cause the company to fail the ownership tests. A company is taken to satisfy the relevant conditions if the company believes on reasonable grounds that it would not fail the conditions if the tracing rule did not apply in respect of that stake. 1.125 The rule does not prevent other tracing rules potentially applying to the relevant stake or the same tracing rule applying in respect of other stakes. It merely allows tracing rules to be disregarded in these circumstances to the extent that they would cause a failure of the modified COT. 1.126 The company must hold a reasonable belief that it would not fail the tests if the tracing rule did not apply. In most cases a company would be expected to form this view by applying the test for substantial continuity of ownership in the normal way, this is without the use of that tracing rule in respect of the particular stake. However, it is recognised that in some cases, despite its best endeavours, a company may be unable to obtain sufficient information to determine with certainty that it would pass the ownership tests without the tracing rule. In such a case, the modified COT allows a company to draw a conclusion about whether it would satisfy the ownership tests based on any information that it has reasonably been able to obtain. The EM also provides the following in Example 1.14: At the start of the ownership test period Lisa owns 9% of the shares in the tested company. In the following year, Lisa increases her shareholding in the tested company to 11%. At the start of the test period, the rule in section 166-225 about direct stakes of less than 10% in the tested company, would operate to attribute Lisa's interest to the single notional entity. However, in the following year, section 166-225 would not apply to the stake held by Lisa because it exceeds 10%. Accordingly Lisa, rather than the single notional entity, would hold that stake for the purpose of Div 166. If the operations of section 166-225 in relation to the stake held by Lisa at the start of the test period would cause the tested company to fail the COT in the following year, then the concessional tracing rule, section 166-275 would apply. The effect of section 166-275 is to ignore the operation of section 166-225 to Lisa's stake at the start of the test period. Accordingly, the tested company could treat Lisa herself as owning the 9% interest at the start of the test period and the 11% interest at the later point in the test period. As Stakeholder 3 had an interest of less than 10% at the start of the 20XX loss year, section 166-225 would operate to attribute Stakeholder 3's direct stake of less than 10% in Company A to the SNE. However, at the later test times, section 166-225 would not apply to Stakeholder 1's stake because it exceeds 10%. Stakeholder 3's stake would then fall within the TIE concessional rule under section 166-230. Company A would fail the modified COT for losses incurred in the year ended 30 June 20XX as ownership of over 50% will not be maintained. The third requirement of section 166-275 means that Company A must believe, on reasonable grounds, that it would not fail the ownership tests if the tracing rule did not modify how the tests apply to the company in respect of Stakeholder 3's stake. ATO Interpretative Decision ATO ID 2013/66 Company tax losses: can a company form the necessary belief, on reasonable grounds, for the purposes of the 'no detriment' rule by applying the concessional tracing rules explains that paragraphs 1.135 to 1.136 of the EM provide that a company would be expected to form the necessary belief by applying the ownership tests in section 166-145 without the use of a concessional tracing rule. However, the no detriment rule does not prevent other tracing rules potentially applying to the relevant stake or the same tracing rule applying in respect of other stakes. It merely allows tracing rules to be disregarded in these circumstances to the extent that they would cause a failure of the modified COT. Accordingly, Company A can form the necessary belief by applying the concessional tracing rule in section 166-230, rather than section 166-225, to Stakeholder 3's stake at each test time during the test period. As a result, Company A will have maintained more than 50% of the same owners for losses incurred in the years ended 30 June 20XX to 30 June 20XX. Conclusion Company A will continue to satisfy the COT in section 165-12 as modified by section 166-5 in respect of its losses incurred in the years ended 30 June 20XX to 30 June 20XX on the basis that: • paragraph 166-275(c) is satisfied where the tracing rule in section 166-230 is applied instead of the tracing rule in section 166-225. | Detailed Reasoning - Question 2: Summary Subsection 166-272(8) will apply in relation to those shares in Company A which are covered by subsections 166-272(1) and 166-272(2) on the basis that Company A has information from which it would be reasonable to conclude that less than 50% of the tax losses made in years ended 30 June 20XX to 30 June 20XX respectively have 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 held in Company A by stakeholders during the relevant test periods. Detailed reasoning Refer to Question 1. Question 3 Summary The Commissioner will not seek to disallow a deduction for the carried forward tax losses of Company A pursuant to Subdivision 175-A as the continuing shareholders will benefit from the derivation of the injected income to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in the company. Detailed reasoning First case: income or capital gain injected into company because of available tax loss Subdivision 175-A contains various anti-avoidance rules relevant to prior year losses. Section 175-10 provides that the Commissioner may disallow a deduction for a prior year tax loss in an income year in which the company derives income or capital gains (the injected amount) which it would not have derived if the loss had not been available. However, subsection 175-10(2) explains that the Commissioner cannot disallow the tax loss if the continuing shareholders will benefit from the derivation of the injected amount to an extent which the Commissioner considers is fair and reasonable. In determining this, the Commissioner must have regard to the continuing shareholders' respective rights and interests in the company. Section 175-10(3) provides that the continuing shareholders are: (a) all of the persons who had more than 50% of the voting power in the company during the whole (or the relevant part) of the loss year and during the whole of the income year; and (b) all of the persons who had rights to more than 50% of the company's dividends during the whole (or the relevant part) of the loss year and during the whole of the income year; and (c) all of the persons who had rights to more than 50% of the company's capital distributions during the whole (or the relevant part) of the loss year and during the whole of the income year. To find out who they were, apply whichever tests are applied in order to determine whether the company can deduct the tax loss (or the part of the tax loss) in the first place. Therefore, the COT in section 165-12 is used to establish who are the continuing shareholders under subsection 175-10(3). The application of whichever tests are applied in order to determine whether Company A can deduct the tax loss (or the part of the tax loss) in the first place is discussed in Question 1. It was concluded that Company A satisfied the conditions of the COT in section 165-12 as modified by section 166-5 because total ownership maintained by the TIE and the SNE was above 50% at all testing times. Accordingly, the TIE and the SNE are the continuing shareholders. In ATO Interpretative Decision ATO ID 2010/49 Company tax loss: whether the Commissioner can be prevented from disallowing any part of a tax loss following an injection of income , the Commissioner referred to the relevant Explanatory Memorandum for the legislation which enacted the ITAA 1936 predecessor to section 175-10 and stated that the purpose of section 175-10 is to counter collateral arrangements for the conferral of benefits through income injection schemes involving a company's tax losses. These collateral arrangements might otherwise be veiled by the legal shareholdings (as recorded on the company's share register) demonstrating satisfaction of the COT. ATO ID 2010/49 also expresses that the Commissioner is prevented from disallowing any part of the deduction of the tax loss if the continuing shareholders benefit wholly or mainly from the injected amount. In Case L59 79 ATC 471; (1979) 23 CTBR (NS) 625, a Board of Review considered the effect of a similar provision, paragraph 63B(1)(a) of the ITAA 1936. The taxpayer argued that the continuing shareholders obtained a benefit from business income being injected into the company, and relied on the fact that the company had moved from a loss position to returning a small surplus by the time the business reverted to the purchasing company (once previous year losses had been absorbed). The Board rejected this position, noting that a substantial part of the injected income was to be withdrawn by the purchasing company in payment of debts owed to it by the loss company. The Board concluded that the continuing shareholders would not benefit in proportion to their shareholding. It should also be noted that the loss company was wound up shortly after returning to a surplus position, further limiting any benefit that might arise for the continuing shareholders. In Company A's case, the Commissioner has considered the following factors: Accordingly, if the entire tax loss is deductible to Company A, the continuing shareholders will benefit from the derivation of the injected amount to an extent that the Commissioner thinks fair and reasonable having regard to their respective rights and interests in Company A. Therefore, the Commissioner is prevented from disallowing any part of the deductions for prior year tax losses carried forward by Company A under section 175-10. Second case: someone else obtains a tax benefit because of tax loss available to company Subsection 175-15(1) provides that the Commissioner may disallow the excluded loss if a person has obtained or will obtain a tax benefit in connection with a scheme and the scheme would not have been entered into or carried out if the excluded loss had not been available to be taken into account for the purposes of Division 36, Division 165 or Subdivision 375-G. However, subsection 175-15(2) provides that the Commissioner cannot disallow the excluded loss if the person had a shareholding interest in the company at some time during the income year and the Commissioner considers the tax benefit to be fair and reasonable having regard to that shareholding interest. Section 175-95 provides that a person has a shareholding interest in a company if either: The definitions of scheme and tax benefit are taken from Part IVA in the ITAA 1936 (subsection 175-15(3)). Scheme is defined widely in section 177A of the ITAA 1936 and means: Tax benefit is defined in section 177C of the ITAA 1936 and includes a deduction being allowable to the taxpayer in relation to an income year where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer for that income year if the scheme had not been entered into or carried out. In this case, a scheme exists in the Company C Acquisition. There is a connected tax benefit in Company A being able to claim a deduction in the year ending 30 June 20XX in respect of losses incurred in the years ended 30 June 20XX to 30 June 20XX. However, there is no evidence to suggest that, in the absence of Company A's ability to utilise its carried forward tax losses, the Acquisition would not have occurred. Further, ATO Interpretative Decision ATO ID 2005/10 Company tax loss: 'person' other than company with tax loss obtains tax benefit in connection with scheme points to the heading of section 175-15 which states that section 175-15 will apply where 'someone else' obtains a tax benefit because of a tax loss available to a company. The heading of section 175-15 forms part of the ITAA 1997 by virtue of subsection 950-100(1). As subsection 175-15(2) provides that 'the person had a shareholding interest in the company', the 'person' for the purposes of section 175-15 cannot be the company that is seeking to deduct a tax loss. Accordingly, the Commissioner may only disallow a tax loss under section 175-15 if a person other than the company that incurred the 'excluded loss' has obtained, or will obtain, a tax benefit in connection with a scheme, and that scheme would not have been entered into or carried out if the tax loss had not been available. In this case, the stated facts do not demonstrate that a benefit would arise to a person other than the company seeking to deduct a tax loss, being Company A. Therefore, section 175-15 will not apply to enable the Commissioner to disallow the claim by Company A for prior year tax losses incurred in the years ended 30 June 20XX to 30 June 20XX.

Will Company A satisfy the continuity of ownership test (COT) in section 165-12 of the Income Tax Assessment Act 1997 (ITAA 1997), as modified by section 166-5 of the ITAA 1997, in the year of income ending 30 June 20XX in respect of losses incurred in the years ended 30 June 20XX to 30 June 20XX on the basis that: | the requirements of paragraphs 166-275(a) and 166-275(b) of the ITAA 1997 will be satisfied | paragraph 166-275(c) of the ITAA 1997 will be satisfied where the tracing rules are disregarded in respect of the stake held in Company A by Stakeholder 3? | Will subsection 166-272(8) of the ITAA 1997 apply in relation to those shares in Company A which are covered by subsections 166-272(1) and 166-272(2) on the basis that Company A has information from which it would be reasonable to conclude that no capital gains event happened or will happen in the period between 1 July 20XX and 30 June 20XX which would result in deductions, capital losses or reduced income which would have or would reflect the losses identified in paragraph 166-272(8)(b) of the ITAA 1997? | This ruling applies for the following period: | no entity (the controlling entity) directly or indirectly (through one or more interposed entities) held the power over some or all of the rights to voting, dividends or capital in Company A in circumstances where it was sufficiently influenced by the controlling entity | no natural person (together with his/her associates) owned shares (whether directly or indirectly through one or more interposed entities) in Company A giving control of more than 25% of the voting power of Company A | no trustee or company (together with its associates) owned shares (whether directly or indirectly through one or more interposed entites) in Company A giving control of more than 50% of the voting power of Company A. | Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified. | the end of the income year in that period | the end of each corporate change in that period. | directly held voting, dividend or capital stakes of less than 10% (section 166-225) | indirectly held voting, dividend or capital stakes of less than 10% (section 166-230). | a controlling entity either directly or indirectly holds all or part of the voting power or dividend or capital rights in the tested company and the tested company is sufficiently influences by a controlling entity (subsection 166-280(1) | more than 25% of the total voting power is controlled, directly or indirectly, by a natural person, together with their associates | more than 50% of the total voting power is controlled, directly or indirectly by a trustee or company, together with its associates (subsection 166-280(2)). | the only interests (including shares) in any other entity that is interposed between the stakeholder and the tested company that are taken into account are exactly the same interests and are held by the same persons (paragraph 166-272(2)(d)). | a tracing rule modified how the ownership tests in section 166-145 apply to the tested company in respect of a voting stake, a dividend stake or a capital stake (paragraph 166-275(a)) | the company fails the tests (whether at the time of applying the tracing rule or at another time) (paragraph 166-275(b)) | the company believes on reasonable grounds, that if the tracing rule did not modify how the tests apply to the company in respect of that stake, it would not fail the tests (paragraph 166-275(c)). | the requirements of paragraphs 166-275(a) and (b) are satisfied | owned, and will continue to own, shares that carried more than 50% of the voting power and rights to dividends and capital distributions when the tax losses were incurred and during the income year in which the losses will be recouped | will benefit wholly or mainly from any injected amounts | there is no evidence of a collateral arrangement for the conferral of benefits through income injection schemes involving Company A's tax losses. | the person is the beneficial owner or trustee of a family trust who is the owner of shares or an interest in shares in the company | the person has a shareholding interest in another company, and that other company has a shareholding interest in the company. | any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings | any scheme, plan, proposal, action, course of action or course of conduct.