Private ruling: Continuity of ownership test - application of Division 167 of the Income Tax Assessment Act 1997 (ITAA 1997)
Date of advice: 5 April 2016
Published: May 2016

Ruling: Q2: Is Company A able to choose to apply Subdivision 167-A of the ITAA 1997 to disregard the debt interests in testing the conditions in subsections 166-145(3) and (4) of the ITAA 1997 for losses incurred in the 20VV-WW to the 20XX-YY income years (inclusive)? | A1: Yes. | Q3: Is Company A able to choose to apply Subdivision 167-B of the ITAA 1997 to test the conditions in subsections 166-145(2) of the ITAA 1997 for losses incurred in the 20VV-WW to the 20XX-YY income years (inclusive)? | A2: Yes. Ruling periods 1 July 2008 to 30 June 2025

Relevant facts and circumstances: Company A is an 'eligible Division 166 company' as defined under subsection 995-1(1) of the ITAA 1997. It has a significant amount of carried forward tax losses. Company A has issued ordinary shares, and preference shares that are a 'debt interest' for the purposes of Division 974 of the ITAA 1997. The different classes of shares carry different rights to dividends and capital distributions. According to the relevant corporate governance documents, Company A's shareholders have different voting rights in certain circumstances.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 166-145 | Income Tax Assessment Act 1997 Division 167 | Income Tax Assessment Act 1997 Subdivision 167-A | Income Tax Assessment Act 1997 Subdivision 167-B

Reasons for decision: Summary: Section 166-145 of the ITAA 1997 contains the relevant conditions for determining whether an eligible Division 166 company satisfies the continuity of ownership test (COT) in order to deduct its tax losses. Division 167 of the ITAA 1997 modifies the way the COT applies to companies whose shares: (a) do not all carry the same rights to dividends, or capital distributions, of the company (Subdivision 167-A of the ITAA 1997); or (b) do not all carry the same voting rights for all matters affecting the company, or do not carry all of the voting rights in the company (Subdivision 167-B of the ITAA 1997). On the basis of the information provided, the Commissioner has concluded that: • Company A is able to choose to apply Subdivision 167-A to allow it to disregard the preference shares that are a debt interest in testing the conditions in subsection 166-145(3) and (4) for losses incurred in the 20VV-WW to the 20XX-YY income years (inclusive); and • Company A is able to choose to apply Subdivision 167-B to test the conditions in subsection 166-145(2) for losses incurred in the 20VV-WW to the 20XX-YY income years (inclusive).