The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Helen Coonan

Helen Coonan

Minister for Revenue and Assistant Treasurer

26 November 2001 - 17 July 2004

Media Release of 07/04/2004


7 April 2004


A package of measures designed to substantially simplify the company loss recoupment rules was announced today by the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan.

Tax losses of earlier years are generally only available for deduction by a company where it passes the continuity of ownership test (COT) or same business test (SBT). The COT and SBT are also applied by companies for other reasons, including determining whether net capital losses and bad debts, may be claimed for tax purposes.

“The proposed package is a pragmatic response to longstanding issues with the loss recoupment rules that have been highlighted with the transition to consolidation,” Senator Coonan said.

While the underlying structure of the loss recoupment rules will remain, a simplified COT will be provided for all widely held companies and a broader range of subsidiary companies. In addition, the simplified COT will replace the SBT for large companies and large consolidated groups.

“The new regime will reduce the uncertainty and compliance costs associated with the company loss recoupment rules while maintaining integrity and consistency in the tax system,” Senator Coonan said.

Simplified COT

Submissions received by Government indicate companies excessively rely on the SBT to recoup prior year losses because of growing uncertainty and cost associated with demonstrating the COT has been met.

The simplified COT will remove the requirement for widely held companies and eligible subsidiaries to trace through ownership interests amounting to less than ten per cent of relevant rights. In addition, a wider range of entities will be deemed to be beneficial owners and the number of testing times will be reduced. Special rules will be introduced for certain subsidiaries of non-resident listed entities.

The commencement date of the simplified COT will be 1 July 2002, consistent with the commencement date of the consolidation regime. The simplified COT will apply for losses incurred in an income year commencing on or after 1 July 2002, or for certain eligible pre 2002 losses.

“The simplified continuity of ownership test will allow widely held companies and consolidated groups to recoup losses where there has been no substantial change in the identity of shareholders and will reduce reliance on the SBT,” Senator Coonan said.

SBT ceiling

The Government has also received submissions about the practical difficulties experienced by large companies and consolidated groups in complying with the SBT, and the associated uncertainty and cost that this causes. The Government recognises the practical difficulties that can arise when comparing the nature of a large business across two points in time, which may be several years apart. However despite lengthy consultation with key business organisations, no acceptable solution to improve the operation of the SBT has been identified.

Following the introduction of the simplified COT, the SBT will be amended so that it is not available in any income year where the total income of a company or consolidated group exceeds $100 million in that year. This measure will be strictly prospective in nature, taking effect from 1 July 2004 for losses incurred in or after that income year.

“These proposed amendments to the COT and SBT loss recoupment tests strike an appropriate balance between protecting the revenue and providing greater consistency in the treatment of losses while reducing uncertainty and compliance costs. The measures target those companies currently incurring significant compliance costs in tracing beneficial ownership when seeking to determine if the COT has been met,” Senator Coonan said.

The simplified COT will operate on an “opt out” basis and the standard COT and SBT will remain broadly unchanged for companies or consolidated groups with total income less than the SBT ceiling threshold.

To assist business certainty in the transition to the new rules, the Department of the Treasury has released a position paper detailing the amendments discussed above. This paper can be found on the Treasury webpage at

Further consultation will be conducted once draft legislation has been prepared.