The Government is seeking public comment on draft legislation to give effect to changes to the loss recoupment rules for companies that were announced on 7 April 2004.
The changes relate to the tests companies must apply in determining whether tax losses of earlier years, net capital losses and bad debts may be claimed for tax purposes. The changes mainly affect large companies and consolidated groups.
The changes are:
Continuity of ownership test
The first change affects the modified continuity of ownership test that listed public companies and their 100 per cent subsidiaries may use to determine whether the company has maintained the same owners. It will be easier for widely held companies, such as listed public companies, and eligible subsidiaries, such as companies more than 50 per cent owned by non-profit companies, charities, mutual insurance companies or complying superannuation funds, to satisfy the continuity of ownership test. Consequently, these companies will not need to rely as much on the same business test, which is often difficult for large companies to apply and can lead to uncertain and anomalous outcomes.
The changes to the continuity of ownership test apply to losses incurred in an income year commencing on or after 1 July 2002 and earlier year losses that would have been deductible in that year.
Same business test
The same business test will not be available to a company in an income year in which its total income is more than $100 million. This change was to start for losses incurred in income years commencing after 30 June 2004. However, as a result of representations the Government has decided to extend large companies' access to the same business test for another year to allow companies more time to adjust to this change. The changes to the same business test will now apply to losses incurred in income years commencing after 30 June 2005.
Other changes
The draft legislation also contains amendments to remove anomalies and clarify some aspects of the existing law, such as ensuring that companies do not need to trace ownership through shareholders that are governments and statutory companies, the application of the continuity of ownership test to companies incorporated during an income year, and issues arising from liquidations.
Interested parties are invited to submit comments on this exposure draft by Thursday 24 March 2005. The exposure draft and explanatory material can be viewed on Treasury's website (www.treasury.gov.au).
Comments can be submitted to:
The Manager,
Large Business Unit, Business Tax Division
The Treasury
Langton Crescent
Parkes, ACT 2600
or by email to companylosses@treasury.gov.au.