TAX LAWS AMENDMENT (LOSS RECOUPMENT RULES AND OTHER MEASURES) BILL 2005

i Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. ,

2005

Contents

Short title.......................................................................................1

Commencement .............................................................................1

Schedule(s)....................................................................................2

Schedule 1--Loss recoupment rules for companies etc.

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Schedule 2--Foreign residents' income with an underlying

foreign source

Part 1--Main amendment

Income Tax Assessment Act 1997

Part 2--Other amendments

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Part 3--Application and transitional

Schedule 3--Denying deductions for illegal activity

Income Tax Assessment Act 1997

Schedule 4--Film copyright

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Schedule 5--Employee share schemes

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

103

Income Tax (Transitional Provisions) Act 1997

104

Taxation Laws Amendment Act (No. 3) 2003

105

Schedule 6--Superannuation guarantee charge

107

Income Tax Assessment Act 1997

107

Superannuation Guarantee (Administration) Act 1992

107

Schedule 7--Superannuation on back payments

111

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

A Bill for an Act to amend the law relating to

taxation, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Tax Laws Amendment (Loss

Recoupment Rules and Other Measures) Act 2005.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Commencement information

Column 1

Column 2

Column 3

Provision(s)

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day on which this Act receives the

Royal Assent.

2. Schedules 1 to

The day on which this Act receives the

Royal Assent.

3. Schedule 5,

items 1 to 15

The day on which this Act receives the

Royal Assent.

4. Schedule 5,

item 16

Immediately after the commencement of the

provision(s) covered by table item 3.

5. Schedule 5,

items 17 to 20

The day on which this Act receives the

Royal Assent.

6. Schedules 6

and 7

The day on which this Act receives the

Royal Assent.

Note:

This table relates only to the provisions of this Act as originally

passed by the Parliament and assented to. It will not be expanded to

deal with provisions inserted in this Act after assent.

(2) Column 3 of the table contains additional information that is not

part of this Act. Information in this column may be added to or

edited in any published version of this Act.

3 Schedule(s)

Each Act that is specified in a Schedule to this Act is amended or

repealed as set out in the applicable items in the Schedule

concerned, and any other item in a Schedule to this Act has effect

according to its terms.

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Schedule 1--Loss recoupment rules for

companies etc.

Income Tax Assessment Act 1936

1 After subsection 80B(8)

Insert:

(8A) A person is not prevented from:

(a) beneficially owning shares in a company; or

(b) having the right to exercise voting power in a company; or

a company; or

(d) having the right to receive any distribution of capital of a

company;

merely because:

(e) the company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

(ii) a body with a similar status, under the Companies Code

of the relevant State or a foreign law, to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the company

under section 472 of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

(ii) a person with a similar status, under the Companies

Code of the relevant State or a foreign law, to a

provisional liquidator is appointed to the company.

(8B) A company (the stakeholding company) is not prevented from:

(a) beneficially owning shares, or any other interests in shares, in

another company; or

(b) having the right to exercise voting power in another company

either directly or indirectly; or

dividends that may be paid by another company; or

Schedule 1 Loss recoupment rules for companies etc.

4 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(d) having the right to receive, either directly or indirectly, any

distribution of capital of another company;

merely because:

(e) the stakeholding company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

(ii) a body with a similar status, under the Companies Code

of the relevant State or a foreign law, to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the stakeholding

company under section 472 of the Corporations Law (as

set out in section 82 of the Corporations Act 1989); or

(ii) a person with a similar status, under the Companies

Code of the relevant State or a foreign law, to a

provisional liquidator is appointed to the stakeholding

company.

2 After section 160ZNR

Insert:

160ZNRA Companies in liquidation

(1) For the purposes of a test, an entity is not prevented from:

(a) beneficially owning shares in a company; or

(b) having the right to exercise, controlling, or being able to

control, voting power in a company; or

pay; or

(d) having the right to receive any distribution of capital of a

company;

merely because:

(e) the company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(ii) an entity with a similar status, under the Companies

Code of the relevant State or a foreign law, to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the company

under section 472 of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

(ii) a person with a similar status, under the Companies

Code of the relevant State or a foreign law, to a

provisional liquidator is appointed to the company.

(2) For the purposes of a test, a company (the stakeholding company)

is not prevented from:

(a) beneficially owning shares in another company, or any other

interest in another entity; or

(b) having the right to exercise, controlling, or being able to

control, voting power in another company or any other entity;

company or any other entity may pay; or

(d) having the right to receive any distribution of capital of

another company or any other entity;

merely because:

(e) the stakeholding company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Law (as set out in

section 82 of the Corporations Act 1989); or

(ii) an entity with a similar status, under the Companies

Code of the relevant State or a foreign law, to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the stakeholding

company under section 472 of the Corporations Law (as

set out in section 82 of the Corporations Act 1989); or

(ii) a person with a similar status, under the Companies

Code of the relevant State or a foreign law, to a

provisional liquidator is appointed to the stakeholding

company.

3 At the end of subsection 160ZNSK(1)

Schedule 1 Loss recoupment rules for companies etc.

6 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Add:

; (g) 160ZNRA (which deals with companies in liquidation).

Income Tax Assessment Act 1997

4 Subsection 4-15(2) (table item 1)

Omit "continue to carry on the same business", substitute "satisfy the

same business test".

5 Subsection 25-35(5) (table item 1)

Omit "carried on the same business", substitute "satisfied the same

business test".

6 Section 36-25 (table item 1 in the table headed "Tax losses

of companies")

Omit "carried on the same business", substitute "satisfied the same

business test".

7 Section 36-25 (table item 2 in the table headed "Tax losses

of companies")

Repeal the table item, substitute:

A company wants to deduct a tax loss.

It cannot do so unless:

�

the same people owned the

company during the loss year, the

income year and any intervening

year; and

�

no person controlled the company's

voting power at any time during the

income year who did not also

control it during the whole of the

loss year and any intervening year;

or the company has satisfied the same

business test.

Subdivision 165-A

8 Section 102-30 (table item 4)

Omit "carried on the same business", substitute "satisfied the same

business test".

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

9 Section 102-30 (table item 5)

Repeal the table item, substitute:

A company

It cannot apply a net capital loss

unless:

�

the same people owned the

company during the loss year, the

income year and any intervening

year; and

�

no person controlled the

company's voting power at any

time during the income year who

did not also control it during the

whole of the loss year and any

intervening year;

or the company has satisfied the same

business test.

Subdivision 165-CA

10 Subsection 125-60(2)

After "in a company", insert "that is the

head entity of a

demerger

group".

11 Subparagraph 125-60(3)(a)(i)

Repeal the subparagraph.

12 Section 165-5

Repeal the section, substitute:

165-5 What this Subdivision is about

A company cannot deduct a tax loss unless:

(a)

it has the same owners and the same control

throughout the period from the start of the loss

year to the end of the income year; or

(b)

it satisfies the same business test by carrying on

the same business, entering into no new kinds of

transactions and conducting no new kinds of

business.

Schedule 1 Loss recoupment rules for companies etc.

8 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(Companies whose total income for the income year is more than

$100 million cannot satisfy the same business test for that year.)

13 Paragraph 165-10(b)

Omit "carrying on the same business", substitute "satisfying the same

business test".

14 Section 165-10 (note)

Repeal the note, substitute:

Note 1:

In the case of a widely held or eligible Division 166 company,

Subdivision 166-A modifies how this Subdivision applies, unless the

company chooses otherwise.

Note 2:

Companies whose total income for an income year is more than $100

million cannot meet the condition in section 165-13 for that year: see

section 165-212A.

15 At the end of subsection 165-12(1)

Add:

Note:

See section 165-255 for the rule about incomplete test periods.

16 Subsection 165-12(6)

Omit "at the beginning of", substitute "at any time during".

17 After subsection 165-12(7)

Insert:

(7A) If the company is:

(a) a

non-profit company; or

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the

ownership test period, the conditions in

subsections (3) and (4) are taken to have been satisfied by the

company.

18 Section 165-13 (heading)

Repeal the heading, substitute:

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

165-13 Alternatively, the company must satisfy the same business

test

19 Subsection 165-13(1)

Omit "the company" (first occurring), substitute "a company (other than

a company covered by section 165-212A)".

20 Subsection 165-13(1) (note)

Omit "Note", substitute "Note 1".

21 At the end of subsection 165-13(1)

Add:

Note 2:

Companies whose total income for the income year is more than $100

million cannot meet the condition in this section for that year: see

section 165-212A.

22 Section 165-15 (heading)

Repeal the heading, substitute:

165-15 The same people must control the voting power, or the

company must satisfy the same business test

23 At the end of subsection 165-15(1)

Add:

Note:

A person can still control the voting power in a company that is in

liquidation etc.: see section 165-250.

24 At the end of subsection 165-15(2)

Add:

Note:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for that year: see

section 165-212A.

25 At the end of section 165-23

Add:

(Companies whose total income for an income year is more than

$100 million cannot satisfy the same business test for that year.)

Schedule 1 Loss recoupment rules for companies etc.

10 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

26 Section 165-30

Repeal the section, substitute:

165-30 Flow chart showing the application of this Subdivision

This Subdivision

does not apply.

Work out the

company's taxable

income under

section 4-15.

Did the company carry on the same

business during the rest of the

income year as it carried on before

the change?

Was the total income of the

company for the income year over

$100 million?

Did the company experience a

change in beneficial ownership or a

change in the control of its voting

power during the income year?

Did the company incur a notional

loss in a period of the income year

before or after the change in

beneficial ownership or control?

This Subdivision applies:

1. Calculate the taxable income under section 165-65,

excluding the notional loss incurred in any period.

2. Calculate the tax loss under section 165-70, taking

into account each notional loss.

yes

Note:

If the company was a partner during the income year, special rules

apply to calculating a notional loss or notional taxable income.

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

27 Section 165-35 (heading)

Repeal the heading, substitute:

165-35 On a change of ownership, unless the company satisfies the

same business test

28 Section 165-35 (notes)

Repeal the notes, substitute:

Note 1:

For the same business test, see Subdivision 165-E.

Note 2:

In the case of a widely held or eligible Division 166 company,

Subdivision 166-B modifies how this Subdivision applies, unless the

company chooses otherwise.

Note 3:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for the rest of the year:

see section 165-212A.

29 Subsection 165-37(3)

Omit "at the beginning of", substitute "at any time during".

30 After subsection 165-37(4)

Insert:

(4A) If the company is:

(a) a

non-profit company; or

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the

ownership test period, the conditions in

paragraphs (1)(b) and (c) are taken to have been satisfied by the

company.

31 Section 165-40 (heading)

Repeal the heading, substitute:

165-40 On a change of control of the voting power in the company,

unless the company satisfies the same business test

32 At the end of subsection 165-40(1)

Add:

Schedule 1 Loss recoupment rules for companies etc.

12 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Note:

A person can still control the voting power in a company that is in

liquidation etc.: see section 165-250.

33 At the end of subsection 165-40(2)

Add:

Note:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for the rest of the year:

see section 165-212A.

34 At the end of subsection 165-45(3)

Add:

Note:

See section 165-255 for the rule about incomplete periods.

35 Subsection 165-45(4) (notes)

Repeal the notes, substitute:

Note 1:

For the same business test, see Subdivision 165-E.

Note 2:

See section 165-225 for a special alternative to this section.

Note 3:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for the same business test

period: see section 165-212A.

36 Section 165-93

Repeal the section, substitute:

165-93 What this Subdivision is about

In working out its net capital gain for an income year, a company

cannot apply a net capital loss for an earlier income year unless:

(a)

it has the same owners and the same control from

the start of the loss year to the end of the income

year; or

(b)

it satisfies the same business test by carrying on

the same business, entering into no new kinds of

transactions and conducting no new kinds of

business.

(Companies whose total income for the income year is more than

$100 million cannot satisfy the same business test for that year.)

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

37 Subsection 165-96(1)

Omit "or

net capital loss".

38 Subsection 165-96(1) (note 1)

Omit "or net capital loss".

39 Subsection 165-96(1) (note 2)

Omit "in the loss year or the income year", substitute "in the period

from the start of the loss year to the end of the income year".

40 At the end of section 165-99

Add:

(Companies whose total income for an income year is more than

$100 million cannot satisfy the same business test for that year.)

41 Section 165-102 (heading)

Repeal the heading, substitute:

165-102 On a change of ownership, or of control of voting power,

unless the company satisfies the same business test

42 Section 165-102 (note)

Repeal the note, substitute:

Note:

In the case of a widely held or eligible Division 166 company,

Subdivision 166-B modifies how this Subdivision applies, unless the

company chooses otherwise.

43 At the end of section 165-115

Add:

(Companies whose total income for an income year is more than

$100 million cannot satisfy the same business test for that year.)

44 At the end of subsection 165-115B(4)

Add:

Schedule 1 Loss recoupment rules for companies etc.

14 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Note:

Companies whose total income for an income year is more than $100

million cannot meet the condition in section 165-13 for that year: see

section 165-212A.

45 At the end of subsection 165-115BA(4)

Add:

Note:

Companies whose total income for an income year is more than $100

million cannot meet the condition in section 165-13 for that year: see

section 165-212A.

46 Subsection 165-115C(3)

Omit "at the reference time", substitute "at any time during the period

from the reference time to the

test time".

47 After subsection 165-115C(4)

Insert:

(4A) If the company is:

(a) a

non-profit company; or

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the period from the reference time to the

test

time, the test time is taken not to be a

changeover time in respect

of the company because of the application of paragraphs (1)(b) and

(c).

48 At the end of subsection 165-115D(1)

Add:

Note:

A person can still control the voting power in a company that is in

liquidation etc.: see section 165-250.

49 Subsection 165-115L(4)

Omit "at the reference time", substitute "at any time during the period

from the reference time to the

test time".

50 At the end of section 165-115L

Add:

(5) If the company is:

(a) a

non-profit company; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the period from the reference time to the

test

time, the test time is taken not to be an

alteration time in respect of

the company because of the application of paragraphs (1)(b) and

(c).

51 At the end of subsection 165-115M(1)

Add:

Note:

A person can still control the voting power in a company that is in

liquidation etc.: see section 165-250.

52 Section 165-117

Repeal the section, substitute:

165-117 What this Subdivision is about

A company cannot deduct a bad debt unless:

(a)

if the debt was incurred in an earlier income

year--the company had the same owners and the

same control throughout the period from the day

on which the debt was incurred to the end of the

income year in which it writes off the debt as bad;

(b)

if the debt was incurred in the current year--the

company had the same owners and the same

control during the income year both before and

after the debt was incurred;

or, if there has been a change of ownership or control, the company

satisfies the same business test by carrying on the same business,

entering into no new kinds of transactions and conducting no new

kinds of business.

(Companies whose total income for the income year is more than

$100 million cannot satisfy the same business test for the second

continuity period.)

53 Paragraph 165-120(1)(c)

Schedule 1 Loss recoupment rules for companies etc.

16 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Omit "carrying on the same business", substitute "satisfying the same

business test".

54 Subsection 165-120(1) (note 1)

Repeal the note, substitute:

Note 1:

In the case of a widely held or eligible Division 166 company,

Subdivision 166-C modifies how this Subdivision applies, unless the

company chooses otherwise.

55 At the end of subsection 165-120(1)

Add:

Note 4:

Companies whose total income for the current year is more than $100

million cannot meet the condition in section 165-126 for the second

continuity period: see section 165-212A.

56 At the end of subsection 165-123(1)

Add:

Note:

See section 165-255 for the rule about incomplete test periods.

57 Subsection 165-123(6)

Omit "at the beginning of", substitute "at any time during".

58 After subsection 165-123(7)

Insert:

(7A) If the company is:

(a) a

non-profit company; or

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the

ownership test period, the conditions in

subsections (3) and (4) are taken to have been satisfied by the

company.

59 Section 165-126 (heading)

Repeal the heading, substitute:

165-126 Alternatively, the company must satisfy the same business

test

60 Subsection 165-126(1)

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Omit "the company" (first occurring), substitute "a company (other than

a company covered by section 165-212A)".

61 Subsection 165-126(1) (note)

Omit "Note", substitute "Note 1".

62 At the end of subsection 165-126(1)

Add:

Note 2:

Companies whose total income for the current year is more than $100

million cannot meet the condition in this section for the second

continuity period: see section 165-212A.

63 Section 165-129 (heading)

Repeal the heading, substitute:

165-129 Same people must control the voting power, or the company

must satisfy the same business test

64 At the end of subsection 165-129(1)

Add:

Note:

A person can still control the voting power in a company that is in

liquidation etc.: see section 165-250.

65 At the end of subsection 165-129(2)

Add:

Note:

Companies whose total income for the current year is more than $100

million cannot satisfy the same business test for the second continuity

period: see section 165-212A.

66 Paragraph 165-132(1)(b)

Omit "carrying on the same business", substitute "satisfying the same

business test".

67 At the end of subsection 165-132(1)

Add:

Note:

Companies whose total income for the later income year is more than

$100 million cannot satisfy the same business test for that year: see

section 165-212A.

68 At the end of subsection 165-180(1)

Schedule 1 Loss recoupment rules for companies etc.

18 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Add:

Example: The Commissioner may treat a person as not having beneficially

owned redeemable shares at a particular time if the conditions in

subsections (2) and (3) are met in respect of those shares.

69 Section 165-195

Repeal the section.

70 Subsection 165-200(1)

Omit ", 165-190 and 165-195", substitute "and 165-190".

71 After section 165-200

Insert:

165-202 Shares held by government entities and charities etc.

(1) For the purposes of a test,

shares that are beneficially owned by

each of the following entities are taken to be beneficially owned

instead by a person (who is not a company):

(a) the Commonwealth, a State or a Territory;

(b) a municipal corporation;

(d) the government of a foreign country, or of part of a foreign

country;

(e) a company, established under a law, in which no person has a

membership interest;

(f) a

non-profit company;

(g) a charitable institution, a charitable fund or any other kind of

charitable body (other than such an institution, fund or body

that is a trust).

(2) For the purposes of a test,

shares that are beneficially owned

through a charitable institution, a charitable fund, or any other kind

of charitable body, that is a trust are taken to be beneficially owned

instead by a person (who is neither a company nor a trustee).

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

165-203 Companies where no shares have been issued

For the purposes of a test, if no

shares have been issued in a

company, each

membership interest in the company is taken to be

a share in the company.

72 Section 165-207

Repeal the section, substitute:

165-207 Trustees of family trusts

(1) This section applies if one or more trustees of a

family trust:

(a) owns

shares in a company; or

(b) controls, or is able to control, (whether directly, or indirectly

through one or more interposed entities) voting power in a

company; or

indirectly through

one or more interposed entities) a percentage of a

dividend

or a distribution of capital of a company.

(2) For the purposes of a primary test, a single notional entity that is a

person (but is neither a company nor a trustee) is taken to own the

shares beneficially.

Note:

For a primary test, see subsections 165-150(1), 165-155(1) and

165-160(1).

(3) For the purposes of an alternative test, a single notional entity that

is a person (but is neither a company nor a trustee) is taken:

(a) to control, or have the ability to control, the voting power in

the company; or

(b) to have the right to receive (whether directly or

indirectly)

the percentage of the

dividend or distribution for the entity's

own benefit.

Note:

For an alternative test, see subsections 165-150(2), 165-155(2) and

165-160(2).

(4) If a trustee of the trust is subsequently replaced by another trustee

of the trust, the same single notional entity is taken:

(a) to own the

shares beneficially; or

(b) to control, or have the ability to control, the voting power in

the company; or

Schedule 1 Loss recoupment rules for companies etc.

20 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

indirectly)

the percentage of the

dividend or distribution for the entity's

own benefit.

73 At the end of Subdivision 165-D

Add:

165-208 Companies in liquidation etc.

(1) For the purposes of a primary test or an alternative test, an entity is

not prevented from:

(a) beneficially owning

shares in a company; or

(b) having the right to exercise, controlling, or being able to

control, voting power in a company; or

dividends that a company

may pay; or

(d) having the right to receive any distribution of capital of a

company;

merely because:

(e) the company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Act 2001; or

(ii) an entity with a similar status under a

foreign law to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the company

under section 472 of the Corporations Act 2001; or

(ii) a person with a similar status under a foreign law to a

provisional liquidator is appointed to the company.

Note 1:

For a primary test, see subsections 165-150(1), 165-155(1) and

165-160(1).

Note 2:

For an alternative test, see subsections 165-150(2), 165-155(2) and

165-160(2).

(2) For the purposes of a primary test or an alternative test, a company

(the stakeholding company) is not prevented from:

(a) beneficially owning

shares in another company, or any other

interest in another entity; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(b) having the right to exercise, controlling, or being able to

control, voting power in another company or any other entity;

dividends that another

company or any other entity may pay; or

(d) having the right to receive any distribution of capital of

another company or of any other entity;

merely because:

(e) the stakeholding company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Act 2001; or

(ii) an entity with a similar status under a

foreign law to an

externally-administered body corporate; or

(f) either:

(i) a provisional liquidator is appointed to the stakeholding

company under section 472 of the Corporations Act

2001; or

(ii) a person with a similar status under a foreign law to a

provisional liquidator is appointed to the stakeholding

company.

165-209 Dual listed companies

Section 165-150 does not apply to

shares that are

dual listed

company voting shares.

74 Subsection 165-210(1)

Omit "The company", substitute "A company (other than a company

covered by section 165-212A)".

75 At the end of subsection 165-210(1)

Add:

Note:

Companies whose total income for an income year is more than $100

million cannot satisfy the same business test for the same business test

period: see section 165-212A.

76 At the end of Subdivision 165-E

Add:

Schedule 1 Loss recoupment rules for companies etc.

22 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

165-212A Some companies cannot satisfy the same business test

For the purposes of this Division and Division 166, a company

does not satisfy the

same business test for the whole or a part of

the income year if the

total income of the company for the income

year is more than $100 million.

Note:

Section 165-212C sets out how to work out the total income of a

company that is not able to work out its total income for a 12 month

period.

165-212B Definition of total income

(1) The total income of a company for an income year is the total of

the following:

(a) any

assessable income (other than any

net capital gains)

derived during the year by the company;

(b) any

exempt income derived during the year by the company;

non-assessable non-exempt income derived during the

year by the company.

(2) In working out the amount of a company's

non-assessable

non-exempt income under paragraph (1)(c), do not include:

(a) any amount covered by section 17-5 (which is about GST);

(b) any amount of non-assessable non-exempt income that is not

included in the company's

assessable income because an

equivalent amount has already been included in the

company's assessable income (whether in that year or an

earlier income year).

Note:

For example, under section 70-90, the actual amount received for

trading stock disposed of outside the ordinary course of business is not

included in a company's assessable income because the market value

of that stock has already been included in the company's assessable

income.

165-212C Total income of companies who cannot work out their

total income for a 12 month period

(1) This section sets out how to apply sections 165-212A and 716-805

if:

(a) the company does not exist for the whole income year; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(b) the company is a

subsidiary member of a

consolidated

group or a

MEC group for a part of the income year.

(2) The

total income of the company for the income year is the

amount that the company reasonably estimates would be the total

income if:

(a) the company were in existence for the whole of the income

year; and

(b) the company were not a

subsidiary member of a

consolidated group or a

MEC group at any time during the

year.

(3) This section applies instead of section 716-850 (which is about

grossing up threshold amounts).

165-212D Restructure of MDOs etc.

(1) An

MDO does not fail to satisfy the

same business test merely

because, before 1 July 2003:

(a) the MDO restructured the way it

provides medical

indemnity cover; or

(b) the MDO ceased to provide medical indemnity cover;

in order to comply with the Medical Indemnity (Prudential

Supervision and Product Standards) Act 2003.

(2) A

general insurance company which is an

associate of an

MDO

does not fail to satisfy the

same business test merely because,

before 1 July 2003:

(a) the MDO restructured the way it

provides medical

indemnity cover; or

(b) the MDO ceased to provide medical indemnity cover;

in order to comply with the Medical Indemnity (Prudential

Supervision and Product Standards) Act 2003.

165-212E Entry history rule does not apply for the purposes of the

same business test

For the purposes of the

same business test, if an entity (the joining

entity) becomes a

subsidiary member of a

consolidated group or

MEC group, section 701-5 (the entry history rule) does not

operate to take the

business of the

head company of the group to

Schedule 1 Loss recoupment rules for companies etc.

24 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

include the business of the joining entity before it became a

member of the group.

77 Paragraph 165-235(2)(c)

Omit "or net capital loss".

78 At the end of Division 165

Add:

Subdivision 165-G--Other special provisions

Table of sections

165-250 Control of companies in liquidation etc.

165-255 Incomplete periods

165-250 Control of companies in liquidation etc.

(1) For the purposes of sections 165-15, 165-40, 165-115D, 165-115M

and 165-129, a person is not prevented from controlling, or being

or becoming able to control, voting power in a company merely

because:

(a) the company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Act 2001; or

(ii) an entity with a similar status under a

foreign law to an

externally-administered body corporate; or

(b) either:

(i) a provisional liquidator is appointed to the company

under section 472 of the Corporations Act 2001; or

(ii) a person with a similar status under a foreign law to a

provisional liquidator is appointed to the company.

(2) For the purposes of sections 165-15, 165-40, 165-115D, 165-115M

and 165-129, a company (the stakeholding company) is not

prevented from controlling, or being or becoming able to control,

voting power in another company merely because:

(a) the stakeholding company is or becomes:

(i) an externally-administered body corporate within the

meaning of the Corporations Act 2001; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(ii) an entity with a similar status under a

foreign law to an

externally-administered body corporate; or

(b) either:

(i) a provisional liquidator is appointed to the stakeholding

company under section 472 of the Corporations Act

2001; or

(ii) a person with a similar status under a foreign law to a

provisional liquidator is appointed to the stakeholding

company.

165-255 Incomplete periods

(1) If:

(a) this Division or Division 166 requires a company to meet or

satisfy a condition or test, or work out an amount, for a

period; and

(b) the company is only in existence after the beginning of the

period;

then the period is taken to start on the first day that the company is

in existence.

(2) If:

(a) this Division or Division 166 requires a company to meet or

satisfy a condition or test, or work out an amount, for a

period; and

(b) the company ceases to be in existence before the end of the

period;

then the period is taken to end on the day the company ceases to be

in existence.

79 Division 166

Repeal the Division, substitute:

Division 166--Income tax consequences of changing

ownership or control of a widely held or eligible

Division 166 company

Table of Subdivisions

Guide to Division 166

Schedule 1 Loss recoupment rules for companies etc.

26 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

166-AA The object of this Division

166-A Deducting tax losses of earlier income years

166-B

Working out the taxable income, tax loss, net capital gain and

net capital loss for the income year of the change

166-C

Deducting bad debts

166-CA Changeover times and alteration times

166-D Tests for finding out whether the widely held or eligible

Division 166 company has maintained the same owners

166-E

Concessional tracing rules

Guide to Division 166

166-1 What this Division is about

This Division modifies the way the rules in Division 165 apply to a

widely held or eligible Division 166 company by making it easier

for the company to apply the rules.

If the company has maintained the same owners as between certain

points of time, it does not need to prove it has maintained the same

owners throughout the periods in between.

In certain cases, special concessional tracing rules deem entities to

hold voting, dividend or capital stakes in the company so that the

company does not have to trace through to the ultimate beneficial

owners of the stakes.

Subdivision 166-AA--The object of this Division

166-3 The object of this Division

(1) The object of this Division is to make it easier for a

widely held

company, or an

eligible Division 166 company, to apply the rules

in Division 165 (because of the difficulty the company might have

under that Division in actually tracing through to the ultimate

beneficial owners of

voting stakes,

dividend stakes and

capital

stakes in the company).

(2) This Division makes it easier to apply the rules in Division 165 by:

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(a) making it unnecessary for the company to prove that it has

maintained the same owners throughout a period, if the

company had the same owners at certain test times; and

(b) making it unnecessary for the company to trace through to

the ultimate beneficial owners of:

(i)

voting stakes,

dividend stakes and

capital stakes in

the company held by certain entities (whether directly,

indirectly through one or more interposed entities);

and

(ii) small

voting stakes,

dividend stakes and

capital

stakes in the company.

Subdivision 166-A--Deducting tax losses of earlier income

years

Table of sections

166-5

How Subdivision 165-A applies to a widely held or eligible Division 166

company

166-15

Companies can choose that this Subdivision is not to apply to them

166-5 How Subdivision 165-A applies to a widely held or eligible

Division 166 company

(1) This Subdivision modifies the way Subdivision 165-A applies to a

company that is:

(a) a

widely held company at all times during the income year;

(b) an

eligible Division 166 company at all times during the

income year; or

eligible Division 166 company for the rest of the income

year.

Note 1:

Subdivision 165-A is about the conditions a company must meet

before it can deduct a tax loss for an earlier income year.

Note 2:

A company can choose that this Subdivision is not to apply to it: see

section 166-15.

Note 3:

See section 165-255 for the rule about incomplete income years.

Schedule 1 Loss recoupment rules for companies etc.

28 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Meaning of test period

(2) The company's test period is the period consisting of the

loss

year, the income year and any intervening period.

Note:

See section 165-255 for the rule about incomplete test periods.

Substantial continuity of ownership

(3) The company is taken to have met the conditions in section 165-12

(which is about the company maintaining the same owners) if there

substantial continuity of ownership of the company as between

the start of the

test period and:

(a) the end of each income year in that period; and

(b) the

end of each

corporate change in that period.

Note:

See sections 166-145 and 166-175 to work out whether there is

substantial continuity of ownership and a corporate change.

No substantial continuity of ownership

(4) The company is taken to have failed to meet the conditions in

section 165-12 if there is no

substantial continuity of ownership of

the company as between the start of the

test period and:

(a) the end of an income year in that period; or

(b) the

end of a

corporate change in that period.

Satisfies the same business test

(5) However, if the company satisfies the

same business test for the

income year (the same business test period), it is taken to have

satisfied the condition in section 165-13.

Note 1:

For the same business test, see Subdivision 165-E.

Note 2:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for that year: see

section 165-212A.

Note 3:

See section 165-255 for the rule about incomplete test periods.

(6) Apply the

same business test to the

business that the company

carried on immediately before the earlier of the following times

(the test time):

(a) the end of the first income year;

(b) the first time in the test period that a

corporate change in the

company

ends;

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

for which there is no

substantial continuity of ownership of the

company as between the start of the

test period and that time.

166-15 Companies can choose that this Subdivision is not to apply to

them

(1) The company can choose that Subdivision 165-A is to apply to it

for the income year without the modifications made by this

Subdivision.

(2) The company must choose on or before the day it lodges its

income tax return for the income year, or before a later day if the

Commissioner allows.

Subdivision 166-B--Working out the taxable income, tax loss,

net capital gain and net capital loss for the income

year of the change

Table of sections

166-20

How Subdivisions 165-B and 165-CB apply to a widely held or eligible

Division 166 company

166-25

How to work out the taxable income, tax loss, net capital gain and net

capital loss

166-35

Companies can choose that this Subdivision is not to apply to them

166-20 How Subdivisions 165-B and 165-CB apply to a widely held

or eligible Division 166 company

(1) This Subdivision modifies how Subdivisions 165-B and 165-CB

apply to a company that is:

(a) a

widely held company at all times during the income year

(the test period); or

(b) an

eligible Division 166 company at all times during the

income year (the test period); or

eligible Division 166 company for the rest of the income year

(the whole year being the test period).

Schedule 1 Loss recoupment rules for companies etc.

30 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Note 1:

Subdivision 165-B is about when a company must calculate its taxable

income and tax loss for the income year in a special way.

Subdivision 165-CB is about when a company must calculate its net

capital gain and net capital loss for the income year in a special way.

Note 2:

A company can choose that this Subdivision is not to apply to it: see

section 166-35.

Note 3:

See section 165-255 for the rule about incomplete test periods.

No corporate change etc.

(2) If:

(a) no

corporate change in the company

ends at any time in the

test period; or

(b) a corporate change in the company

ends during the test

period, but there is

substantial continuity of ownership as

between the start of the test period and immediately after the

corporate change ends;

the company is taken to have met the condition in paragraph

165-35(a) (which is about there being persons having

more than a

50% stake in it during the whole of the income year).

Note:

See sections 166-145 and 166-175 to work out whether there is

substantial continuity of ownership and a corporate change.

Corporate change

(3) If:

(a) a

corporate change in the company

ends at any time in the

test period; and

(b) there is no

substantial continuity of ownership as between

the start of the test period and immediately after the corporate

change ends;

then the company is taken to have failed to meet the condition in

paragraph 165-35(a).

Satisfies the same business test

(4) However, if the company satisfies the

same business test for the

rest of the income year (the same business test period) after the

first time (the test time) in the

test period that a

corporate change

in the company

ended, the company is taken to have satisfied the

condition in paragraph 165-35(b).

Note 1:

For the same business test, see Subdivision 165-E.

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Note 2:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for the rest of the year:

see section 165-212A.

Note 3:

See section 165-255 for the rule about incomplete test periods.

(5) Apply the

same business test to the

business that the company

carried on immediately before the

test time.

166-25 How to work out the taxable income, tax loss, net capital gain

and net capital loss

(1) If the company must calculate its taxable income and

tax loss for

the income year under Subdivision 165-B, and its

net capital gain

and

net capital loss under Subdivision 165-CB, then, in dividing

the income year into periods, apply subsection (2) of this section

instead of subsection 165-45(3).

(2) The last period ends at the end of the income year. Each period

(except the last) ends at the earlier of:

(a) the earliest time when:

(i) a

corporate change in the company

ends; and

(ii) there is no

substantial continuity of ownership of the

company as between the start of the

test period and that

time; or

(b) the earliest time when a person begins to control, or becomes

able to control, the voting power in the company (whether

directly, or indirectly through one or more interposed entities)

for the purpose, or for purposes including the purpose, of:

(i) getting some benefit or advantage to do with how this

Act applies; or

(ii) getting such a benefit or advantage for someone else.

Note:

See sections 166-145 and 166-175 to work out whether there is

substantial continuity of ownership and a corporate change.

166-35 Companies can choose that this Subdivision is not to apply to

them

(1) The company can choose that Subdivisions 165-B and 165-CB are

to apply to it for the income year without the modifications made

by this Subdivision.

Schedule 1 Loss recoupment rules for companies etc.

32 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(2) The company must choose on or before the day it lodges its

income tax return for the income year, or before a later day if the

Commissioner allows.

Subdivision 166-C--Deducting bad debts

Table of sections

166-40

How Subdivision 165-C applies to a widely held or eligible Division 166

company

166-50

Companies can choose that this Subdivision is not to apply to them

166-40 How Subdivision 165-C applies to a widely held or eligible

Division 166 company

(1) This Subdivision modifies the way Subdivision 165-C applies to a

company that is:

(a) a

widely held company at all times during the

current year;

(b) an

eligible Division 166 company at all times during the

current year; or

eligible Division 166 company for the rest of the current

year.

Note 1:

Subdivision 165-C is about the conditions a company must meet

before it can deduct a bad debt.

Note 2:

A company can choose that this Subdivision is not to apply to it: see

section 166-50.

Note 3:

See section 165-255 for the rule about incomplete current years.

Meaning of test period

(2) The company's test period is the period:

(a) that begins at whichever of the following times the company

chooses:

(i) the start of the income year in which the debt was

incurred;

(ii) the start of the

first continuity period; and

(b) that ends at the end of the

second continuity period;

and includes any intervening period.

Note:

See section 165-255 for the rule about incomplete test periods.

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Substantial continuity of ownership

(3) The company is taken to have met the conditions in

section 165-123 (about the company maintaining the same owners)

if there is

substantial continuity of ownership of the company as

between the start of the

test period and:

(a) the end of each income year in that period; and

(b) the

end of each

corporate change in that period.

Note:

See sections 166-145 and 166-175 to work out whether there is

substantial continuity of ownership and a corporate change.

No substantial continuity of ownership

(4) The company is taken to have failed to meet the conditions in

section 165-123 if there is no

substantial continuity of ownership

of the company as between the start of the

test period and:

(a) the end of an income year in that period; or

(b) the

end of a

corporate change in that period.

Satisfies the same business test

(5) However, if the company satisfies the

same business test for the

second continuity period (the same business test period), it is

taken to have satisfied the condition in section 165-126.

Note 1:

For the same business test, see Subdivision 165-E.

Note 2:

Companies whose total income for the income year is more than $100

million cannot satisfy the same business test for the second continuity

period: see section 165-212A.

Note 3:

See section 165-255 for the rule about incomplete test periods.

(6) Apply the

same business test to the

business that the company

carried on immediately before the earlier of the following times

(the test time):

(a) the end of the first income year;

(b) the first time in the test period that a

corporate change in the

company

ends;

for which there is no

substantial continuity of ownership of the

company as between the start of the

test period and that time.

Schedule 1 Loss recoupment rules for companies etc.

34 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

166-50 Companies can choose that this Subdivision is not to apply to

them

(1) The company can choose that Subdivision 165-C is to apply to it

for the income year without the modifications made by this

Subdivision.

(2) The company must choose on or before the day it lodges its

income tax return for the income year, or before a later day if the

Commissioner allows.

Subdivision 166-CA--Changeover times and alteration times

Table of sections

166-80

How Subdivision 165-CC or 165-CD applies to a widely held or eligible

Division 166 company

166-90

Companies can choose that this Subdivision is not to apply to them

166-80 How Subdivision 165-CC or 165-CD applies to a widely held

or eligible Division 166 company

(1) This Subdivision modifies the way in which:

(a) Subdivision 165-CC applies in determining whether a

changeover time (within the meaning of section 165-115C)

has occurred; or

(b) Subdivision 165-CD applies in determining whether an

alteration time (within the meaning of section 165-115L) has

occurred;

in relation to a company that is:

widely held company at all times during the income year;

(d) an

eligible Division 166 company at all times during the

income year; or

(e) a widely held company for a part of the income year and an

eligible Division 166 company for the rest of the income

year.

Note 1:

Subdivision 165-CC is about the conditions a company that has an

unrealised net loss must satisfy before it can have capital losses taken

into account or deduct revenue losses. Subdivision 165-CD provides

for reductions in cost bases and certain other reductions after

alterations have occurred in the ownership or control of a loss

company.

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Note 2:

A company can choose that this Subdivision is not to apply to it: see

section 166-90.

Note 3:

See section 165-255 for the rule about incomplete income years.

Meaning of test period and test time

(2) The company's test period is the period starting at the time that is

the reference time for the purposes of Subdivision 165-CC or

section 165-115L, as the case may be, and ending at each of the

following times (the test time):

(a) the end of the income year in which the reference time

occurred;

(b) the end of a later income year;

end of a

corporate change in the company.

Note 1:

See section 165-255 for the rule about incomplete test periods.

Note 2:

See section 166-175 to work out whether there is a corporate change.

Substantial continuity of ownership

(3) A changeover time or an alteration time is taken not to have

occurred in respect of the company during the test period if there is

substantial continuity of ownership of the company as between the

start of the

test period and the

test time.

Note:

See section 166-145 to work out whether there is substantial

continuity of ownership.

No substantial continuity of ownership

(4) Subsections (5) and (6) have effect if there is no

substantial

continuity of ownership of the company as between the start of the

test period and the

test time.

(5) The

test time is taken to have been a changeover time or an

alteration time, as the case may be, in respect of the company.

(6) No other time during the

test period is a changeover time or an

alteration time in respect of the company.

Schedule 1 Loss recoupment rules for companies etc.

36 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

166-90 Companies can choose that this Subdivision is not to apply to

them

(1) The company can choose that Subdivision 165-CC or 165-CD is to

apply to it in respect of a

test period for the purposes of

section 166-80 without the modifications made by this Subdivision.

(2) The company must choose on or before the day it lodges its

income tax return for the income year in which the

test period

begins, or before a later day if the Commissioner allows.

Subdivision 166-D--Tests for finding out whether the widely

held or eligible Division 166 company has maintained

the same owners

Guide to Subdivision 166-D

166-135 What this Subdivision is about

This Subdivision has the tests to work out whether a widely held or

eligible Division 166 company has maintained the same owners as

between different times. (Subdivision 166-E has rules which make

it easier for the company to satisfy these tests.)

This Subdivision also defines when there has been a corporate

change in the company.

Table of sections

The ownership tests: substantial continuity of ownership

166-145 The ownership tests: substantial continuity of ownership

166-165 Relationship with rules in Division 165

Corporate change in a company

166-175 Corporate change in a company

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

The ownership tests: substantial continuity of ownership

166-145 The ownership tests: substantial continuity of ownership

(1) There is substantial continuity of ownership of the company as

between the start of the

test period and another time in the test

period if (and only if) the conditions in this section are met.

Note:

Sections 166-165 and 166-170, and Subdivision 166-E, affect how

this section is applied.

Voting power

(2) There must be persons (none of them companies or trustees) who

had

more than 50% of the voting power in the company at the

start of the

test period. Also, those persons must have had

than 50% of the voting power in the company immediately after

the other time in the test period.

Note:

To work out who had more than 50% of the voting power, see

section 165-150.

Rights to dividends

(3) There must be persons (none of them companies) who had rights to

more than 50% of the company's dividends at the start of the

test

period. Also, those persons must have had rights to

more than

50% of the company's dividends immediately after the other time

in the test period.

Note:

To work out who had rights to more than 50% of the company's

dividends, see section 165-155.

Rights to capital distributions

(4) There must be persons (none of them companies) who had rights to

more than 50% of the company's capital distributions at the start

of the

test period. Also, those persons must have had rights to

more than 50% of the company's capital distributions

immediately after the other time in the test period.

Note:

To work out who had rights to more than 50% of the company's

capital distributions, see section 165-160.

Schedule 1 Loss recoupment rules for companies etc.

38 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

When to apply the test

(5) To work out whether a condition in this section was satisfied at a

time (the ownership test time), apply the alterative test for that

condition.

Note:

For the alternative test, see subsections 165-150(2), 165-155(2) and

165-160(2).

Conditions in subsections (3) and (4) satisfied by non-profit and

mutual companies

(6) If the company is:

(a) a

non-profit company; or

(b) a

mutual affiliate company; or

mutual insurance company;

during the whole of the

test period, the conditions in

subsections (3) and (4) are taken to have been satisfied by the

company.

166-165 Relationship with rules in Division 165

(1) The provisions of Subdivision 165-D (other than section 165-165)

apply for the purposes of the tests in section 166-145.

(2) The following provisions apply for the purposes of the tests in

section 166-145 as if the reference to a particular time were a

reference to the

ownership test time:

(a) section 165-180 (which is about arrangements affecting

beneficial ownership of shares);

(b) subsection 165-185(2) (which treats some shares as never

having carried rights);

having carried rights).

Corporate change in a company

166-175 Corporate change in a company

Meaning of corporate change

(1) There is a corporate change in a company if:

(a) there is a

takeover bid for

shares in the company; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(b) there is a scheme of arrangement, involving more than 50%

of the company's shares, that has been approved by a court;

more than 50% of the company's shares, that is regulated

under the Corporations Act 2001 or a

foreign law; or

(d) there is an issue of

shares in the company that results in an

increase of 20% or more in:

(i) the issued share capital of the company; or

(ii) the number of the company's shares on issue; or

(e) there is a corporate change in another company which

beneficially owns one or more of the following stakes in the

first company:

(i) a

voting stake that carries rights to more than 50% of

the voting power of the first company;

(ii) a

dividend stake that carries rights to receive more than

50% of any dividends the first company may pay;

(iii) a

capital stake that carries rights to receive more than

50% of any distribution of capital of the first company;

(whether the other company owns those stakes directly, or

indirectly through one or more interposed entities).

When a corporate change ends

(2) A

corporate change ends:

(a) if paragraph (1)(a) applies (or paragraph (1)(e) applies

because of paragraph (1)(a))--at the latest time when a

bid

period of the

takeover bid ends; and

(b) if paragraph (1)(b) or (c) applies (or paragraph (1)(e) applies

because of paragraph (1)(b) or (c))--when the scheme of

arrangement or other arrangement ends; and

because of paragraph (1)(d))--when the offer period for the

issue of

shares ends.

Schedule 1 Loss recoupment rules for companies etc.

40 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Subdivision 166-E--Concessional tracing rules

Guide to Subdivision 166-E

166-215 What this Subdivision is about

This Subdivision has rules which make it easier for a widely held

or eligible Division 166 company to satisfy the ownership tests in

Subdivision 166-D.

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:

(a)

stakes of less than 10% in the company;

(b)

stakes of between 10% and 50% that are held by

widely held companies;

(c)

stakes that are held by complying superannuation

funds, complying approved deposit funds, special

companies and managed investment schemes;

(d)

stakes in interposed foreign listed companies that

are held as bearer shares;

(e)

stakes in interposed foreign listed companies that

are held by depository entities.

Table of sections

Application of this Subdivision

166-220 Application of this Subdivision

Stakes of less than 10% in the tested company

166-225 Direct stakes of less than 10% in the tested company

166-230 Indirect stakes of less than 10% in the tested company

166-235 Voting, dividend and capital stakes

Stakes held directly and/or indirectly by widely held companies

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

166-240 Stakes held directly and/or indirectly by widely held companies

166-245 Stakes held by other entities

When identity of foreign stakeholders is not known

166-255 Bearer shares in foreign listed companies

166-260 Depository entities holding stakes in foreign listed companies

Other rules relating to voting power and rights

166-265 Persons who actually control voting power or have rights are taken not to

control power or have rights

166-270 Single notional entity stakeholders taken to have minimum voting control,

dividend rights and capital rights

166-272 Same shares or interests to be held

When the rules in this Subdivision do not apply

166-275 Rules in this Subdivision intended to be concessional

166-280 Controlled test companies

Application of this Subdivision

166-220 Application of this Subdivision

This Subdivision applies to a company (the tested company) that

is:

(a) a

widely held company at all times during the income year;

(b) an

eligible Division 166 company at all times during the

income year; or

eligible Division 166 company for the rest of the income

year.

Note:

See section 165-255 for the rule about incomplete income years.

Stakes of less than 10% in the tested company

166-225 Direct stakes of less than 10% in the tested company

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if:

Schedule 1 Loss recoupment rules for companies etc.

42 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(a) a

voting stake that carries rights to less than 10% of the

voting power in the company is held directly in the company;

(b) a

dividend stake that carries the right to receive less than

10% of any dividends that the company may pay is held

directly in the company; or

capital stake that carries the right to receive less than 10%

of any distribution of capital of the company is held directly

in the company.

Note:

Other rules might affect this provision: see sections 166-270, 166-275

and 166-280.

Notional shareholder

(2) The tests are applied to the tested company as if, at the

ownership

test time, a single notional entity:

(a) directly controlled the voting power that is carried by each

such

voting stake; and

(b) had the right to receive, for its own benefit and directly:

(i) any

dividends the tested company may pay in respect

of each such

dividend stake; and

(ii) any distributions of capital of the tested company in

respect of each such

capital stake; and

Note:

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: see section 166-265.

(3) To avoid doubt, the single notional entity mentioned in

subsection (2) is a different single notional entity from the one

mentioned in section 165-207 and the one mentioned in

section 166-255.

166-230 Indirect stakes of less than 10% in the tested company

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if it is the case, or it is reasonable

to assume that:

(a) an entity (the stakeholder) indirectly holds any of these

stakes in the tested company:

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(i) a

voting stake that carries rights to less than 10% of the

voting power in the company; or

(ii) a

dividend stake that carries the right to receive less

than 10% of any dividends that the company may pay;

(iii) a

capital stake that carries the right to receive less than

10% of any distribution of capital of the company; and

(b) either:

(i) the stakeholder indirectly holds the stake in the tested

company by holding

shares directly in a company (the

top interposed entity) that is interposed between the

stakeholder and the tested company; or

(ii) the stakeholder indirectly holds the stake in the tested

company by holding another interest directly in an

entity (the top interposed entity) that is not a company

and that is interposed between the stakeholder and the

tested company.

Note 1:

There might also be other entities interposed between the top

interposed entity and the tested company.

Note 2:

Other rules might affect this provision: see subsection (3) and

sections 166-272, 166-275 and 166-280.

Top interposed entity deemed to hold stakes directly in the tested

company

(2) The tests are applied to the tested company as if, at the

ownership

test time:

(a) if the stake is a

voting stake--the top interposed entity

controls, or is able to control, the voting power in the tested

company that is carried by that stake at that time; and

(b) if the stake is a

dividend stake--the top interposed entity

indirectly had the right to receive, for its own benefit, any

dividends the tested company may pay in respect of that

stake at that time; and

capital stake--the top interposed entity

indirectly had the right to receive, for its own benefit, any

distributions of capital of the tested company in respect of

that stake at that time; and

(d) in any case--the top interposed entity were a person (other

than a company).

Schedule 1 Loss recoupment rules for companies etc.

44 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

Note:

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: see section 166-265.

Acquisition of top interposed entity by another entity

(3) If:

(a) a new entity (the new interposed entity) acquires all the

shares or other interests in the top interposed entity (the old

interposed entity); and

(b) the new interposed entity has the same classes of shares or

other interests as the old interposed entity; and

redeemable shares; and

(d) in any case--each stakeholder holds the same proportion of

the total

voting stakes,

dividend stakes or

capital stakes in

the new interposed entity immediately after the acquisition as

the stakeholder held in the old interposed entity immediately

before the acquisition;

then, at all times that the old interposed entity held or is taken to

have held a stake in the tested company, the new interposed entity

is taken to have held that stake.

(4) Except for the purposes of determining whether a time is an

alteration time (within the meaning of section 165-115L),

section 166-272 (which is about the same shares or interests) is to

be disregarded when applying subsection (3).

166-235 Voting, dividend and capital stakes

Meaning of voting stake

(1) An entity holds a voting stake in a company if:

(a) the entity is the registered holder of

shares in the company;

and

(b) the shares carry rights to exercise voting power in the

company.

(2) An entity (the stakeholder) also holds a voting stake in a company

if:

(a) one or more other entities are interposed between the

company and the stakeholder; and

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(b) the stakeholder controls, or is able to control, voting power in

the company indirectly through the interposed entity or

entities.

Meaning of dividend stake

(3) An entity holds a dividend stake in a company if:

(a) the entity is the registered holder of

shares in the company;

and

(b) the shares carry rights to all or any

dividends that the

company may pay.

(4) An entity (the stakeholder) also holds a dividend stake in a

company if:

(a) one or more other entities are interposed between the

company and the stakeholder; and

(b) the stakeholder has the right to receive, for its own benefit

and

indirectly through the interposed entity or entities, all or

any

dividends that the company may pay.

Meaning of capital stake

(5) An entity holds a capital stake in a company if:

(a) the entity is the registered holder of

shares in the company;

and

(b) the shares carry rights to all or any of a distribution of capital

of the company.

(6) An entity (the stakeholder) also holds a capital stake in a company

if:

(a) one or more other entities are interposed between the

company and the stakeholder; and

(b) the stakeholder has the right to receive, for its own benefit

and

indirectly through the interposed entity or entities, all or

any of a distribution of capital of the company.

Stakes held by nominees

(7) For the purposes of sections 166-225 and 166-230, if:

(a) an entity (the nominee entity) holds a

voting stake, a

dividend stake, or a

capital stake, in a company; and

(b) the nominee entity is itself a company; and

Schedule 1 Loss recoupment rules for companies etc.

46 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

than one other entity;

then, for each entity for whom a part of the stake is held by the

nominee entity, that entity's part of the stake may be treated

instead as a separate stake.

Stakes held directly and/or indirectly by widely held companies

166-240 Stakes held directly and/or indirectly by widely held

companies

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if a

widely held company

directly or indirectly (through one or more interposed entities), or

both directly and indirectly, holds any of the following:

(a) a

voting stake that carries rights to between 10% and 50%

(inclusive) of the voting power in the company;

(b) a

dividend stake that carries the right to receive between

10% and 50% (inclusive) of any dividends that the company

may pay;

capital stake that carries the right to receive between 10%

and 50% (inclusive) of any distribution of capital of the

company.

Note:

Other rules might affect this provision: see subsections (3) and (4) and

sections 166-272, 166-275 and 166-280.

(2) The tests are applied to the tested company as if, at the

ownership

test time:

(a) if the stake is a

voting stake--the

widely held company

controls, or is able to control, the voting power in the tested

company that is carried by that stake at that time; and

(b) if the stake is a

dividend stake--the widely held company

had the right to receive (whether directly or

indirectly), for

its own benefit, any

dividends the tested company may pay

in respect of that stake at that time; and

capital stake--the widely held company had

the right to receive (whether directly or indirectly), for its

own benefit, any distributions of capital of the tested

company in respect of that stake at that time; and

(d) in any case--the widely held company were a person (other

than a company).

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

Note:

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: see section 166-265.

Exception

(3) This section does not apply in respect of a

widely held company if

the company is not a widely held company for the whole income

year in which the

ownership test time occurs.

Note:

See section 165-255 for the rule about incomplete periods.

Acquisition of widely held company by another entity

(4) If:

(a) a new company acquires all the

shares in the

widely held

company; and

(b) immediately before the acquisition, the shares in the widely

held company were listed for quotation in the official list of

approved stock exchange; and

company are listed for quotation in the official list of an

approved stock exchange; and

(d) the new company has the same classes of shares (not being

redeemable shares) as the widely held company; and

(e) each entity that held stakes in the widely held company

immediately before the acquisition holds the same proportion

of the total

voting stakes,

dividend stakes or

capital stakes

in the new company immediately after the acquisition as the

entity held in the widely held company immediately before

the acquisition;

then, at all times that the widely held company held or is taken to

have held a stake in the tested company, the new company is taken

to have held that stake.

(5) Except for the purposes of determining whether a time is an

alteration time (within the meaning of section 165-115L),

section 166-272 (which is about same the shares or interests) is to

be disregarded when applying subsection (4).

Schedule 1 Loss recoupment rules for companies etc.

48 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

166-245 Stakes held by other entities

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if:

(a) an entity mentioned in subsection (2) directly or indirectly

(through one or more interposed entities) holds a

voting

stake, a

dividend stake or a

capital stake in the company;

and

(b) neither the entity nor another entity has, under

section 166-225, 166-230 or 166-240, been taken to control

voting power or have rights in respect of the stake; and

in subsection (3).

Note:

Other rules might affect this provision: see sections 166-272, 166-275

and 166-280.

(2) For the purposes of subsection (1), these are the entities:

(a) a

superannuation fund; and

(b) an

approved deposit fund; and

special company; and

(d) a

managed investment scheme; and

(e) any other entity, or entity of a kind, prescribed by the

regulations.

(3) For the purposes of paragraph (1)(c), an entity satisfies the

condition in this subsection if at all times during the income year of

the tested company in which the

ownership test time occurs:

(a) if the entity is a

superannuation fund:

(i) the fund is a

complying superannuation fund; or

(ii) the fund is a superannuation fund that is established in a

foreign country and is regulated under a

foreign law; or

(b) if the entity is an

approved deposit fund--the fund is a

complying approved deposit fund; or

special company--the company is a special

company; or

(d) if the entity is a

managed investment scheme:

(i) the scheme is registered under the Corporations Act

2001; or

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(ii) the entity is recognised, under a

foreign law relating to

corporate regulation, as an entity with a similar status to

a managed investment scheme; or

(e) if the entity is an entity, or an entity of a kind, prescribed by

the regulations--the entity meets any conditions prescribed

by the regulations.

Note:

See section 165-255 for the rule about incomplete periods.

If the entity has 10 members or fewer

(4) If the entity has 10

members or fewer, the tests are applied to the

tested company as if, at the

ownership test time:

(a) if the stake is a

voting stake--each member controls, or is

able to control, an equal proportion of the voting power in the

tested company that is carried by that stake at that time; and

(b) if the stake is a

dividend stake--each member had the right

to receive (whether directly or

indirectly), for its own

benefit, an equal proportion of any

dividends the tested

company may pay in respect of that stake at that time; and

capital stake--each member had the right to

receive (whether directly or indirectly), for its own benefit,

an equal proportion of any distributions of capital of the

tested company in respect of that stake at that time; and

(d) in any case--each member were a person (other than a

company or a trustee).

Note 1:

If each member's proportion of the voting power, the dividends or the

distributions is less than 10%, then subsections (5) and (6) apply

instead.

Note 2:

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: see section 166-265.

If the entity has more than 10 members etc.

(5) The ownership tests are applied as set out in subsection (6) if:

(a) the entity has more than 10

members; or

(b) under subsection (4):

(i) the proportion of the voting power in the company that

each member controls, or is able to control, is less than

10% of the total voting power; or

Schedule 1 Loss recoupment rules for companies etc.

50 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(ii) the proportion of the

dividends that the tested company

may pay for the benefit of each member is less than

10% of the total dividends; or

(iii) the proportion of the distributions of capital that the

tested company may pay for the benefit of each member

is less than 10% of the total distributions.

(6) The ownership tests are applied to the tested company as if, at the

ownership test time:

(a) if the stake is a

voting stake--the entity controls, or is able

to control, the voting power in the tested company that is

carried by that stake at that time; and

(b) if the stake is a

dividend stake--the entity had the right to

receive (whether directly or

indirectly), for its own benefit,

any

dividends the tested company may pay in respect of that

stake at that time; and

capital stake--the entity had the right to

receive (whether directly or indirectly), for its own benefit,

any distributions of capital of the tested company in respect

of that stake at that time; and

(d) in any case--the entity were a person (other than a company

or a trustee).

Note:

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: see section 166-265.

When identity of foreign stakeholders is not known

166-255 Bearer shares in foreign listed companies

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if:

(a) at the

ownership test time, it is the case, or it is reasonable to

assume, that persons (none of them companies or trustees)

hold a

voting stake, a

dividend stake or a

capital stake in

the tested company; and

(b) an entity has not, under section 166-225, 166-230, 166-240

or 166-245, been taken to control voting power or have rights

in respect of the stake; and

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

at that time, between those persons and the tested company;

and

(d) at all times during the income year of the tested company in

which the ownership test time occurs, the

principal class of

shares in the foreign listed company is listed for quotation in

the official list of an

approved stock exchange; and

(e) at the ownership test time:

(i) voting stakes that carry rights to 50% or more of the

voting power in the foreign listed company; or

(ii) dividend stakes that carry rights to receive 50% or more

of any dividends that the foreign listed company may

pay; or

(iii) capital stakes that carry rights to receive 50% or more of

any distribution of capital of the foreign listed company;

as the case requires, are directly held by way of bearer

shares; and

(f) the beneficial owners of some or all of those bearer shares

have not been disclosed to the foreign listed company.

Note 1:

See section 165-255 for the rule about incomplete test periods.

Note 2:

Other rules might affect this provision: see sections 166-270, 166-275

and 166-280.

(2) The tests are applied to the tested company as if, at the

ownership

test time, for each of those bearer shares whose owners have not

been disclosed:

(a) a single notional entity controls, or is able to control, the

voting power in the tested company that is carried by those

shares at that time; and

(b) the entity

indirectly had the right to receive, for its own

benefit:

(i) any

dividends the tested company may pay in respect

of those shares at that time; and

(ii) any distributions of capital of the tested company in

respect of those shares at that time; and

Note:

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: see section 166-265.

Schedule 1 Loss recoupment rules for companies etc.

52 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(3) To avoid doubt, the single notional entity mentioned in

subsection (2) is a different single notional entity from the one

mentioned in section 165-207 and the one mentioned in

section 166-225.

166-260 Depository entities holding stakes in foreign listed

companies

(1) This section modifies how the ownership tests in section 166-145

are applied to the tested company if:

(a) at the

ownership test time, it is the case, or it is reasonable to

assume, that persons (none of them companies or trustees)

have a

voting stake, a

dividend stake or a

capital stake in

the tested company; and

(b) an entity has not, under section 166-225, 166-230, 166-240,

166-245 or 166-255, been taken to control voting power or

have rights in respect of the stake; and

at that time, between those persons and the tested company;

and

(d) at all times during the income year of the tested company in

which the ownership test time occurs, the

principal class of

shares in the foreign listed company is listed for quotation in

the official list of an

approved stock exchange; and

(e) at the ownership test time:

(i) voting stakes that carry rights to 50% or more of the

voting power in the foreign listed company; or

(ii) dividend stakes that carry rights to receive 50% or more

of any dividends that the foreign listed company may

pay; or

(iii) capital stakes that carry rights to receive 50% or more of

any distribution of capital of the foreign listed company;

as the case requires, are directly held by one or more

depository entities (see subsection (3)); and

(f) a law of a foreign country, or a part of a foreign country, in

which the approved stock exchange is located, prevents the

disclosure of the beneficial owners of some or all of those

shares that are held by the depository entities; and

Loss recoupment rules for companies etc. Schedule 1

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No. , 2005

(g) the beneficial owners of some or all of the shares held by the

depository entities have not been disclosed to the foreign

listed company.

Note 1:

See section 165-255 for the rule about incomplete test periods.

Note 2:

This rule might not apply in all circumstances: see sections 166-275

and 166-280.

(2) The tests are applied to the tested company as if, at the

ownership

test time, for each of those

shares held by a

depository entity

whose owners have not been disclosed, the depository entity:

(a) controls, or is able to control, the voting power in the tested

company that is carried by those shares at that time; and

(b)

indirectly had the right to receive, for its own benefit:

(i) any

dividends the tested company may pay in respect

of those shares at that time; and

(ii) any distributions of capital of the tested company in

respect of those shares at that time; and

Note:

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: see section 166-265.

(3) If the effect of subsection (2) is that the

depository entity is taken

to hold:

(a) a

voting stake that carries rights to less than 10% of the

voting power in the tested company; or

(b) a

dividend stake that carries the right to receive less than

10% of any dividends that the tested company may pay; or

capital stake that carries the right to receive less than 10%

of any distribution of capital of the tested company;

then neither section 166-225 nor section 166-230 applies in respect

of that stake.

(4) If the

depository entity (the old depository entity) is subsequently

replaced by another depository entity (the new depository entity),

then, at all times that the old depository entity held or is taken to

have held a stake in the tested company, the new entity is taken to

have held that stake.

(5) A depository entity is an entity:

(a) that is a central securities repository; and

Schedule 1 Loss recoupment rules for companies etc.

54 Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 No.

, 2005

(b) that provides custody of share certificates; and

Other rules relating to voting power and rights

166-265 Persons who actually control voting power or have rights

are taken not to control power or have rights

If any of sections 166-225, 166-230, 166-240, 166-245, 166-255 or

166-260 apply, the ownership tests in section 166-145 are also

applied to the tested company as if, at the

ownership test time:

(a) the persons who control, or are able to control, the voting

power in the tested company (whether directly, or indirectly

through one or more interposed entities) that is carried by

each

voting stake in the tested company mentioned in that

section had not had that control; and

(b) the persons who have the right to receive for their own

benefit (whether directly, or

indirectly through one or more

interposed entities):

(i) any

dividends that the tested company may pay in

respect of each

dividend stake in the tested company

mentioned in that section; and

(ii) any distributions of capital of the tested company in

respect of each

capital stake in the tested company

mentioned in that section;

had not had that right.

166-270 Single notional entity stakeholders taken to have minimum

voting control, dividend rights and capital rights

Minimum control of voting power

(1) If:

(a) the

ownership test time is after the start of the

test period;

and

(b) a single notional entity mentioned in section 166-225 or

166-255 has voting power in a company; and

Commonwealth of Australia Bills

TAX LAWS AMENDMENT (LOSS RECOUPMENT RULES AND OTHER MEASURES) BILL 2005