INCOME TAX ASSESSMENT ACT 1997 - SECT 170.225 Transfer of net capital loss: direct and indirect interests in the gain company

INCOME TAX ASSESSMENT ACT 1997 - SECT 170.225

  (1)   If:

  (a)   an amount of a * net capital loss is transferred by a company to another company; and

  (b)   Subdivision   170 - B applies in respect of the transfer; and

  (c)   a company (the group company ) holds a * share in the gain company or is owed a debt by the gain company in respect of a loan; and

  (d)   the group company * acquired the share or debt on or after 20   September 1985; and

  (e)   throughout the application year, the group company is a member of the same * wholly - owned group as the gain company (disregarding a period when either was not in existence); and

  (f)   the relevant agreement referred to in section   170 - 150 is made on or after the commencement of this section; and

  (g)   there are shares in, or debts owed by, the * loss company the * cost base and * reduced cost base of at least one of which have been reduced by subsection   170 - 220(1) or (2);

the * cost base and * reduced cost base of the share or debt are increased in accordance with subsection   (3).

  (2)   If:

  (a)   an amount of a * net capital loss is transferred by a company to another company; and

  (b)   Subdivision   170 - B applies in respect of the transfer; and

  (c)   a company (the group company ) holds a * share in another company or is owed a debt by another company in respect of a loan; and

  (d)   the group company * acquired the share or debt on or after 20   September 1985; and

  (e)   the money that the group company paid for the share, or the borrowed money, has been applied (directly, or indirectly through one or more interposed entities):

  (i)   in the other company or a third company acquiring shares in the gain company; or

  (ii)   in a * borrowing by the gain company from the other company or from a third company; and

  (f)   throughout the application year, the group company, the other company and the third company (if any) are all members of the same * wholly - owned group as the gain company (disregarding, for a particular company, a period when it was not in existence); and

  (g)   the relevant agreement referred to in section   170 - 150 is made on or after the commencement of this section; and

  (h)   there are shares in, or debts owed by, the * loss company the * cost base and * reduced cost base of at least one of which have been reduced by subsection   170 - 220(1) or (2);

the * cost base and * reduced cost base of the share or debt are increased in accordance with subsection   (3).

  (3)   The * cost base and * reduced cost base are increased by an amount that is appropriate having regard to:

  (aa)   the matters mentioned in subsections   170 - 205(3) and (4); and

  (ab)   the amounts of any reductions to the cost base and reduced cost base of * shares, and to the reduced cost base of debts, under subsection   170 - 220(3); and

  (a)   the group company's direct or indirect interest in the gain company; and

  (b)   the amount of the loss transferred; and

  (c)   any consideration given by the gain company for the loss transferred.

Note:   This is because the consideration may be less than the commercial value of the loss transferred.

  (4)   However, the increase cannot exceed the increase in the * market value of the * share or debt that results from the transfer of the loss. (If no increase in that market value results, for example because the consideration paid for the transfer of the loss equals the commercial value of the loss transferred, then there is no increase in the * cost base and * reduced cost base.)

  (4A)   No increase is to be made to the extent that the * net capital loss transferred does not represent an outlay or loss of any of the economic resources of the company that transferred the net capital loss.

Note:   Where the income tax law allows, as all or part of a loss, an amount for the decline in value of a depreciating asset that exceeds the actual economic depreciation or depletion of the asset concerned, the excess is not to be regarded for the purposes of this subsection as representing an outlay or loss of economic resources of the company.

  (5)   Any increase is to be made immediately before a * CGT event happens in relation to the share or debt and is to have effect from that time or the end of the application year, whichever is the earlier.

Note:   This subsection is relevant for indexing elements of a cost base (see sections   114 - 1 and 114 - 15).

  (6)   No increase is to be made to the * cost base and * reduced cost base of a share or debt to the extent to which, because of a dividend or dividends paid by the gain company, the increase in the * market value of the share or debt that resulted from the transfer of the loss is no longer in existence at the time when a * CGT event happens in relation to the share or debt.

Note:   Increases under former subsections   160ZP(14) and (15) of the Income Tax Assessment Act 1936 are also relevant: see section   170 - 225 of the Income Tax (Transitional Provisions) Act 1997 .