TAXATION LAWS AMENDMENT ACT (NO. 1) 1999 NO. 16, 1999 - SCHEDULE 1

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TAXATION LAWS AMENDMENT ACT (NO. 1) 1999 NO. 16, 1999 - SCHEDULE 1

- Denial of certain capital losses Part 1—Specific past rollover scheme amendment

Income Tax Assessment Act 1936

1 After section 160ZP

Insert:

160ZPA Denial of duplicated capital loss where section 160ZZO rollover relief

Operative provision—first case

(1): Subject to subsection (3), if a company has incurred or incurs any eligible rollover losses and paragraphs (2)(a) and (b) do not apply:

(a): if:

(i): any of the eligible rollover losses was incurred in the 1995-96 year of income or an earlier year of income; and
(ii): the company incurred a net capital loss in the 1995-96 year of income; and
(iii): there are one or more unused amounts for that year of income in respect of the eligible rollover losses;

(b): if:

(i): any of the eligible rollover losses was incurred or is incurred in the 1996-97 year of income or any later year of income; and
(ii): assuming section 160ZZO had not applied to the rollover disposal mentioned in paragraph (4)(a), the eligible rollover loss would have been a lesser amount or there would have been no eligible rollover loss;

the eligible rollover loss is reduced so that it equals the lesser amount, or is reduced to nil, as the case requires.

Note: The expressions eligible rollover loss , net capital loss and unused amount are defined in subsections (4), (8) and (6) respectively.

Operative provision—second case

(2): Subject to subsection (3), if:

(a): a company has incurred any eligible rollover losses in the 1996-97 year of income or an earlier year of income; and
(b): the company furnished its return for the 1996-97 year of income before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997;

the following apply:

(c): if:

(i): the company incurred a net capital loss in the 1995-96 year of income; and
(ii): there are one or more unused amounts for that year of income in respect of the eligible rollover losses; and
(iii): if, in the company's return for the 1996-97 year of income, Step 4 in subsection 160ZC(1) was applied in working out whether a net capital gain accrued to the company in respect of that year of income—there is some of the net capital loss incurred in the 1995-96 year of income that has not been applied in accordance with Step 4;

(d): if the company incurred a net capital loss in the 1996-97 year of income and any of the eligible rollover losses was also incurred in that year of income—the net capital loss is reduced by the unused amount, for that year of income, in respect of the eligible rollover losses incurred in that year of income.

Commissioner to reduce amount under subsection (1) or (2)

(3): If:

(a): the whole or part of the net capital loss of the company, or of an eligible rollover loss of the company, is reduced under subsection (1) or (2); and
(b): the Commissioner, on application by the company, determines that it is fair and reasonable that the amount should not be so reduced, or should be reduced by a lesser amount, having regard to the following:

(i): whether the company has disposed of, or is likely to dispose of, the interest, right or debt mentioned in paragraph (4)(c);
(ii): the extent to which any eligible rollover losses incurred by the company are related, directly or indirectly, to any other capital losses incurred, or that may be incurred, by the company or any other company that is related to the company;
(iii): the respective amounts of the losses mentioned in subparagraph (ii);
(iv): the content and timing of any information provided to the Commissioner by the company in the application or otherwise;
(v): any other matter that the Commissioner considers relevant;

the amount is not so reduced, or is reduced by the lesser amount.

Eligible rollover loss

(4): A capital loss incurred by a company (the loss company ) in a year of income in respect of the disposal (the loss disposal ) of an asset is an eligible rollover loss if:

(a): the loss company acquired the asset from another company (the transferor ) and section 160ZZO applied to the disposal (the rollover disposal ) constituting the acquisition by the loss company; and
(b): if section 160ZZO had not applied to the rollover disposal, there would have been no capital loss or a smaller capital loss; and
(c): when the rollover disposal took place, the loss company:

(i): had an interest (see subsection (7)) either directly, or indirectly through successive interests in interposed companies, in the transferor; or
(ii): was owed a debt by the transferor or had a right to acquire an interest in the transferor; or
(iii): had an interest either directly, or indirectly through successive interests in interposed companies, in a company, partnership or trust to which the transferor owed a debt or that had a right to acquire an interest in the transferor; and

(d): the loss company:

(i): acquired the interest mentioned in subparagraph (c)(i) or (iii) or the right mentioned in subparagraph (c)(ii); or
(ii): began to be owed the debt mentioned in subparagraph (c)(ii);

(e): immediately after the rollover disposal, the market value of the interest, right or debt was less than its reduced cost base or what would be its reduced cost base if the interest, right or debt were an asset to whose disposal this Part applied; and
(f): the rollover disposal took place before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997; and
(g): the loss disposal took place no more than 5 years after the rollover disposal.

Exclusion for small businesses and manufacturing business assets

(5): However, a capital loss is not an eligible rollover loss if:

(a): the requirement in subsection 160ZZPP(4) (which relates to the net value of the transferee's assets etc.) would be satisfied at the time of the loss disposal, assuming the loss company were the taxpayer mentioned in that section; or
(b): the asset is plant, machinery, or a building, used in a manufacturing business:

(i): by the transferor immediately before the rollover disposal; and
(ii): by the loss company for a period of at least 12 months that commences immediately after the rollover disposal.

Unused amount of all eligible rollover losses incurred in a particular year of income

(6): The unused amount , for a year of income (the test year ), of all of the eligible rollover losses incurred by a company in a particular year of income (being the test year or an earlier year of income) is:

(a): if the company did not incur a net capital loss in the test year—nil; or
(b): if the test year is the one in which the company incurred the eligible rollover losses, and the company incurred a net capital loss in that year of income—the amount by which:

(i): the net capital loss;

exceeds:

(ii): the amount that would be the net capital loss assuming section 160ZZO had not applied to any of the rollover disposals concerned or, if there would be no net capital loss on that assumption, nil; or

(c): if the test year is after the one in which the company incurred the eligible rollover losses, and the company incurred a net capital loss in the test year—the amount worked out by reducing the unused amount, for the previous year of income, of the eligible rollover losses by the amount calculated using the formula:

Note 1: If the test year is e.g. 2 years after the year of income in which the eligible rollover losses were incurred, it will be necessary first to apply subsection (6) to work out the unused amount for the year in which the losses were incurred, then to work out the unused amount for the next year of income and finally to work out the unused amount for the test year. This will involve applying more than one of the paragraphs in the subsection.

Note 2: The operative provisions (subsections (1) and (2)) refer to the sum of the unused amounts, for e.g. 1995-96, in relation to eligible rollover losses. To work out the sum, it is first necessary to apply subsection (6) separately to the eligible rollover losses incurred in each year of income in order to work out, for 1995-96, the unused amount of each, and then to add together all of the unused amounts.

Interest

(7): In this section:

"interest" means a share in a company or an interest in the income or capital of a partnership or trust.

Net capital loss

(8) For the purposes of this section, a company's net capital loss is worked out after applying section 160ZP if:

(a): the agreement mentioned in that section was made; and
(b): the gain year mentioned in that section ended;

before 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997. Otherwise it is worked out before applying section 160ZP.

160ZP transfer amount

(9): For the purposes of this section, if a company's net capital loss for a year of income is worked out in accordance with subsection (8) after applying section 160ZP, the company has a 160ZP transfer amount for the year of income equal to the sum of the amounts by which its net capital loss for the year of income is deemed to be reduced under subsection 160ZP(7).

Part 2—General on-going rollover etc. scheme amendments

Income Tax Assessment Act 1936

2 Subsection 177A(1)

Insert:

"capital loss" has the same meaning as in Part IIIA.

3 After paragraph 177C(1)(b)

Insert:

or (ba) a capital loss being incurred by the taxpayer during a year of income where the whole or a part of that capital loss would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out;

4 At the end of subsection 177C(1)

Add:

; and (e) in a case to which paragraph (ba) applies—the amount of the whole of the capital loss or of the part of the capital loss, as the case may be, referred to in that paragraph.

5 Subparagraph 177C(2)(a)(i)

After "Act", insert "other than section 160ZP or 160ZZO".

6 At the end of subsection 177C(2)

Add:

; or (c) a capital loss being incurred by the taxpayer during a year of income the whole or part of which would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out where:

(i): the incurring of the capital loss by the taxpayer is attributable to the making of a declaration, election or selection, the giving of a notice or the exercise of an option by any person, being a declaration, election, selection, notice or option expressly provided for by this Act other than section 160ZP or 160ZZO; and
(ii): the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, election, selection, notice or option to be made, given or exercised, as the case may be.

7 After subsection 177C(2)

Insert:

(2A): A reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme is to be read as not including a reference to:

(a): the assessable income of the taxpayer of a year of income not including an amount that would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out where:

(i): the non-inclusion of the amount in the assessable income of the taxpayer is attributable to the making of an agreement under section 160ZP or an election under section 160ZZO; and
(ii): the scheme consisted solely of the making of the agreement or election; or

(b): a capital loss being incurred by the taxpayer during a year of income the whole or part of which would not have been, or might reasonably be expected not to have been, incurred by the taxpayer during the year of income if the scheme had not been entered into or carried out where:

(i): the incurring of the capital loss by the taxpayer is attributable to the making of an agreement under section 160ZP or an election under section 160ZZO; and
(ii): the scheme consisted solely of the making of the agreement or election.

8 Subsection 177C(3)

Repeal the subsection, substitute:

(3): For the purposes of subparagraph (2)(a)(i), (b)(i) or (c)(i) or (2A)(a)(i) or (b)(i):

(a): the non-inclusion of an amount in the assessable income of a taxpayer; or
(b): the allowance of a deduction to a taxpayer; or
(c): the incurring of a capital loss by a taxpayer;

is taken to be attributable to the making of a declaration, election, agreement or selection, the giving of a notice or the exercise of an option where, if the declaration, election, agreement, selection, notice or option had not been made, given or exercised, as the case may be:

(d): the amount would have been included in that assessable income; or
(e): the deduction would not have been allowable; or
(f): the capital loss would not have been incurred.

9 After paragraph 177F(1)(b)

Insert:

or (c) in the case of a tax benefit that is referable to a capital loss or a part of a capital loss being incurred by the taxpayer during a year of income—determine that the whole or a part of the capital loss or of the part of the capital loss, as the case may be, was not incurred by the taxpayer during that year of income;

10 Subsection 177F(2B)

After "under", insert "paragraph (1)(c) or".

11 Subsection 177F(2C)

After "and", insert ", in the case of a determination under subsection (2A),".

12 Subsection 177F(2G)

After "under", insert "paragraph (1)(c) or".

13 After paragraph 177F(3)(b)

Insert:

or (c) if, in the opinion of the Commissioner:

(i): a capital loss would have been incurred by the relevant taxpayer during a year of income if the scheme had not been entered into or carried out, being a capital loss that was not incurred or would not, but for this subsection, be incurred, as the case may be, by the relevant taxpayer during that year of income; and
(ii): it is fair and reasonable that the capital loss or a part of that capital loss should be incurred by the relevant taxpayer during that year of income;

determine that the capital loss or the part, as the case may be, should be incurred by the relevant taxpayer during that year of income;

14 Application

The amendments made by this Part apply in relation to schemes entered into after 3 pm, by legal time in the Australian Capital Territory, on 29 April 1997.

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