Continuity of ownership - alternative test and same shares rule PDF

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Continuity of ownership - alternative test and same shares rule...

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The alternative continuity of ownership test for loss carry forwards in companies – figure extracted from Understanding Taxation Law

Figure 12.4: Applying the alternative test

Applying the alternative test, Johnnie’s interest in Banana Pty Ltd would be calculated by multiplying the interest that he has in Pine Pty Ltd (100%) by the interest that Pine Pty Ltd has in Orange Pty Ltd (50%) by the interest that Orange Pty Ltd has in Banana Pty Ltd (40%): 100% × 50% × 40% = 20%

Thus, under the alternative test, Johnnie would have 20% control of Banana Pty Ltd.

Effect of the same shares rule – Example taken from Thomson Reuters Income Tax Assessment Act 1997 Commentary Example As at 30 June 2017, Sue owns 100% of the shares in Ashco, which, in turn, owns all of the shares in Lossco. During the 2017-18 income year, Ashco sells 60% of its shares in Lossco to Zoeco, another company wholly-owned by Sue. For loss recoupment purposes in the 2017-18 income year, Lossco will, apart from the same share rule, satisfy the COT alternative test because Sue retains 100% of the underlying interests in Lossco throughout the ownership test period. However, the same share rule requires the COT alternative test to take into account only those shares in Lossco that were the same shares held by the same persons. Given that only 40% of the shares in Lossco have been owned by the same entity (Ashco) throughout the ownership test period, Lossco cannot satisfy the COT alternative test....