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Update on losses and blackhole expenditure paper

Published on 22 Nov 05 by NEW SOUTH WALES DIVISION, THE TAX INSTITUTE

The new loss recoupment rules released on 14 September 2005 will significantly affect companies with carry forward tax losses. The legislation follows the release of an Exposure Draft in February and contains amendments that will benefit widely held companies with an improved Continuity of Ownership Test (COT) broadly from 1 July 2002. However, the Same Business Test (SBT) will be limited for companies’ losses incurred from 1 July 2005.

The purpose of this paper is to provide an outline of the changes to the COT and the SBT as well as discussing their affect on Australian companies. Issues discussed will include:

  • changes that have been made since the Exposure Draft in February
  • who can use the new COT rules
  • benefits of the new tracing concessions
  • the impact on consolidated group losses, acquisitions and divestments
  • the impact on tax management processes
  • integrity rules including the same share test, minimum interest rule and controlled entity provisions
  • operation of the SBT threshold and its implications with respect to consolidated groups, acquisitions and divestments
  • the application of the SBT to consolidated group.

Author profile:

Geoff KIRK
Geoff is a senior manager with Ernst & Young. He has over ten years experience in direct tax advisory, specialising in income and capital gains tax in the minerals, energy and utilities industry. Geoff's principal area of expertise is with respect to the availability and utilisation of tax losses under consolidations.
Current at 31 July 2006
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