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Effect of share premium account on continuity of ownership test analysis


Par value shares and share premium accounts still exist in some jurisdictions, such as the United Kingdom. If a company incorporated in such a jurisdiction is relevant to an Australian tax issue, its par value shares and share premium account might intrude on Australian tax concerns. Division 165 of the Income Tax Assessment Act 1997 contains rules restricting the ability of a company to claim a deduction for past period losses (the so-called “loss carry forward rules”), which in some circumstances will require an analysis of ownership and control of various rights attaching to shares in non-Australian companies — some of which may still have par value shares and share premium accounts. Division 165 and s 80A of the Income Tax Assessment Act 1936 both apply various tests to determine whether a company passes the so-called “continuity of ownership test” in respect of a tax loss. This article discusses how rights to share premium should be treated for the purpose of the loss carry forward rules.

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Tim Neilson CTA-Life
Photo of author, Tim NEILSON Prior to joining White & Case, Tim was a Special Counsel at Greenwoods & Herbert Smith Freehills Pty Limited in Melbourne. Tim is a legal practitioner who practices primarily in the area of income tax and capital gains tax, generally for “large business and international” type clients, mainly in financing, major projects and M&A. He is a former State Chairman and current National Councillor of The Tax Institute, and is immediate past President of the Institute. He has published frequently in professional journals and spoken at professional organisation conferences and seminars and guest lectures in the University of Melbourne’s Masters of Laws program. - Current at 06 November 2020
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