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INCOME TAX ASSESSMENT ACT 1997 - SECT 170.105

Basic principles for transferring a net capital loss

             (1)  A company can transfer a net capital loss (except a net capital loss from collectables) to another company so that the other company can apply it in working out its net capital gain for the income year of the transfer.

             (2)  Both companies must be members of the same wholly-owned group. There are other eligibility requirements that they must also satisfy.

          (2A)  One of the companies must be an Australian branch of a foreign bank. The other company must be:

                     (a)  the head company of a consolidated group or MEC group; or

                     (b)  not a member of a consolidatable group.

Note:          This Subdivision applies to Australian permanent establishments of foreign entities that are financial entities in the same way as it applies to Australian branches of foreign banks. See section 170-174.

             (3)  The transferred loss must be "surplus" in the sense that, for the income year of the transfer, the transferring company does not have enough capital gains against which to apply it. The other company must have enough capital gains against which to apply it.

             (5)  Neither company must be prevented by Subdivision 165-CA or 175-CA from applying the loss in working out its net capital gain for the income year of the transfer.

Note:          Subdivision 165-CA deals with the consequences of changing ownership or control of a company. Subdivision 175-CA deals with using a company's net capital losses to avoid income tax.

             (6)  The net capital loss is transferred by an agreement between the 2 companies.

             (7)  The net capital loss can be transferred in the same year as it is made. In that case different rules apply.

             (8)  The provisions of Subdivision 170-C (so far as they relate to the transfer of net capital losses) are to be disregarded in applying the provisions of this Subdivision where the relevant agreement referred to in section 170-150 was made before 22 February 1999.

Effect of transferring a net capital loss



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