Last Thursday, the Treasury released a consultation paper to provide further details in respect of the Government's proposed changes to the operation of the company loss recoupment rules. The changes are a welcome simplification and compliance saving for widely held companies as they pursue the recoupment of losses accumulated during the global financial crisis.
The Treasury consultation paper provides that the operation of the company loss recoupment rules will be improved by:
- Modifying the ordinary continuity of ownership test so that where shares are held by a managed investment scheme, complying superannuation fund, a complying approved deposit fund, a first home savers account trust or a special company, the company is not required to trace ownership through that entity;
- Extending the concessional tracing rules for widely held
companies that are subject to the modified continuity of ownership
test, which do not require tracing through direct and indirect
stakes of less than 10%, so that they apply where:
- An entity is interposed between relevant direct stakeholders and the loss company;
- An entity is interposed between relevant stakeholders and the loss company demerges shares in the loss company or interests in another entity interposed between itself and the loss company; or
- A foreign listed company that is interposed between a stakeholder and the loss company issues bearer depository receipts;
- Extending the concessional tracing rules available to widely held companies that are subject to the modified continuity of ownership test so that they apply where an entity that is a managed investment scheme, complying superannuation fund, a foreign superannuation fund regulated under a foreign law, a complying approved deposit fund, a first home savers account trust or a special company is interposed between the loss company and a relevant stakeholder;
- Clarifying that for the purposes of applying the modified continuity of ownership test when a corporate change happens because new shares have been issued by the company, the corporate change ends when all the new shares have been issued; and
- The loss integrity rules will be modified so that for the purpose of applying the low value asset exclusions, all membership interests in an entity will be treated as a single asset.
- If enacted, the proposed amendments will apply to tax losses that a company seeks to deduct, and net capital losses that a company seeks to apply in income years commencing after 1 July 2011.
- The Treasury consultation paper follows the Government's announcement in the 2011-12 Federal Budget that it would seek to improve the operation of the company loss recoupment rules. Interested stakeholders are encouraged to provide the Treasury with feedback by 26 August 2011.
If you would like further information on the proposed changes to the company loss recoupment rules, please contact your Moore Stephens advisor.
Alternatively, register your interest to attend an upcoming seminar at Moore Stephens Melbourne on Tuesday 8 November 2011, where our advisors will detail:
- The challenges facing companies as they seek to recoup their prior year losses;
- The hidden pitfalls in the company loss recoupment rules that need to be carefully navigated;
- The state of proposed amendments to the company loss recoupment rules; and
- Managing compliance risk in recouping losses, including a discussion of the ATO's increasing compliance activity in respect of losses.
To register your interest, please contact Riminder Jassal at rjassal@moorestephens.com.au.
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