Company Losses and Consolidation
Model Answers
Question 1 — Accounting v tax loss
The $120,000 statutory tax loss is the relevant starting figure. Division 36 operates on taxable-income concepts after tax adjustments; accounting depreciation, provisions and non-deductible expenses can make the financial loss materially different.
Question 2 — Ownership change
Apply the Division 165 continuity of ownership test by tracing relevant voting, dividend and capital rights through the test period. If it fails, move to the business continuity test rather than assuming the losses expire automatically.
Question 3 — Similar business
Compare the business immediately before the ownership change with the business carried on during the recoupment period. Relevant features include products, customers, assets, methods of sale, sources of income, scale and commercial identity. Moving online is relevant but not necessarily fatal; the statutory similar-business test assesses continuity and evolution as a whole.
Question 4 — Capital loss
No. Net capital losses are generally quarantined and applied against capital gains under the CGT regime, not deducted against ordinary income.
Question 5 — Single entity rule
For core income-tax purposes, subsidiary members are generally treated as parts of the head company while in the consolidated group. Intra-group transactions can therefore be ignored under the consolidation framework, with the head company becoming the relevant taxpayer for group tax outcomes.
Question 6 — Transferred losses
Pre-existing losses may fail transfer tests, may be restricted by ownership/business-continuity rules and, even if transferred, can be subject to available-fraction utilisation limits. Their economic value is therefore contingent, not equal to the nominal carried-forward balance.