Company Losses: an old issue for a new era

Transcription

1

2 Company Losses: an old issue for a new era Martin Fry Partner Allens Arthur Robinson Taxation Institute of Australia 25 th National Convention March 2010

3 Outline An old issue for a new era Focus on Division 166 Exposure Draft Legislation

4 an old issue for a new era continuity of ownership test introduced in 1944 and 1964 ATO has disallowed $21 billion of losses since 2005 BHP Finance, March 2009: $2.15 billion loss claim Ashwick, Nov. 2009: $2.2 billion loss claim New Corporation, Sept. 2009: $1.47 billion loss claim

5 Case 3/2009: Harris Scarfe Section 70B(4): A deduction for a loss on sale of the Notes is not allowable if: a) the Notes were not acquired in the ordinary course of trading and it was not open to acquire identical securities in the ordinary course of trading; AND OR b) the Notes were not sold in the ordinary course of trading; AND OR c) the Notes were sold because of an apprehension that the Issuer was insolvent

6 Division 166, Tax Act 1997 what is the role of Div. 166? to whom does Div. 166 apply? how does Div. 166 modify the rules for loss recoupment? focus on the tracing concessions

7 What is the role of Div. 166? Section 166-3: The object of Div. 166 is to make it easier for eligible companies to apply the continuity of ownership test modify testing times tracing concessions

8 To whom does Div. 166 apply? widely held companies: listed; more than 50 members eligible Div. 166 companies: majority owned by widely held company, super fund, approved deposit fund, MIS, non profit

9 Change in status loss year X recoup loss listed company issues unlisted floating rate pref. shares See also ATOID 2007/106

10 How does Div 166 modify the loss recoupment rules? there are specific COT testing times (not continuous) shift the SBT testing times COT tracing concessions but does not modify the continuity of control test!

11 How Div. 166 modifies the loss recoupment rules Div. 165 Div. 166 must prove continuity of ownership at all times in the period: start of loss year end of recoupment year must prove continuity of ownership as between: start of loss year end of each income year end of each corporate change having failed COT, loss co must carry on the same business in the recoupment year as it carried on: when fail COT, if practicable to show; or start of loss year having failed COT, loss co must carry on the same business in the year of recoupment as it carried on: end of income year in which COT failed; or end of corporate change which caused COT to be failed whichever is earlier

12 Can elect for the Div. 166 modifications to not apply loss year fail COT X recoup loss potential Div. 165 SBT testing time potential Div. 166 SBT testing time

13 Focus on the corporate change testing time A corporate change testing time arises if: takeover bid (the end of bid period) scheme of arrangement or other arrangement 20% issuance a corporate change occurs to majority shareholder

14 Capital Raising by share rights issue Date announced Issuer Size ($m) Date announced Issuer Size ($m) 7 Sep 09 Sigma Jun 09 Asciano Aug 09 ConnectEast Jun 09 Kagara Aug 09 Amcor 1,611 5 Jun 09 Rio Tinto 15, Aug 09 Boart Longyear May 09 Billabong Aug 09 Bendigo & Adelaide Bank May 09 Stockland 1,780 6 Aug 09 Goodman Group 1, May 09 SP AusNet Jul 09 Australand Property Group May 09 Santos 3, Jul 09 Virgin Blue May 09 Pacific Brands Jul 09 Transpacific Industries May 09 GPT 1,400 1 Jul 09 Hastings Diversified Utilities Fund May 09 Bluescope Steel 1, Jun 09 FKP Property Group 324

15 Focus on tracing concessions five categories under which a deemed owner is identified intended to be concessions falling in and out of categories is problematic same share rule

16 category COT Tracing Concessions rights to vote etc are attributed to special rules 1. an entity is the direct holder of shares carrying less than 10% of rights to vote, etc a single notional share holder nominees 2. an entity holds an indirect interest in shares carrying less than 10% of rights to vote, etc the entity is which the direct interest is held which creates the less than 10% indirect interest nominees & top hat 3. a widely held entity holds direct or indirect interests in shares carrying between 10% and 50% of rights the widely held entity top hat 4. an interest in shares is held by a complying super fund, regulated MIS, ADF, FHSA trust, special co., Regs the entity if it has more than 10 members or an indirect interest of less than 10%, otherwise attributed to members subject to categories 1,2,3 5. an interest in shares is held by a foreign listed company for which more than 50% of shares are bearer or are held by depository, and identity of owners not revealed a single notional shareholder (different from 1.) subject to categories 1,2,3

17 COT Tracing Concessions Single notional shareholder holds 11% in aggregate D C holds 15% (being D and E) E 7.5% 7.5% Widely held company holds the shareholding The fund holds the shareholding if more than 10 members or less than 10% LFC holds the indirect shareholding represented by bearer shares or depository of greater than 50% A B C Widely held Superfund, ADF, MIS Listed foreign company 3% 8% 15% 10% to 50% Widely Held or Eligible Company

18 Single Notional Shareholder ANZ example: in October 2009 at least 57% of shareholders held parcels of less than 10% The key areas of focus will be how Div. 166 operates in the event of takeover bids and equity capital raisings

19 falling out of categories 8% D 9% E 9% F 4% G Unlisted floating rate pref. share 25% 8% A 8% B 9% C listed deemed owner 30% interposed deemed owner 30% 25% 30% loss co

20 same share rule single notional shareholder listed deemed owner 90% 30% 10% 70% Special dividend share loss co

21 Exposure Draft: 2009 Measures No.6 Bill Exposure draft legislation to: address the problem of variable rights to dividends and capital; address the problem of variable rights to vote; switch off the entry history rule when a company joins a consolidated group or MEC group for SBT purposes

22 The problem of unequal rights to dividends and capital step 1 has loss co failed COT because there are shares with unequal rights to dividends or capital? step 2 reapply COT disregarding shares which are debt interests step 3 reapply COT disregarding the secondary class of shares; but caps apply at 10% and 25% step 4 reapply COT on the basis that the principal class of shares (or other class, but not debt) have the rights to dividends and capital equal to: relative market value, or a reasonable proportion

23 Addressing the problem of variable rights to vote When the shares of a company do not all have the same rights to vote, the voting power is determined on the basis of: rights to vote on election of directors (if directors elected by casting votes); or rights to vote on adoption or amendment to constitution.

24 Transition and status variable rights to dividend and capital: 1 July 2002 variable rights to vote: 1 July 2007 SBT and entry history rule: 1 July 2002 to be introduced in later sittings

25