Even where losses are not expected to be utilised in the current year, it is important for companies to be aware of events that may impact their future ability to recoup these losses, such as takeovers, mergers, buybacks and capital raisings or other capital injections. Tax losses are a valuable asset
It is also necessary for companies to maintain appropriate records both substantiating their carry forward tax losses and testing their ability to utilise those carry forward tax losses each year under the loss recoupment rules.
Generally, this would involve a review of satisfaction of the loss recoupment tests, specifically the continuity of ownership test (which broadly requires the same persons to have maintained more than 50 percent of the voting power in the company, rights to dividends and rights to capital distributions) or failing this, the same business test.
Where a company has acquired losses into a consolidated group through acquisitions, these losses are subject to an available fraction which operates to restrict the rate at which the losses may be utilised. However, the company must also consider the impact of post-acquisition events on the available fraction calculation. For example, capital injections made following the acquisition where a company joins a tax consolidated group may operate to reduce the available fraction, further restricting the rate at which acquired tax losses can be utilised.
Additional pressure is put on the ability of a company to recoup those carry forward tax losses where they are to be booked as a deferred tax asset for financial reporting purposes. Finally, the utilisation of tax losses is an area of focus for the Commissioner and consequently, the maintenance of contemporaneous records and testing of those losses is necessary to defend your position in the event of any review by the Australian Taxation Office.