The Same Business Test Gets Tougher
by
Norton Rose
In this Federal Court case, Stone J upheld the Commissioner’s denial of a deduction for Lilyvale Hotel Pty Ltd (Lilyvale) for carry forward losses from its business operating a hotel. Stone J held that Lilyvale failed the same business test on the date 100% of its shares were acquired by Reco Harbour Grand Pte Ltd (Reco). An important fact influencing the decision was that prior to the share sale the hotel was operated by ANA Enterprises Australia Pty Ltd (Enterprises) under a management agreement with Lilyvale - and this management agreement was terminated on completion of the share sale.
Relevant Law
A company is only entitled to carry forward losses from prior years if it satisfies either the continuity of ownership test or the same business test. In circumstances where 100% of the company’s shares have been sold, it cannot satisfy the continuity of ownership test and will therefore only be able to carry forward prior year losses if it satisfies the same business test.
The same business test requires the company to have carried on the same business, or Deacons is Australia's leading franchise law firm, with offices in Melbourne, Sydney, Perth, Brisbane, Canberra and in 11 locations in Asia. We have assisted over 200 franchise companies, from large international corporations to start up franchisors. We do not handle franchisee matters.
29.08.2008
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