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IE 5: Applying the continuity provisions when companies amalgamate
or “How tax losses are treated when companies merge”
You could also call this:

“When rules about company ownership and tax losses are broken”

This part of the law applies when certain rules about company ownership and tax losses are broken. There are three types of breaches:

  1. A commonality breach happens when two companies don’t have enough shared ownership to use each other’s tax losses.

  2. An ownership continuity breach occurs when a company’s ownership changes too much, or when a company joins a group of companies during a tax year.

  3. A business continuity breach happens when a company doesn’t follow certain rules about carrying forward tax losses.

If any of these breaches happen, special rules come into play. These rules treat part-year tax losses and income as if they were for a whole tax year. They also treat the common span (a period of time when certain conditions are met) as if it were a tax year.

The usual rules about using and grouping tax losses still apply, but they’re changed a bit by the rules in this part of the law.

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Next up: IP 2: Group companies’ common span

or “Rules for sharing tax losses between related companies”
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Part I Treatment of tax losses
Meeting requirements for part-years

IP 1When this subpart applies

  1. This subpart applies if 1 or more of the following breaches occur:

  2. when commonality of ownership required by section IC 5(1)(a) (Company B using company A's tax loss) is not met during a tax year (a commonality breach):
    1. when continuity of ownership required by section IA 5(1) (Restrictions on companies’ loss balances carried forward: continuity of ownership) is broken during a tax year, or when a new or existing company joins a group of companies during a tax year (an ownership continuity breach):
      1. when a company to which section IB 3 (When tax loss components of companies carried forward despite ownership continuity breach) applies breaches, during an income year, the requirement of section IB 3(2)(b) or (c) for the carrying forward of a tax loss component to the tax year that corresponds to the income year (a business continuity breach).

        1. The general rules for the treatment of tax losses in subparts IA, IB, IC, and ID (which relate to the general use and grouping of tax losses) apply, as modified or overridden by the provisions of this subpart, to—

        2. a part-year tax loss as if it were a tax loss for a tax year:
          1. part-year net income as if it were net income for a tax year:
            1. the common span as if the period of time were a tax year.

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              Notes
              • Section IP 1(1): amended (with effect on 1 April 2020), on , by section 122(1)(a) (and see section 122(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1(1)(a): substituted (with effect on 1 April 2009), on , by section 301(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section IP 1(1)(b): substituted (with effect on 1 April 2009), on , by section 301(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
              • Section IP 1(1)(b): amended (with effect on 1 April 2020), on , by section 122(1)(b) (and see section 122(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1(1)(b): amended (with effect on 1 April 2020), on , by section 109 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
              • Section IP 1(1)(c): inserted (with effect on 1 April 2020), on , by section 122(1)(c) (and see section 122(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1(2) heading: amended (with effect on 1 April 2020), on , by section 122(2) (and see section 122(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1(2): amended (with effect on 1 April 2020), on , by section 122(3) (and see section 122(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1 list of defined terms company: inserted (with effect on 1 April 2020), on , by section 122(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1 list of defined terms income year: inserted (with effect on 1 April 2020), on , by section 122(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section IP 1 list of defined terms tax loss component: inserted (with effect on 1 April 2020), on , by section 122(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).