The same business test to be replaced by a “similar business” test

 

The bill Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 will be among the first batch of legislation that the government is to consider for 2019 (Parliament resumes on February 12).

UPDATE: As of February 12, this legislation has now successfully passed Parliament.

The bill (click here for a copy) contains changes to the same business test. The government said in announcing the measure that the “same business test”, which can sometimes prevent companies from claiming past year losses as a tax deduction where they have changed their business, will be relaxed and a “similar business test” introduced.

“This more flexible approach to accessing company losses will ensure that companies do not face tax penalties for innovating and risk tasking in an effort to improve their business,” the announcement said. “Loosening the inflexible rules will encourage investment and growth in our innovative businesses.”

The new relaxed test applies to losses made in income years commencing from 1 July 2015.

The “similar business test” also helps work out whether a debt written off as bad can be deducted in an income year, and whether tax losses of listed widely held trusts can be used.

The government says the similar business test will encourage entrepreneurship by allowing companies to use losses in a wider range of circumstances and will encourage companies to seek out new opportunities, and hopefully return to profitability.

However the new test will still be required to meet four factors, including the extent to which the assets used to generate income were also used formerly; the extent to which the activities and operations were also the same with the previous business; the identity of the current business and the identity of the former business; and the extent to which any changes to the former business resulted from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods, of the former business.

For more guidance, see the ATO’s Law Companion Ruling LCR 2017/D6.

Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test? Will the same business test to be replaced by a “similar business” test?