The ATO has provided some guidance for companies impacted by COVID-19 and utilising losses.
Changes to business operations could potentially impact on whether the company is able to utilise carried-forward losses in the current year or a future income year with reference to the same or similar business tests. As a general rule, a company that has completely closed its business with no intention to resume will normally fail the same or similar business test. However, a company that has temporarily closed its business may still be able to satisfy the same or similar business test in future.
The ATO’s guidance on the company loss tests has been updated to include the following comments with respect to changes in business operation and closing business: “If a company is still carrying on its business, it will not fail the same business test or similar business test merely because it has: • reduced the scale of its business, including if its activities have reduced to a minimum or are almost entirely suspended • suspended or temporarily closed its business only because of temporary adversity or due to reasons beyond its control which it intends to overcome. In determining whether a company's business is still being carried on the following must be considered: • reasons for the inactivity– for example, whether the company is actively holding itself out for business though obtaining none, and • whether there is the expectation of resuming active operations within a reasonable time.”
That is, at a high level, the ATO seems to be indicating that changes to business models or the scale of activities should not automatically mean a company is considered to fail the same or similar business test. Having said that, this is an issue that will need to be considered separately for each client that may be affected, based on the specific facts of their case.
The ATO also confirms that a company will not fail the same business test or similar business test merely because it has received JobKeeper payments.
