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“The simplification of the Australian tax loss regime has come at a price,” Hayes said.
“While we welcome the less complex regime, the reality of the new tax loss landscape and its impact on M&As, particularly in the resources and financial services industries, should not be underestimated.”
The bill puts forward a more compliance-friendly version of the Continuity of Ownership Test for widely held corporate groups. But the downside for large businesses – those with turnovers greater than $A100 million – is the abolition of the Same Business Test for losses incurred in income years after 2005.
“These changes not only impact revenue losses, but also net capital losses and deductions for bad debts,” Hayes said.
KPMG Corporate Finance head of mergers and acquisitions, Antony Cohen, said the new bill would affect the resources sector where changes of ownership through capital raisings or M&As were an essential feature of the project development cycle.
“Companies in the resources sector will be one of the most affected groups as they have large upfront costs with deferred revenue streams, but rely on capital raisings or M&As to finance growth,” Cohen said.
“The post-tax returns of any acquisition may well be significantly different under this regime.”
The new legislation will also reduce the availability of future bad debt deductions.
Financial service organisations will need to assess the consequences of this new regime when contemplating acquisitions and disposals of businesses with significant loan portfolios, according to KPMG.
Hayes said the new legislation was likely to be coupled with more intense scrutiny by the ATO of the existing pool of tax losses as other proposed amendments to the self-assessment system would set new time limits within which the ATO could dispute loss deductions.
“The tax loss landscape in Australia is about to dramatically change,” he said.
