The Same Business Test Gets Tougher

When acquiring a company that is conducting a business, purchasers should pay careful attention to the structure of the acquisition to ensure that any prior year losses of the business will be available.

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.