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      Same Business Test

      Requirements

      Enquiry:

      Our is an investment and trading company operating Thai food restaurants. In the 2016/17 income year, we incurred tax losses of $150,000. In the 2017/18 income year, we had a taxable income of $30,000. In preparing our 2017/18 income tax return, the company's accountant is seeking to deduct part of the $150,000 of carrying forward losses against all of the taxable income. 
      In 2017/18 income year, the company underwent a substantial share change resulting in a breach of COT on 31 March 2018, the new shareholders changed our company's trading name but did not change the restaurants’ locations. We purchased a new restaurant, but the new restaurant was still under renovation until the end of the income year.  
      In 2017/18 income year, instead of only serving dining-in customers, we started to post ads and sell Thai food on several large delivery online platforms.  
      Could you advise us as to whether we pass the Same Business Test? 
       
      Explanation:
      For the tax losses to be utilised, the Same Business Test (SBT) must be satisfied given COT is breached.
      Your company's business during the 2017/18 income year is to be compared to its business immediately before 31 March 2018, i.e. the date of the COT breach (ITAA97 s 16543(2)).
      The SBT comprises three tests: 
      1. The same business test — the company must carry on the same business that is carried on immediately before the COT breach.
      2. The new business test — the company must not derive assessable income from carrying on a business of a kind that it did not carry on before the COT breach.
      3. The new transaction test — the company must not derive assessable income, in the course of its business operations, from a transaction of a kind that it had not entered into before the COT breach. 
      All three tests must be passed in order for the SBT to be satisfied (ITAA97 s 165-210(1), (2) and (3)).
      Although your company changed the trading name and start a new channel to sell Thai food, the company were still running the same business as Thai food restaurants after 31 March 2019. There is no change in the nature of the business.
      Your company did not derive other assessable income from different kinds of transactions that it had not done before the COT breach.    
      Note: Proposed similar business test would make the test more easily to be satisfied.