The continuity of ownership test (COT) in ITAA 1997 s 165-12 requires that a company's shares carrying more than 50% of all voting, dividend and capital rights be beneficially owned by the same persons at all times during the "ownership test period". This is the period from the start of the loss year to the end of the income year in which the loss is to be deducted.
There are two tests for determining whether a company has maintained the same owners: the primary test and the alternative test. An anti-avoidance provision (s 165-180) prevents share ownership being manipulated to circumvent the continuity of ownership test.
Modified continuity of ownership tests apply to widely held companies (in Div 166) and to companies with shares that have unequal rights to dividends, capital distributions or that have unequal voting power (in Div 167).
If a company fails the continuity of ownership test, it will not be able to claim a deduction for past year losses unless it satisfies the same business test.
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