The aim of this thesis was to examine the loss provisions, sec's 79E to 80G, of the Income Tax Assessment Act 1936 (Cth), in order to provide an answer to the question 'why are Australian companies failing to utilise sec. 80G?'
An analysis was presented which showed that carrying forward a loss imposes costs on firms. In particular, the present value of a loss deduction declines rapidly in a short space of time. Hence, companies have an economic incentive to offset their losses as quickly as possible.
It was suggested that sec. 80G offers companies the opportunity to gain an 'early deduction' because sec. 80G allows the transfer of the right to a loss deduction between wholly-owned members of a company group. Transferring the right to a loss deduction to a related company which has sufficient assessable income, can help to decrease the costs being imposed on loss companies in respect of loss carry forwards.
It was noticed however that sec. 80G was not being utilised to the extent that was warranted, given the benefits that it can provide to companies. On this basis, the requirements of sec. 80G and its’ related provisions were investigated and found to be extremely onerous. It is suggested that the onerousness of these provisions, means that companies are simply unable to utilise them, no matter what the potential benefits are.
Given that companies are unable to utilise sec. 80G, it was recognised that the loss companies were still bearing the cost associated with loss carrying forwards. Thus, the potential benefits of re-introducing a market for the sale of losses was examined. The point of view was taken that if the government adopted a commercial perspective then it could justify the re-introduction of such a market.