The choice to cancel $31 million in transferred losses had to be made in the joining year
The Federal Court ruled that a company had cancelled the transfer of $31 million in tax losses too late for the cancellation to take effect.
In Evolution Mining Limited v Commissioner of Taxation [2026] FCA 935, the Federal Court of Australia decided a preliminary question about when a company could cancel a transfer of tax losses, and it agreed with the taxpayer.
Evolution Mining Limited (Evolution) acquired all the shares in Conquest Mining Limited (Conquest) on 2 November 2011, and Conquest joined Evolution's tax consolidated group, a regime that treats a corporate group as a single entity for income tax purposes. At that "joining time," more than $31 million in losses that Conquest had reported for the income years 2007 to 2010 passed automatically to Evolution, as the head company, under s. 707-120 of the Income Tax Assessment Act 1997 (the Act).
Under s. 707-145 of the Act, a head company may choose to cancel the automatic transfer, and the choice cannot be revoked. Evolution's returns for the 2012- and 2013-income years did not make such a choice. Its 2014 return, lodged on 13 March 2015, recorded a cancellation of the transfer.
Evolution later sought to use some of the losses in the 2017 financial year. To do that, it argued that its 2014 cancellation was ineffective because it came too late, and that the choice had to be made in the income year in which Conquest joined the group. The Commissioner of Taxation argued that a head company could cancel at any time before using the losses.
The court accepted Evolution's argument. It found that the tax consequences of the transfer were fixed when the subsidiary joined the tax group and that the legislation provided no mechanism to recalculate those consequences or reopen earlier tax assessments if a company cancelled a transfer years later. That gap, the court said, showed that the cancellation had to be made in the year of joining.
The court rejected the Commissioner's argument that the transfer was used up once the head company had drawn on the losses, finding that the proposition had no support in the legislation.
The court ruled that Evolution's 2014 cancellation was too late to take effect. Costs were reserved, and the matter was listed for a further hearing on 14 August 2026 to deal with the remaining issues.
