(a company) Pty Ltd is currently owned by two shareholders, with the following holdings:

• 60% by Henry Martin
• 40% by Jim Hobson

(a company) Pty Ltd has carried forward losses from a prior year of $80,000 and a current year taxable income of $120,000 and exempt income of $12,000. In reviewing the accounts of the company, you note that excluded from the taxable income identified, is an unfranked dividend of $5,000.

Between the current tax year and the tax loss year, ownership had changed. Originally, Henry Martin had owned 70% and Jim Hobsons had owned 30% of (a company) Pty Ltd.

REQUIRED:

Advise (a company) Pty Ltd of the tax consequences arising from the above fact situation by answering the following two questions:

1. Does (a company) Pty Ltd pass the Continuity of Ownership test and what does this mean for the current year? 
2. Calculate the current year taxable income of (a company) Pty Ltd. Assume that the company wishes to minimize its current year tax obligation. 

Your answer should include references to appropriate legislation, case law and tax rulings. Show all workings and disregard GST.