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This is a Bill, not an Act. For current law, see the Acts databases.
2002
The Parliament of
the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New
Business Tax System (Consolidation) Bill (No. 1)
2002
No. ,
2002
(Treasury)
A Bill for
an Act about income tax to implement a New Business Tax System, and for related
purposes
Contents
Income Tax Assessment Act
1997 3
Income Tax (Transitional Provisions) Act
1997 143
Part 1—General 154
Income Tax Assessment Act
1997 154
Part 2—Head company
terminology 155
Income Tax Assessment Act
1997 155
Part 3—Limiting access to group
concessions 157
Division 1—CGT
roll-overs 157
Income Tax Assessment Act
1997 157
Division 2—Loss
transfers 160
Income Tax Assessment Act
1997 160
Part 4—Anti-avoidance provision for franking credit
trading 168
Income Tax Assessment Act
1936 168
Part 1—The
amendments 172
Taxation Administration Act
1953 172
Part 2—Consequential
amendments 184
Taxation Administration Act
1953 184
Income Tax Assessment Act
1997 188
A Bill for an Act about income tax to implement a New
Business Tax System, and for related purposes
The Parliament of Australia enacts:
This Act may be cited as the New Business Tax System (Consolidation)
Act (No. 1) 2002.
This Act commences on the day on which it receives the Royal
Assent.
Each Act that is specified in a Schedule to this Act is amended or
repealed as set out in the applicable items in the Schedule concerned, and any
other item in a Schedule to this Act has effect according to its
terms.
Section 170 of the Income Tax Assessment Act 1936 does not
prevent the amendment of an assessment made before the commencement of this
section for the purposes of giving effect to this Act.
Income Tax Assessment Act
1997
1 Section 405-50 (link
note)
Repeal the link note, substitute:
[The next Division is Division 700.]
2 After Part 3-45
Insert:
Table of sections
Guide
700-1 What this Part is about
700-5 Overview of this Part
Objects
700-10 Objects of this Part
This Part allows certain groups of entities to be treated as single
entities for income tax purposes.
Following a choice to consolidate, subsidiary members are treated as part
of the head company of the group rather than as separate income tax identities.
The head company inherits their income tax history when they become subsidiary
members of the group. On ceasing to be subsidiary members, they take with them
an income tax history that recognises that they are different from when they
became subsidiary members.
This is supported by rules that:
(a) set the cost for income tax purposes of assets that subsidiary members
bring into the group; and
(b) determine the income tax history that is taken into account when
entities become, or cease to be, subsidiary members of the group; and
(c) deal with the transfer of tax attributes such as losses and franking
credits to the head company when entities become subsidiary members of the
group.
(1) The single entity rule determines how the income tax liability of a
consolidated group will be ascertained. The basic principle is contained in the
Core Rules in Division 701.
(2) Essentially, a consolidated group consists of an Australian resident
head company and all of its Australian resident wholly-owned subsidiaries (which
may be companies, trusts or partnerships). Special rules apply to foreign-owned
groups with no single Australian resident head company.
(3) An eligible wholly-owned group becomes a consolidated group after
notice of a choice to consolidate is given to the Commissioner.
(4) This Part also contains rules which set the cost for income tax
purposes of assets of entities when they become subsidiary members of a
consolidated group and of membership interests in those entities when they cease
to be subsidiary members of the group.
(5) Certain tax attributes (such as losses and franking credits) of
entities that become subsidiary members of a consolidated group are transferred
under this Part to the head company of the group. These tax attributes remain
with the group after an entity ceases to be a subsidiary member.
[This is the end of the Guide]
The objects of this Part are:
(a) to prevent double taxation of the same economic gain realised by a
consolidated group; and
(b) to prevent a double tax benefit being obtained from an economic loss
realised by a consolidated group; and
(c) to provide a systematic solution to the prevention of such double
taxation and double tax benefits that will:
(i) reduce the cost of complying with this Act; and
(ii) improve business efficiency by removing complexities and promoting
simplicity in the taxation of wholly-owned groups.
Table of sections
Common rule
701-1 Single entity rule
Head company rules
701-5 Entry history rule
701-10 Cost to head company of assets that entity brings
into group
701-15 Cost to head company of membership interests in
entity that leaves group
701-20 Cost to head company of assets consisting of certain
liabilities owed by entity that leaves group
701-25 Tax-neutral consequence for head company of ceasing
to hold assets when entity leaves group
Entity rules
701-30 Where entity not subsidiary member for whole of
income year
701-35 Tax-neutral consequence for entity of ceasing to hold
assets when it joins group
701-40 Exit history rule
701-45 Cost of assets consisting of liabilities owed to
entity by members of the group
701-50 Cost of certain membership interests of which entity
becomes holder on leaving group
Supporting provisions
701-55 Setting the tax cost of an asset
701-60 Tax cost setting amount
701-65 Net income and losses for trusts and
partnerships
Exceptions
701-70 Adjustments to taxable income where identities of
parties to arrangement merge on joining group
701-75 Adjustments to taxable income where identities of
parties to arrangement re-emerge on leaving group
701-80 Accelerated depreciation
701-85 Other exceptions etc. to the rules
(1) If an entity is a *subsidiary member
of a *consolidated group for any period, it and
any other subsidiary member of the group are taken for the purposes covered by
subsections (2) and (3) to be parts of the
*head company of the group, rather than
separate entities, during that period.
Head company core purposes
(2) The purposes covered by this subsection (the head company
core purposes) are:
(a) working out the amount of the *head
company’s liability (if any) for income tax calculated by reference to any
income year in which any of the period occurs or any later income year;
and
(b) working out the amount of the head company’s loss (if any) of a
particular *sort for any such income
year.
Note: The single entity rule would affect the head
company’s income tax liability calculated by reference to income years
after the entity ceased to be a member of the group if, for example, assets that
the entity held when it became a subsidiary member remained with the head
company after the entity ceased to be a subsidiary member.
Entity core purposes
(3) The purposes covered by this subsection (the entity core
purposes) are:
(a) working out the amount of the entity’s liability (if any) for
income tax calculated by reference to any income year in which any of the period
occurs or any later income year; and
(b) working out the amount of the entity’s loss (if any) of a
particular *sort for any such income
year.
Note: An assessment of the entity’s liability
calculated by reference to income tax for a period when it was not a
subsidiary member of the group may be made, and that tax recovered from it, even
while it is a subsidiary member.
What is a sort of loss?
(4) Each of these paragraphs identifies a sort of
loss:
(a) *tax loss;
(b) *film loss;
(c) *net capital loss;
(d) overall foreign loss in respect of interest income (within the meaning
of section 160AFD of the Income Tax Assessment Act 1936);
(e) overall foreign loss in respect of modified passive income (within the
meaning of that section);
(f) overall foreign loss in respect of offshore banking income (within the
meaning of that section);
(g) overall foreign loss in respect of other assessable foreign income
(within the meaning of that section).
This subsection lists all the sorts of loss.
For the head company core purposes in relation to the period after the
entity becomes a *subsidiary member of the
group, everything that happened in relation to it before it became a subsidiary
member is taken to have happened in relation to the
*head company.
Note: Other provisions of this Part may affect the tax
history that is inherited (e.g. asset cost base history is affected by
section 701-10 and tax loss history is affected by
Division 707).
(1) This section has effect for the head company core purposes when the
entity becomes a *subsidiary member of the
group.
Assets to which section applies
(2) This section applies in relation to each asset that becomes an asset
of the *head company because subsection
701-1(1) (the single entity rule) applies.
Object
(3) The object of this section (and Division 705 which relates to it)
is to recognise the cost to the *head company
of such assets as an amount reflecting the group’s cost of acquiring the
entity.
Setting tax cost of assets
(4) Each asset’s *tax cost is set
at the time the entity becomes a *subsidiary
member of the group at the asset’s *tax
cost setting amount.
Multiple setting of tax cost for same trading stock
(5) However, if:
(a) the asset is *trading stock;
and
(b) the asset’s *tax cost is set by
this section at more than one time (each of which is a setting
time) for the same income year;
then, except where subsection (6) applies, only the amount at which
the tax cost is set at the last of the setting times is to be taken into
account.
(6) If:
(a) the *head company’s
*terminating value for the asset; or
(b) the *value of the asset at the start
of the income year;
is required to be worked out for one or more occasions when an entity
(whether or not the same entity) ceases to be a
*subsidiary member of the group in the income
year, then the amount at which the asset’s
*tax cost is set by this subsection at a
particular setting time is only taken into account in working out the head
company’s terminating value for a particular occasion if:
(c) the setting time occurs before the occasion; and
(d) there is no intervening setting time or occasion.
Excluded assets
(7) If an asset is an excluded asset under subsection 705-35(2), its
*tax cost is not set.
Note: Excluded assets are assets such as entitlements to tax
deductions.
(1) If the entity ceases to be a
*subsidiary member of the group, this section
has effect for the head company core purposes, so far as they relate to the
income year in which the entity ceases to be a subsidiary member or any later
income year. However, this section does not have effect if the entity ceases to
be a subsidiary member where Subdivision 705-C (about the group joining
another consolidated group) has effect.
Note: This section could have effect, for example, if an
entity ceases to be a subsidiary member of the group because:
(a) it ceases to satisfy the requirements to be a subsidiary
member; or
(b) the head company ceases to satisfy the requirements to
be a head company (thereby bringing the group to an end).
Object
(2) The object of this section is to preserve the alignment of the
*head company’s costs for
*membership interests in each entity and its
assets by recognising, when an entity ceases to be a
*subsidiary member of the group, the cost of
those interests as an amount equal to the cost of the entity’s assets at
that time reduced by the amount of its liabilities.
Note: The head company’s costs for membership
interests in entities was aligned with the costs of their assets when the
entities became subsidiary members of the group.
Setting tax cost of membership interests
(3) For each *membership interest that
the *head company of the group holds in an
entity that ceases to be a *subsidiary member,
the interest’s *tax cost is set just
before the entity ceases to be a subsidiary member at the interest’s
*tax cost setting amount.
Note: The membership interests would include those that are
actually held by subsidiary members of the group, but which are treated as those
of the head company under the single entity rule.
(1) If the entity ceases to be a
*subsidiary member of the group, this section
has effect for the head company core purposes, so far as they relate to the
income year in which the entity ceases to be a subsidiary member or any later
income year.
Assets to which section applies
(2) This section applies in relation to each asset, consisting of a
liability owed by the entity, that becomes an asset of the
*head company because subsection 701-1(1) (the
single entity rule) ceases to apply to the entity when it ceases to be a
*subsidiary member. This is a liability that,
ignoring that subsection, is owed to a *member
of the group.
Object
(3) The object of this section is to set a cost for the asset to enable
income tax consequences for the *head company
in respect of the asset to be determined.
Setting tax cost of assets
(4) The asset’s *tax cost is set at
the time the entity ceases to be a *subsidiary
member of the group at the asset’s *tax
cost setting amount.
(1) If the entity ceases to be a
*subsidiary member of the group, this section
has effect for the head company core purposes, so far as they relate to the
income year in which the entity ceases to be a subsidiary member or any later
income year.
Assets to which section applies
(2) This section applies in relation to an asset if:
(a) the asset is *trading stock of the
*head company; and
(b) the asset becomes an asset of the entity because subsection 701-1(1)
(the single entity rule) ceases to apply to the entity when it ceases to be a
*subsidiary member of the group; and
(c) the asset is not again an asset of the head company at or before the
end of the income year.
Object
(3) The object of this section is to ensure that there is no income tax
consequence for the *head company in respect of
the asset.
Note: In the case of assets other than trading stock, the
fact that the head company ceases to hold them when the single entity rules
ceases to apply to them would not constitute a disposal or other event having
tax consequences for the head company.
Setting cost of trading stock at tax-neutral amount
(4) The asset is taken to be *trading
stock of the *head company at the end of the
income year (but not at the start of the next income year), and its
*value at that time is taken to be equal
to:
(a) if the asset was trading stock of the head company at the start of the
income year (including as a result of its *tax
cost being set)—the asset’s value at that time; or
(b) if paragraph (a) does not apply and the asset is
*livestock that was acquired by natural
increase—the *cost of the asset;
or
(c) in any other case—the amount of the outgoing incurred by the
head company in connection with the acquisition of the asset;
increased by the amount of any outgoing forming part of the cost of the
asset that was incurred by the head company during its current holding of the
asset.
Object
(1) The object of this section is to provide for a method of working out
how the entity core rules apply to the entity for periods in the income year
when the entity is not part of the group. The method involves treating each
period separately with no netting off between them.
When section has effect
(2) This section has effect for the entity core purposes if:
(a) the entity is a *subsidiary member of
the group for some but not all of an income year; and
(b) there are one or more periods in the income year (each of which is a
non-membership period) during which the entity is not a subsidiary
member of any *consolidated group.
Tax position of each non-membership period to be worked
out
(3) For every non-membership period, work out the entity’s taxable
income (if any) for the period, the income tax (if any) payable on that taxable
income and the entity’s loss (if any) (a non-membership period
loss) of each *sort for the period.
Work them out:
(a) as if the start and end of the period were the start and end of the
income year; and
(b) ignoring the operation of this section in relation to each other
non-membership period (if any).
Note: Other provisions of this Part are to be applied in
working out the taxable income or loss, for example, section 701-40 (Exit
history rule).
Income tax for the financial year
(4) The entity’s income tax (if any) for the
*financial year concerned is the total of every
amount of income tax worked out for the entity under
subsection (3).
Taxable income for the income year
(5) The entity’s taxable income for the income year is the total of
every amount of taxable income worked out for the entity under
subsection (3).
(6) The entity’s income tax worked out under subsection (4) is
taken to be payable on the entity’s taxable income for the income year
worked out under subsection (5), even if the amount of the tax differs from
the amount that would be worked out by reference to that taxable income apart
from subsection (5).
Loss for the income year
(7) The entity has a loss of a particular
*sort for the income year if and only if it has
a non-membership period loss of that sort for the non-membership period (if any)
ending at the end of the income year. The amount of the loss for the income year
is the amount of the non-membership period loss.
(1) When the entity becomes a *subsidiary
member of the group, this section has effect for the entity core
purposes.
Assets to which section applies
(2) This section applies in relation to an asset if the asset is
*trading stock of the entity just before it
becomes a *subsidiary member of the
group.
Object
(3) The object of this section is to ensure that there is no income tax
consequence for the entity in respect of the asset.
Note: In the case of assets other than trading stock, the
fact that the entity ceases to hold them when the single entity rule begins to
apply to them would not constitute a disposal or other event having tax
consequences for the entity.
Setting cost of trading stock at tax-neutral amount
(4) The *value of the
*trading stock at the end of the income year
that ends when the entity becomes a *subsidiary
member is taken to be equal to:
(a) if the asset was trading stock of the entity at the start of the
income year—the asset’s value at that time; or
(b) if paragraph (a) does not apply and the asset is
*livestock that was acquired by natural
increase—the *cost of the asset;
or
(c) in any other case—the amount of the outgoing incurred by the
entity in connection with the acquisition of the asset;
increased by the amount of any outgoing forming part of the cost of the
asset that was incurred by the entity during its current holding of the
asset.
(1) If the entity ceases to be a
*subsidiary member of the group, this section
has effect for the entity core purposes, so far as they relate to any thing
covered by subsection (2) (an eligible asset etc.) after it
becomes that of the entity because subsection 701-1(1) (the single entity rule)
ceases to apply to the entity.
Assets, liabilities and businesses covered
(2) This subsection covers the following:
(a) any asset;
(b) any liability or other thing that, in accordance with
*accounting standards, or statements of
accounting concepts made by the Australian Accounting Standards Board, is a
liability;
(c) any business;
that becomes that of the entity because subsection 701-1(1) (the single
entity rule) ceases to apply to the entity when it ceases to be a
*subsidiary member of the group.
Head company history inherited
(3) Everything that happened in relation to any eligible asset etc. while
it was that of the *head company, including
because of any application of section 701-5 (the entry history rule), is
taken to have happened in relation to it as if it had been an eligible asset
etc. of the entity.
Note 1: If the eligible asset etc. was brought into the
group when an entity became a subsidiary member, section 701-5 (the entry
history rule) would have had the effect that things happening to the eligible
asset etc. while it was that of the entity would be taken to have happened as if
it was that of the head company. Such things will in turn be taken by this
subsection to have happened in relation to the eligible asset etc. as if it were
that of the entity that takes the asset out of the group.
Note 2: Other provisions of this Part may affect the tax
history that is inherited (e.g. asset cost base history is affected by
section 701-45).
(1) If the entity ceases to be a
*subsidiary member of the group, this section
has effect for the entity core purposes, so far as they relate to the income
year in which the entity ceases to be a subsidiary member or any later income
year.
Assets to which section applies
(2) This section applies in relation to an asset if:
(a) it becomes an asset of the entity because subsection 701-1(1) (the
single entity rule) ceases to apply to the entity when it ceases to be a
*subsidiary member of the group; and
(b) the asset consists of a liability owed to the entity by a
*member of the group.
Object
(3) The object of this section is to set the cost of the asset to enable
income tax consequences for the *head company
in respect of the asset to be determined.
Note: In the case of other assets, the fact that the entity
inherits their history under section 701-40 when the entity ceases to be a
subsidiary member of the group means that the assets would be treated as having
the same cost as they would for the head company at that time. However, assets
consisting of liabilities do not have such a history because they are only
recognised when the entity ceases to be a subsidiary member and the single
entity rule ceases to apply.
Setting the asset’s tax cost
(4) The asset’s *tax cost is set at
the time the entity ceases to be a *subsidiary
member of the group at the asset’s *tax
cost setting amount.
Note: If section 701-30 (Where entity not subsidiary
member for whole of income year) applies, the time the entity ceases to be a
subsidiary member will be treated as the start of an income
year.
(1) If:
(a) the entity and one or more other entities cease to be
*subsidiary members of the group at the same
time because of an event happening in relation to one of them; and
(b) when the entity ceases to be a subsidiary member, it holds an asset
consisting of a *membership interest in any of
the other entities;
this section has effect for the entity core purposes.
Object
(2) The cost of any *membership interest
that one of the entities holds in another is to be treated in the same way as
membership interests held by the *head company.
In both cases the object is to preserve the alignment of costs for membership
interests and assets (that was established when each entity became a
*subsidiary member) by recognising the cost of
those interests, when it ceases to be a subsidiary member, as an amount equal to
the cost of the entity’s assets at that time reduced by the amount of its
liabilities.
Setting tax cost of membership interests
(3) The asset’s *tax cost is set
just before the entity ceases to be a
*subsidiary member of the group at the
asset’s *tax cost setting
amount.
(1) This section states the meaning of the expression an asset’s
tax cost is set at a particular time at the asset’s
*tax cost setting amount.
Depreciating asset provisions
(2) If any of Subdivisions 40-A to 40-D, sections 40-425 to
40-445 and Subdivision 328-D is to apply in relation to the asset, the
expression means that the provisions apply as if:
(a) the asset were *acquired at the
particular time for a payment equal to its *tax
cost setting amount; and
(b) at that time the same method of working out the decline in value were
chosen for the asset as applied to it just before that time; and
(c) where just before that time the prime cost method applied for working
out the asset’s decline in value and the asset’s tax cost setting
amount does not exceed the joining entity’s
*terminating value for the asset—at that
time an *effective life were chosen for the
asset equal to the remainder of the effective life of the asset just before that
time; and
(d) where just before that time the prime cost method applied for working
out the asset’s decline in value and the asset’s
*tax cost setting amount exceeds the joining
entity’s terminating value for the asset—the
*head company were required to choose at that
time an effective life for the asset in accordance with section 40-95
(other than subsections (2) and (5)) and any choice of an effective life
determined by the Commissioner were limited to one in force at that time;
and
(e) where neither paragraph (c) nor (d) applies—at that time an
effective life were chosen for the asset equal to the asset’s effective
life just before that time.
Trading stock provisions
(3) If Division 70 is to apply in relation to the asset, the
expression means that the Division applies as if the asset were
*trading stock at the start of the income year
in which the particular time occurs and its
*value at that time were equal to its
*tax cost setting amount.
Qualifying security provisions
(4) If Division 16E of Part III of the Income Tax Assessment
Act 1936 is to apply in relation to the asset, the expression means that the
Division applies as if the asset were acquired at the particular time for a
payment equal to the asset’s *tax cost
setting amount.
Capital gain and loss provisions
(5) If Part 3.1 or 3.3 is to apply in relation to the asset, the
expression means that the Part applies as if the asset’s
*cost base or
*reduced cost base were increased or reduced so
that the cost base or reduced cost base at the particular time equals the
asset’s *tax cost setting
amount.
Other provisions
(6) If any provision of this Act that is not mentioned above, the
expression means that the provision applies as if the asset’s cost at that
time were equal to its *tax cost setting
amount.
The asset’s tax cost setting amount is worked out
using this table.
|
Tax cost setting amount |
||
|---|---|---|
|
Item |
If the asset’s tax cost is set by: |
The asset’s tax cost setting amount is: |
|
1 |
section 701-10 (Cost to head company of assets that entity brings into
group) |
the amount worked out in accordance with Division 705 |
|
2 |
section 701-15 (Cost to head company of membership interests in entity
that leaves group) |
the amount worked out in accordance with section 711-15 or
711-55 |
|
3 |
section 701-20 (Cost to head company of assets consisting of certain
liabilities owed by entity that leaves group) or section 701-45 (Cost of
assets consisting of liabilities owed to entity by members of the
group) |
the *market value of the asset |
|
4 |
section 701-50 (Cost of certain membership interests of which entity
becomes holder on leaving group) |
the amount worked out in accordance with section 711-55 |
Net income of partnerships and trusts
(1) If:
(a) another provision of this Division applies for the purpose
of:
(i) working out the amount of the entity’s liability (if any) for
income tax calculated by reference to an income year; or
(ii) working out the amount of the entity’s taxable income for an
income year; and
(b) the entity is a trust or partnership;
the provision instead applies in a corresponding way for the purpose of
working out the amount of the entity’s net income, as defined in the
Income Tax Assessment Act 1936, (if any) for the income year.
Note: Subsection 701-30(3) requires non-membership periods
mentioned in that subsection to be treated as the start and end of an income
year. This section would therefore also apply to those periods.
Partnership losses
(2) If:
(a) another provision of this Division applies for the purpose of working
out the amount of the entity’s loss (if any) of a particular
*sort for an income year; and
(b) the entity is a partnership;
the provision instead applies in a corresponding way for the purpose of
working out the amount of an entity’s partnership loss, as defined in
section 90 of the Income Tax Assessment Act 1936, (if any) for the
income year.
Note: The provision applies normally to a trust, as it can
have a loss of any sort worked out in the same way as a loss of the same sort
for an entity of another kind.
Section applies to certain arrangements
(1) This section applies for the head company core purposes and the entity
core purposes if, just before the time (the joining time) when the
entity becomes a *subsidiary member of the
group, an *arrangement is in force under
which:
(a) expenditure is to be, or has been, incurred in return for the doing of
some thing; and
(b) the persons incurring the expenditure and deriving the corresponding
amount (each of which is a combining entity) are the entity and
either:
(i) another entity that became a subsidiary member at the same time;
or
(ii) the *head company.
Note 1: If expenditure incurred under an arrangement
consists of a payment of loan interest or a payment of a similar kind, the
expenditure would be incurred in return for the making available or continued
making available of the loan principal, or other amount of a similar kind, under
the arrangement.
Note 2: If expenditure incurred under an arrangement
consists of a payment of rent, a lease payment or a payment of a similar kind,
the expenditure would be incurred in return for the making available or
continued making available of the thing rented or leased, or other thing of a
similar kind, under the arrangement.
Note 3: If expenditure incurred under an arrangement
consists of a payment of an insurance premium or a payment of a similar kind,
the expenditure would be incurred in return for the provision or continued
provision of insurance against the risk concerned, or of a thing of a similar
kind, under the arrangement.
Object
(2) The object of this section is to align the income tax position of the
combining entities at the joining time, because after that time they lose their
separate tax identities under the single entity rule in subsection 701-1(1) and
this would preserve any imbalance.
Adjustment for disproportionate deductibility
(3) If the total of a combining entity’s deductions that are
allowable for:
(a) the following income year (the joining income
year):
(i) if the combining entity is the *head
company—the income year in which the joining time occurs;
(ii) in any other case—the income year that ends at the joining
time; and
(b) all earlier income years;
is not equal to the amount worked out under subsection (4),
then:
(c) if the total is less—the entity is entitled to deduct the
difference for the joining income year; and
(d) if it is more—the entity’s assessable income for the
joining income year includes the difference.
Pre-joining time proportion of total arrangement
deductions
(4) The amount is worked out using the formula:
where:
pre-joining time services proportion means the proportion of
all things to be done under the arrangement in return for the incurring of the
expenditure represented by those things that were done before the joining
time.
total arrangement deductions means the total of the
deductions that, ignoring this Part (other than subsection (7) of this
section), would be allowable for expenditure incurred by the combining entity
under the arrangement for all income years.
Adjustment for disproportionate assessability
(5) If the total of the amounts included in a combining entity’s
assessable income in respect of amounts derived under the arrangement for the
joining income year and all earlier income years is not equal to the amount
worked out under subsection (6):
(a) if the total is less—the entity’s assessable income for
the joining income year includes the difference; and
(b) if it is more—the entity is entitled to deduct the difference
for the joining income year.
Pre-joining time proportion of total arrangement assessable
income
(6) The amount is worked out using the formula:
where:
pre-joining time services proportion has the same meaning as
in subsection (4).
total arrangement assessable income means the total of the
amounts that, ignoring this Part (other than subsection (7) of this
section), would be included in the combining entity’s assessable income
for amounts derived by it under the arrangement for all income years.
Modified application of section if combining entities previously members
of same group
(7) If the combining entities were
*members of the same
*consolidated group (whether or not the group
to which this section applies) on one or more previous occasions, this section
applies in relation to the entities as if:
(a) the only things to be done under the arrangement in return for the
incurring of the expenditure were those things to be done after the entities
ceased to be members of the same group on the previous occasion or the last of
the previous occasions; and
(b) the only deductions allowable to an entity for expenditure incurred by
it under the arrangement, and the only amounts included in an entity’s
assessable income in respect of amounts derived under the arrangement,
were:
(i) if the entity was the *head company
of the consolidated group of which the combining entities were members on the
previous occasion or last of the previous occasions—those for the income
year, in which the previous occasion or the last of the previous occasions
occurred, that are attributable to the period after that occasion and those for
all later income years; and
(ii) in any other case—those for the income year that started when
the entity ceased to be a *subsidiary member of
the group on the previous occasion or the last of the previous occasions and
those for all later income years.
Section applies to certain arrangements
(1) This section applies for the head company core purposes and the entity
core purposes if the entity ceases to be a
*subsidiary member of the group and, just
before the time (the leaving time) when it does so, an
*arrangement is in force under which:
(a) expenditure is to be, or has been, incurred in return for the doing of
some thing; and
(b) the persons incurring the expenditure and deriving the corresponding
amount (each of which is a separating entity) are the entity and
either:
(i) another entity that ceases to be a subsidiary member at the same time;
or
(ii) the *head company.
Note: The notes to subsection 701-70(1) on the application
of that subsection to expenditure under certain kinds of arrangements are
equally applicable for the purposes of this subsection.
Object
(2) The object of this section is to align the income tax position of the
separating entities at the leaving time, because from that time they have
separate tax identities as a result of the single entity rule in subsection
701-1(1) ceasing to apply, and this may create an imbalance.
Adjustment for disproportionate deductibility
(3) If the total of the deductions that are or will be allowable for
expenditure incurred by the separating entity under the arrangement
for:
(a) the following income year (the leaving income
year):
(i) if the separating entity is the *head
company—the income year in which the leaving time occurs;
(ii) in any other case—the income year that starts at the leaving
time; and
(b) all later income years;
is not equal to the amount worked out under subsection (4), the
deductions are adjusted so that they do equal the amount.
Post-leaving time proportion of total arrangement
deductions
(4) The amount is worked out using the formula:
where:
post-leaving time services proportion means the proportion of
all things to be done under the arrangement in return for the incurring of the
expenditure represented by those things that are to be done after the leaving
time.
total arrangement deductions means the total of the
deductions that, ignoring this Part, would be allowable for expenditure incurred
by the separating entity under the arrangement for all income years.
Adjustment for disproportionate assessability
(5) If the total of the amounts that are or will be included in its
assessable income in respect of amounts derived under the arrangement for the
leaving income year and all later income years is not equal to the amount worked
out under subsection (6), the amounts that are or will be included in its
assessable income are adjusted so that they do equal the amount worked out under
subsection (6).
Post-leaving time proportion of total arrangement assessable
income
(6) The amount is worked out using the formula:
where:
post-leaving time services proportion has the same meaning as
in subsection (4).
total arrangement assessable income means the total of the
amounts that, ignoring this Part, would be included in the separating
entity’s assessable income for amounts derived by it under the arrangement
for all income years.
(1) This section has effect for the head company core purposes when the
entity becomes a *subsidiary member of the
group.
Object
(2) The object of this section is to preserve any entitlement to
accelerated depreciation for assets that become those of the
*head company because subsection 701-1(1) (the
single entity rule) applies when the entity becomes a
*subsidiary member of the group. This is only
to apply where the asset’s *tax cost
setting amount is not more than the entity’s
*terminating value for the asset.
Section applies to certain depreciating assets
(3) This section applies if:
(a) the entity *acquired a
*depreciating asset at or before 11.45 am, by
legal time in the Australian Capital Territory, on 21 September 1999 and
held the asset continuously until the entity became a
*subsidiary member of the group; and
(b) the *tax cost setting amount that
applies in relation to the asset for the purposes of section 701-10 when it
becomes an asset of the *head company because
subsection 701-1(1) (the single entity rule) applies is not more than the
entity’s *terminating value for the
asset.
Preservation of accelerated depreciation
(4) While the asset is held by the *head
company under subsection 701-1(1) (the single entity rule), the decline in its
value under Division 40 is worked out by replacing the component in the
formula in subsection 40-70(1) or 40-75(1) that includes the asset’s
*effective life with the rate that would apply
under subsection 42-160(1) or 42-165(1) of this Act if it had not been amended
by the New Business Tax System (Capital Allowances) Act 2001.
The operation of each provision of this Division is subject to any
provision of this Act that so requires, either expressly or impliedly.
Note: An example of such a provision is Division 707
(about the transfer of certain losses to the head company of a consolidated
group). That Division modifies the effect that the inheritance of history rule
in section 701-5 would otherwise have.
[The next Division is Division 703.]
A consolidated group and a consolidatable group each consists of a head
company and all the companies, trusts and partnerships that:
(a) are resident in Australia; and
(b) are wholly-owned subsidiaries of the head company (either directly or
through other companies, trusts and partnerships).
A consolidatable group becomes consolidated at a time chosen by the company
that was the head company at the time.
Table of sections
Basic concepts
703-5 What is a consolidated
group?
703-10 What is a consolidatable
group?
703-15 Members of a consolidated group or
consolidatable group
703-20 Certain entities that cannot be members of a
consolidated group or consolidatable group
703-25 Australian residence requirements for
trusts
703-30 When is one entity a wholly-owned subsidiary of
another?
703-35 Treating entities as wholly-owned subsidiaries by
disregarding employee shares
703-40 Treating entities held through non-fixed trusts as
wholly-owned subsidiaries
703-45 Entities interposed between the head company and a
subsidiary member of a consolidated group
Choice to consolidate a consolidatable group
703-50 Choice to consolidate a consolidatable
group
Consolidated group created when MEC group ceases to exist
703-55 Creating consolidated groups from certain MEC
groups
Notice of events affecting consolidated group
703-60 Notice of events affecting consolidated
group
[This is the end of the Guide.]
(1) A consolidated group comes into existence:
(a) on the day specified in a choice by a company under
section 703-50 as the day on and after which a
*consolidatable group is taken to be
consolidated; or
(b) as described in section 703-55 (about creating a consolidated
group from a *MEC group).
Note: The day specified in a choice under
section 703-50 as the day on and after which a consolidatable group is
taken to be consolidated may be a day before the choice is
made.
(2) The consolidated group continues to exist until the
*head company of the group:
(a) ceases to be a head company; or
(b) becomes a member of a *MEC
group.
The consolidated group ceases to exist when one of those events happens to
the head company.
(3) At any time while it is in existence, the consolidated
group consists of the *head company and
all of the *subsidiary members (if any) of the
group at the time.
Note: A consolidated group continues to exist despite one or
more entities ceasing to be subsidiary members of the group or becoming
subsidiaries of the group, as long as the events described in
subsection (2) do not happen to the head company. Thus a consolidated group
may come to consist of a head company alone at various times.
(1) A consolidatable group consists of:
(a) a single *head company; and
(b) all the *subsidiary members of the
group.
(2) To avoid doubt, a consolidatable group cannot consist of
a *head company alone.
(1) An entity is a member of a
*consolidated group or
*consolidatable group while the entity
is:
(a) the *head company of the group;
or
(b) a *subsidiary member of the
group.
(2) At a particular time in an income year, an entity is:
(a) a head company if all the requirements in item 1 of
the table are met in relation to the entity; or
(b) a subsidiary member of a
*consolidated group or
*consolidatable group if all the requirements
in item 2 of the table are met in relation to the entity:
|
Head companies and subsidiary members of groups |
|||
|---|---|---|---|
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
|
1 Head company |
The entity must be a company (but not one covered by section 703-20)
that has all or some of its taxable income (if any) taxed at a rate that is or
equals the *general company tax rate |
The entity must be an Australian resident (but not a
*prescribed dual resident) |
The entity must not be a
*wholly-owned subsidiary of another entity that
meets the requirements in columns 2 and 3 of this item or, if it is, it must
not be a subsidiary member of a
*consolidatable group or
*consolidated group |
|
2 Subsidiary member |
The requirements are that: |
The entity must: |
The entity must be a *wholly-owned
subsidiary of the head company of the group and, if there are interposed between
them any entities, the requirement in subsection 703-45(1) must be met |
(1) The object of this section is to specify certain entities that
cannot be *members of a
*consolidated group because of the way their
income is treated for income tax purposes.
(2) An entity of a kind specified in an item of the table cannot be a
*member of a
*consolidated group or a
*consolidatable group at a time in an income
year if the conditions specified in the item exist:
|
Certain entities that cannot be members of a consolidated or
consolidatable group |
||
|---|---|---|
|
Item |
An entity of this kind: |
Cannot be a member of a consolidated group or consolidatable group
if: |
|
1 |
An entity of any kind |
At the time, the total *ordinary income
and *statutory income of the entity is exempt
from income tax under Division 50 |
|
2 |
A company |
The company is a recognised medium credit union (as defined in
section 6H of the Income Tax Assessment Act 1936) for the income
year |
|
3 |
A company |
The company: |
|
4 |
A company |
Assuming the company applied at the time an amount of its assessable income
as described in paragraph 120(1)(c) of the Income Tax Assessment Act
1936, the company could deduct that amount because of that
paragraph |
|
5 |
A company |
The company is a *PDF at the end of the
income year |
|
6 |
A company |
The company is a *film licensed investment
company at the time |
|
7 |
A trust |
The trust is: |
A trust described in an item of the table must meet the requirements
specified in the item to be able to be a
*subsidiary member of a
*consolidated group or a
*consolidatable group at a time in an income
year:
|
Australian residence requirements for trusts |
||
|---|---|---|
|
Item |
A trust of this kind: |
Can be a member of a consolidated group or consolidatable group only if
these requirements are met: |
|
1 |
A trust (except a unit trust) |
The trust must be a resident trust estate for the income year for the
purposes of Division 6 of Part III of the Income Tax Assessment Act
1936 |
|
2 |
A unit trust (except a *corporate unit
trust or a *public trading trust for the income
year) |
The trust must be: |
|
3 |
A *corporate unit trust or a
*public trading trust for the income
year |
The trust must be a resident unit trust (as defined in whichever one of
sections 102H and 102Q of the Income Tax Assessment Act 1936 is
relevant) for the income year |
(1) One entity (the subsidiary entity) is a
wholly-owned subsidiary of another entity (the holding
entity) if all the *membership
interests in the subsidiary entity are beneficially owned by:
(a) the holding entity; or
(b) one or more wholly-owned subsidiaries of the holding entity;
or
(c) the holding entity and one or more wholly-owned subsidiaries of the
holding entity.
(2) An entity (other than the subsidiary entity) is a wholly-owned
subsidiary of the holding entity if, and only if:
(a) it is a wholly-owned subsidiary of the holding entity; or
(b) it is a wholly-owned subsidiary of a wholly-owned subsidiary of the
holding entity;
because of any other application or applications of this section.
Note: This Part also operates in some cases as if an entity
were a wholly-owned subsidiary of another entity, even though the entity is not
covered by the definition in this section because of:
(a) ownership of shares under certain arrangements for
employee shareholding (see section 703-35); or
(b) interposed trusts that are not fixed trusts (see
section 703-40).
(1) The object of this section is to ensure that an entity is not
prevented from being a *subsidiary member of a
*consolidated group or
*consolidatable group just because there are
minor holdings of *shares in a company issued
under *arrangements for employee shareholdings.
(It does not matter whether the company is the entity or is interposed between
the entity and a *member of the
group.)
Note: A company that is prevented from being a subsidiary
member of a consolidated group may be a head company (so there could be 2
consolidated or consolidatable groups, instead of the one that this section
ensures exists).
(2) This Part (except Division 719) operates as if a company that
meets the requirement of subsection (3) at a particular time were a
*wholly-owned subsidiary of an entity (the
holding entity) at the time.
(3) The company must be one that would be a
*wholly-owned subsidiary of the holding entity
at the time if the *shares in the company that
are to be disregarded under subsection (4) did not exist.
(4) Disregard each of the *shares
described in subsection (5) if the total number of those shares is not more
than 1% of the number of ordinary shares in the company.
(5) A *share in the company that is
beneficially owned by an entity may be disregarded under subsection (4)
if:
(a) the entity acquired (as defined in section 139G of the Income
Tax Assessment Act 1936) the share either:
(i) in the circumstances described in subsection 139C(1) or (2) of that
Act; or
(ii) by exercising a right the entity acquired (as so defined) in those
circumstances; and
(b) all the shares in the company available for acquisition in those
circumstances are ordinary shares and all the rights available for acquisition
in those circumstances are rights to acquire ordinary shares; and
(c) if the entity acquired the share in those circumstances—at the
time of the acquisition, at least 75% of the permanent employees (as defined in
section 139GB of that Act) of the employer (as defined in
section 139GA of that Act) were or had earlier been entitled to acquire in
those circumstances:
(i) shares in the company or rights to acquire shares in the company;
or
(ii) shares in a holding company (as defined in section 139GC of that
Act) of the company or rights to acquire such shares; and
(d) the conditions in subsections 139CD(6) and (7) of that Act are met in
relation to the acquisition of the share by the entity; and
(e) the company is not covered by section 139DF of that
Act.
Note: Section 139CD of the Income Tax Assessment Act
1936 sets out certain preconditions for shares and rights acquired under
employee share schemes to be qualifying shares and qualifying rights.
Section 139C of that Act explains when a share or right is acquired under
an employee share scheme. Section 139DF prevents shares and rights relating
to certain companies from being qualifying shares and rights.
(6) The *share may be disregarded under
subsection (4) even though the condition in paragraph (5)(c) is not
met, if:
(a) the conditions in paragraphs (5)(a), (b), (d) and (e) are met;
and
(b) the Commissioner has made a determination under subsection 139CD(8) of
the Income Tax Assessment Act 1936 in relation to the share.
(1) This section operates to ensure that an entity (the test
entity) is not prevented from being a
*subsidiary member of a
*consolidated group or
*consolidatable group just because there is a
trust that is not a *fixed trust interposed
between the test entity and the *head company
of the group.
(2) This Part (except Division 719) operates as if the test entity
were a *wholly-owned subsidiary of the
*head company if the test entity would have
been a wholly-owned subsidiary of the head company had the interposed trust been
a *fixed trust and all its objects been
beneficiaries.
(1) For an entity (the test entity) to be a
*subsidiary member of a
*consolidated group or
*consolidatable group if there are one or more
other entities interposed between the test entity and the
*head company of the group, one of the sets of
circumstances described in subsection (2), (3) or (4) must exist.
Subsidiary members or nominees interposed
(2) One set of circumstances is that each of the interposed entities
either:
(a) is a *subsidiary member of the group;
or
(b) holds *membership interests
in:
(i) the test entity; or
(ii) a subsidiary member of the group interposed between the
*head company of the group and the test
entity;
only as a nominee of one or more entities each of which is a
*member of the group.
Non-resident interposed—test entity is a company
(3) Another set of circumstances is that:
(a) the test entity is a company; and
(b) at least one of the interposed entities is:
(i) a company (a non-resident company) that is a foreign
resident; or
(ii) a trust (a non-resident trust) that does not meet the
requirements in any item of the table in section 703-25; and
(c) each of the interposed entities is:
(i) a *subsidiary member of the group;
or
(ii) a non-resident company; or
(iii) a non-resident trust; or
(iv) an entity that holds *membership
interests in an entity interposed between it and the test entity, or in the test
entity, only as a nominee of one or more entities each of which is a
*member of the group, a non-resident company or
a non-resident trust; or
(v) a partnership, each of the partners in which is a non-resident company
or a non-resident trust; and
(d) the test entity would be a subsidiary member of the group if each
interposed entity that is a non-resident company or non-resident trust were a
subsidiary member of the group.
Non-resident interposed—test entity is a trust or
partnership
(4) Another set of circumstances is that:
(a) the test entity is a trust or partnership; and
(b) one or more of the interposed entities are companies that are
*subsidiary members of the group because the
circumstances in subsection (3) exist; and
(c) the test entity would be a subsidiary member of the group if the
*head company beneficially owned all the
*membership interests beneficially owned by
each company described in paragraph (b).
(1) A company may make a choice in the
*approved form given to the Commissioner within
the period described in subsection (3) that a
*consolidatable group is taken to be
consolidated on and after a day that is specified in the choice and is after
30 June 2002, if the company was the *head
company of the group on the day specified.
Choice is irrevocable
(2) The choice cannot be revoked, and the specification of the day cannot
be amended, after the choice is made under subsection (1).
Period for giving choice to Commissioner
(3) The period for giving the choice to the Commissioner:
(a) starts at the start of the day specified in the choice; and
(b) ends at the end of:
(i) the day on which the company gives the Commissioner its
*income tax return for the first income year
ending after the day specified in the choice; or
(ii) the last day in the period within which the company would be required
to give the Commissioner such a return if it were required to give the
Commissioner such a return.
Choice has no effect after consolidated group ceases to
exist
(4) The choice does not have effect after the
*consolidated group that came into existence
because of the choice ceases to exist. To avoid doubt, this subsection does not
prevent the choice from:
(a) being made by the company at a time when it is not a head company;
or
(b) having effect in relation to a time before the consolidated group
ceased to exist, even if that time is before the choice is made.
Choice does not have effect if it contains wrong
information
(5) The choice does not have effect (and is taken not to have had
effect) if the Commissioner is satisfied that the choice contains information
that is incorrect in a material particular.
Commissioner may give effect to choice despite wrong
information
(6) Subsection (5) does not prevent the choice from having effect
(and being taken to have had effect) if the Commissioner gives the company
written notice that the choice has effect despite the incorrect
information.
Note: Subsection (6) does not let the Commissioner make
the choice effective if it did not have effect because it was not made in
accordance with subsection (1). This could have happened
if:
(a) the choice was not in the approved form (for example
because it did not include information the Commissioner required (whether in the
form or otherwise)); or
(b) the choice was not given to the Commissioner within the
period described in subsection (3); or
(c) the company was not the head company of a consolidatable
group on the day specified in the choice.
Choice does not have effect if company is a member of a MEC
group
(7) The choice does not have effect (and is taken not to have had
effect) if, on the day specified, the company was a member of a
*MEC group.
(1) A *consolidated group comes into
existence at the time a *MEC group ceases to
exist if:
(a) the MEC group included only one
*eligible tier-1 company just before the time;
and
(b) the MEC group ceases to exist only because the company ceases to be an
eligible tier-1 company; and
(c) the company is a *head company as
defined in section 703-15 at the time.
(2) To avoid doubt, the *consolidated
group consists at the time of:
(a) the company (as the *head company of
the consolidated group); and
(b) every entity (if any) that was a
*subsidiary member of the
*MEC group just before that time (as a
subsidiary member of the consolidated group).
(1) Within 28 days of an event described in an item of the table, the
entity described in column 3 of the item must give the Commissioner notice in
the *approved form of the event.
|
Notice of events |
||
|---|---|---|
|
Column 1 Item |
Column 2 If this event happens: |
Column 3 Notice must be given by: |
|
1 |
An entity becomes a *member of a
*consolidated group |
The *head company of the consolidated
group |
|
2 |
An entity ceases to be a *subsidiary
member of a *consolidated group |
The *head company of the group, or the
person who was its public officer just before it ceased to exist if the former
subsidiary member ceases to be a *member of the
group because the head company ceases to exist |
|
3 |
A *consolidated group ceases to
exist |
The company that was the *head company of
the group, or the person who was its public officer just before it ceased to
exist if it ceases to be the head company of the group because it ceases to
exist |
(2) Despite subsection (1), if:
(a) an event described in subsection (1) happens in relation to a
*consolidated group that comes into existence
on the day specified in a choice under section 703-50; and
(b) the event happens more than 28 days before the choice is
made;
the company that makes the choice must give the Commissioner notice in the
*approved form of the event at the same time as
the choice is made.
(3) Despite subsection (1), if:
(a) an event described in subsection (1) happens in relation to a
*consolidated group that comes into existence
at a time under subsection 703-55(1) because a
*MEC group ceased to exist at that time;
and
(b) the *MEC group came into existence
under paragraph 719-5(1)(a) because a notice of choice under section 719-50
is given after that time; and
(c) the event happens more than 28 days before the notice of choice is
given;
the *head company of the consolidated
group must give the Commissioner notice in the
*approved form of the event at the same time as
the notice of choice is given.
[The next Division is Division 705.]
When an entity becomes a subsidiary member of a consolidated group, the tax
cost of its assets is set at a tax cost setting amount that is worked out in
accordance with this Division.
Table of Subdivisions
705-A Basic case: a single entity joining an existing consolidated
group
When an entity becomes a subsidiary member of an existing consolidated
group, the tax cost setting amount for its assets reflects the cost to the group
of acquiring the entity.
Table of sections
Application and object
705-10 Application and object of this
Subdivision
705-15 Cases where this Subdivision does not have
effect
Tax cost setting amount for assets that joining entity brings into
joined group
705-20 Tax cost setting amount worked out under this
Subdivision
705-25 Tax cost setting amount for retained cost base
assets
705-30 What is the joining entity’s terminating
value for an asset?
705-35 Tax cost setting amount for reset cost base
assets
705-40 Reduction in tax cost setting amount for revenue
assets
705-45 Reduction in tax cost setting amount for accelerated
depreciation assets
705-50 Reduction in tax cost setting amount for
over-depreciated assets
705-55 Order of application of sections 705-40, 705-45
and 705-50
How to work out the allocable cost amount
705-60 What is the joined group’s allocable cost
amount for the joining entity?
705-65 Cost of membership interests in the joining
entity—step 1 in working out allocable cost amount
705-70 Liabilities of the joining entity—step 2 in
working out allocable cost amount
705-75 Liabilities of the joining entity—reductions
for purposes of step 2 in working out allocable cost amount
705-80 Liabilities of the joining
entity—reductions/increases for purposes of step 2 in working out
allocable cost amount
705-85 Liabilities of the joining entity—increases for
purposes of step 2 in working out allocable cost amount
705-90 Undistributed, frankable profits accruing to joined
group before joining time—step 3 in working out allocable cost
amount
705-95 Pre-joining time distributions out of certain
profits—step 4 in working out allocable cost amount
705-100 Losses accruing to joined group before joining
time—step 5 in working out allocable cost amount
705-105 Continuity of holding membership
interests—steps 3 to 5 in working out allocable cost
amount
705-110 If joining entity transfers a loss to the head
company—step 6 in working out allocable cost amount
705-115 If head company becomes entitled to certain
deductions—step 7 in working out allocable cost amount
Preservation of application of Subdivision 165-CC (about unrealised
losses)
705-120 Preservation of application of
Subdivision 165-CC (about unrealised losses)
How to work out a pre-CGT factor for assets of joining
entity
705-125 Pre-CGT factor for assets of joining
entity
[This is the end of the Guide.]
Application
(1) This Subdivision has effect, subject to section 705-15, for the
head company core purposes set out in subsection 701-1(2) if an entity (the
joining entity) becomes a
*subsidiary member of a
*consolidated group (the joined
group) at a particular time (the joining time).
Object
(2) The object of this Subdivision is to recognise the
*head company’s cost of becoming the
holder of the joining entity’s assets as an amount reflecting the
group’s cost of acquiring the entity. That amount consists of the cost of
the group’s *membership interests in the
joining entity, increased by the joining entity’s liabilities and adjusted
to take account of the joining entity’s retained profits, distributions of
profits, deductions and losses.
(3) The reason for recognising the *head
company’s cost in this way is to align the costs of assets with the costs
of *membership interests, and to allow for the
preservation of this alignment until the entity ceases to be a
*subsidiary member, in order to:
(a) prevent double taxation of gains and duplication of losses;
and
(b) remove the need to adjust costs of membership interests in response to
transactions that shift value between them, as the required adjustments occur
automatically.
Note: Under Division 711, the alignment is preserved by
recognising the head company’s cost of membership interests in the entity
if it ceases to be a subsidiary member of the group as the cost of its assets
reduced by its liabilities.
This Subdivision does not have effect if any of the following exceptions
applies:
(a) the first exception is where the joining entity becomes a
*member of the joined group because it is a
member of that group at the time it comes into existence as a
*consolidated group;
Note: See Subdivision 705-B for rules about the
treatment of assets if entities become members in circumstances covered by this
exception.
(b) the second exception is where all of the members of another
consolidated group become members of the joined group as a result of the
*acquisition of
*membership interests in the
*head company of the joining group;
Note: See Subdivision 705-C for rules about the
treatment of assets if entities become members in circumstances covered by this
exception.
(c) the third exception is where:
(i) the joining entity and one or more other entities become members of
the joined group as a result of an event that happens in relation to one of
them; and
(ii) the case is not covered by the second exception;
Note: See Subdivision 705-D for rules about the
treatment of assets if entities become members in circumstances covered by this
exception.
(d) the fourth exception is where the joining entity becomes a member of
the joined group where circumstances described in subsection 703-45(3) or (4)
exist.
Note: See Subdivision 705-E for rules about the
treatment of assets if entities become members in circumstances covered by this
exception.
If this Subdivision has effect, for the purposes of item 1 in the
table in section 701-60 (Tax cost setting amount) the
*tax cost setting amount for an asset whose
*tax cost is set at the time the joining entity
becomes a *subsidiary member of the joined
group is worked out under this Subdivision.
(1) This section states what the *tax
cost setting amount is for a *retained cost
base asset.
Australian currency
(2) If the *retained cost base asset is
covered by paragraph (a) or (b) of the definition of that expression and is
not covered by another subsection of this section, its
*tax cost setting amount is equal to the amount
of the Australian currency concerned.
Qualifying securities
(3) If the *retained cost base asset is a
qualifying security (within the meaning of Division 16E of Part III of
the Income Tax Assessment Act 1936), the
*tax cost setting amount for the qualifying
security is instead equal to the joining entity’s
*terminating value for the asset.
Entitlements to pre-paid services etc.
(4) If the *retained cost base asset is
covered by paragraph (c) of the definition of that expression, its
*tax cost setting amount is equal to the amount
of the deductions to which the *head company is
entitled under section 701-5 (the entry history rule) in respect of the
expenditure that gave rise to the entitlement.
Note: If the total amount to be treated as tax cost setting
amounts for retained cost base assets exceeds the joined group’s allocable
cost amount for the joining entity, the head company makes a capital gain equal
to the excess.
Retained cost base asset
(5) A retained cost base asset is:
(a) Australian currency, other than
*trading stock or
*collectables of the joining entity;
or
(b) a right to receive a specified amount of such Australian currency,
other than a right that is a marketable security within the meaning of
section 70B of the Income Tax Assessment Act 1936; or
Example: A debt or a bank deposit.
(c) a right to have something done under an
*arrangement under which:
(i) expenditure has been incurred in return for the doing of the thing;
and
(ii) the thing is required or permitted to be done, or to cease being
done, after the expenditure is incurred.
Trading stock
(1) If an asset of the joining entity is
*trading stock, the joining entity’s
terminating value for the asset is:
(a) if the asset was on hand at the start of the income year in which the
joining time occurs (including because of the operation of
Division 701)—its *value at that
time; or
(b) if paragraph (a) does not apply and the asset is
*livestock that was acquired by natural
increase—the *cost of the asset;
or
(c) in any other case—the amount of the outgoing incurred by the
joining entity in connection with the acquisition of the asset;
increased by the amount of any outgoing forming part of the cost of the
asset that is incurred by the joining entity during its current holding of the
asset.
Qualifying securities
(2) If an asset of the joining entity is a qualifying security (within the
meaning of Division 16E of Part III of the Income Tax Assessment
Act 1936) that is not *trading stock, the
joining entity’s terminating value for the asset is equal to
the amount of consideration that the joining entity would need to receive, if it
were to dispose of the asset just before the joining time, without an amount
being assessable income of, or deductible to, the joining entity under
section 159GS of the Income Tax Assessment Act 1936.
Depreciating assets
(3) If an asset of the joining entity is a
*depreciating asset, the joining entity’s
terminating value for the asset is equal to the asset’s
*adjustable value just before the joining
time.
Other CGT assets
(4) If an asset of the joining entity is a
*CGT asset that is not covered by any of the
above subsections, the joining entity’s terminating value
for the asset is equal to the asset’s
*cost base just before the joining
time.
Other assets
(5) The joining entity’s terminating value for any
other asset that it holds is the amount that would be the asset’s
*cost base just before the joining time if it
were an asset covered by subsection (4).
(1) For each asset of the joining entity (a reset cost base
asset) that is not a *retained cost
base asset or an asset (an excluded asset) covered by
subsection (2), the asset’s *tax
cost setting amount is worked out by:
(a) first working out the joined group’s
*allocable cost amount for the joining entity
in accordance with section 705-60; and
(b) then reducing that amount by the total of the
*tax cost setting amounts in accordance with
section 705-25 for each retained cost base asset (but not below zero);
and
(c) finally, allocating the result to each of the joining entity’s
reset cost base assets (other than excluded assets) in proportion to their
*market values.
Note 1: For an asset consisting of an entitlement to receive
an amount that will be included in assessable income, the market value of the
asset would take into account the tax payable on the amount.
Note 2: If there are no reset cost base assets, the result
is instead treated as a capital loss of the head company.
Excluded assets
(2) An asset is covered by this subsection if, under any of the steps in
the table in section 705-60, the joined group’s
*allocable cost amount for the joining entity
is reduced by an amount in respect of the asset.
Note: An example is an entitlement to a deduction, for which
there is a reduction under step 2 in the table.
Goodwill resulting from ownership and control of the joining
entity
(3) If, just after the joining time, the
*head company has, because of its ownership and
control of the joining entity, a goodwill asset associated with assets or
businesses of the joined group:
(a) for the head company core purposes, the asset’s
*tax cost is set at the joining time at its
*tax cost setting amount; and
(b) for the purpose of doing so:
(i) the asset is taken to be an asset of the joining entity that becomes
an asset of the head company because subsection 701-1(1) (the single entity
rule) applies; and
(ii) it is taken to have a *market value
just before the joining time of an amount equal to its market value just after
the joining time.
Limit on tax cost setting amount
(1) The *tax cost setting amount for a
reset cost base asset to which subsection (2) applies (a revenue
asset) must not exceed the greater of:
(a) the asset’s *market value;
and
(b) the joining entity’s
*terminating value for the asset.
Subsection applies to revenue assets
(2) This subsection applies to a reset cost base asset if, assuming the
*head company were to
*dispose of it after the joining time, any gain
or loss on the disposal would be taken into account in determining the taxable
income or *tax loss of the head company, but
any *capital gain or
*capital loss on the disposal would be
disregarded.
Note: For example, trading stock and depreciating
assets.
Allocation of excess
(3) If there is an excess under subsection (1), it is allocated among
the other reset cost base assets (whether or not revenue assets) other than
excluded assets, so as to increase their *tax
cost setting amounts, in accordance with the following principles:
(a) the allocation is to be in proportion to the
*market values of the assets;
(b) the amount allocated to a revenue asset must not cause its tax cost
setting amount to breach the limit imposed by subsection (1);
(c) any of the excess that cannot be so allocated is to be reallocated, to
the maximum extent possible, among the remaining reset cost base assets (other
than excluded assets) by applying this subsection a further one or more
times.
Note: If any of the excess cannot be allocated, it is
instead treated as a capital loss of the head company.
If:
(a) the joining entity *acquired a
*depreciating asset at or before 11.45 am, by
legal time in the Australian Capital Territory, on 21 September 1999 and
held it continuously until the joining time; and
(b) the asset’s *tax cost setting
amount would be greater than the joining entity’s
*terminating value for the asset; and
(c) the *head company chooses to apply
this section to the asset;
the asset’s tax cost setting amount is reduced so that it equals the
terminating value.
Note 1: A consequence of the choice is that accelerated
depreciation will apply to the asset: see section 701-80.
Note 2: Unlike the position with a reduction in tax cost
setting amount under section 705-40, the amount of the reduction is not
re-allocated among other assets.
Object
(1) The object of this section is to limit deferral of tax on profits that
were not subject to tax because of
*over-depreciation of assets and were
distributed to recipients untaxed because of their entitlement to the
intercorporate dividend rebate.
Reduction by amount of tax deferral resulting from
over-depreciation
(2) If:
(a) the *tax cost setting amount for an
asset that is *over-depreciated at the joining
time would be more than the joining entity’s
*terminating value for the asset; and
(b) before the joining time, the joining entity paid one or more unfranked
or partly franked dividends to recipients entitled to a rebate of income tax
under section 46 or 46A of the Income Tax Assessment Act 1936 on the
dividends; and
(c) there is a tax deferral amount in relation to the dividends under
subsection (3);
the tax cost setting amount for the asset is reduced by the lesser
of the tax deferral amount and the
*over-depreciation, but not so that it becomes
less than the joining entity’s terminating value for the asset.
Tax deferral amount
(3) For the purposes of paragraph (2)(c), there is a tax deferral
amount in relation to the dividends if:
(a) to some extent (whose amount is the qualifying profits
amount) the dividends, so far as they were not franked dividends, were
paid out of profits satisfying the following requirements:
(i) the profits were not subject to income tax because of deductions for
the asset’s decline in value;
(ii) the decline in value represented the
*over-depreciation of the asset;
(iii) the deductions for the decline in value do not form part of a
*tax loss covered by the step 5 amount
mentioned in step 5 in the table in section 705-60; and
(b) to some extent the qualifying profits amount of the dividends was not
distributed by the recipients of the dividends before the joining time directly,
or indirectly through one or more interposed entities, to a taxpayer who was not
entitled to a rebate of income tax under section 46 or 46A of the Income
Tax Assessment Act 1936 on them.
The tax deferral amount is equal to the qualifying profits amount, to the
extent that it was not distributed as mentioned in paragraph (b).
Where asset transferred with roll-over relief
(4) If:
(a) an asset was transferred to the joining entity by another entity;
and
(b) a roll-over under Subdivision 126-B applied to the transfer;
and
(c) the other entity paid one or more dividends that, if paid by the
joining entity, would have satisfied the requirements of paragraphs (2)(b)
and (c) in relation to the asset;
the joining entity is taken for the purposes of subsection (2) to have
paid the dividends.
Assets that, under transitional provisions, effectively were not subject
to subsection (1) when previously brought into a group
(5) If:
(a) before the joining time, the joining entity ceased to be a
*subsidiary member of a
*consolidated group (the original
group), whether or not the current group; and
(b) an asset was continuously held by the joining entity from when it
ceased to be a member of the original group until the joining time;
and
(c) when the entity ceased to be a subsidiary member of the original
group, the *head company of that group made a
choice under the Income Tax (Transitional Provisions) Act 1997 to
increase by an amount (the transitional increase amount) the head
company’s *terminating value for the
asset that was to be used in applying step 1 of the table in section 711-20
of this Act; and
(d) the asset is *over-depreciated at the
joining time;
the *tax cost setting amount for the
asset, in respect of the joining entity becoming a subsidiary member of the
current group, is reduced by the lesser of the transitional increase
amount and the *over-depreciation.
When an asset is over-depreciated
(6) An asset is over-depreciated at a particular time if, at
that time:
(a) the asset is a *depreciating asset;
and
(b) the asset’s *market value
exceeds its *adjustable value;
and
(c) the asset’s *cost
exceeds its adjustable value.
The over-depreciation of the asset then is the lesser
of the 2 excesses (or either of them if they are the same).
Note: Unlike the position with a reduction in tax cost
setting amount under section 705-40, the amount of a reduction under this
section is not re-allocated among other assets.
If more than one of sections 705-40, 705-45 and 705-50
apply:
(a) the *head company may choose the
order in which the sections are to apply; and
(b) if it does not, the order is as follows:
(i) first, section 705-40;
(ii) second, section 705-45;
(iii) third, section 705-50.
Work out the joined group’s allocable cost amount for
the joining entity in this way:
|
Working out the joined group’s allocable cost amount for the
joining entity |
||
|---|---|---|
|
Step |
What the step requires |
Purpose of the step |
|
1 |
Start with the step 1 amount worked out under section 705-65, which is
about the cost of *membership interests in the
joining entity held by *members of the joined
group |
To ensure that the allocable cost amount includes the cost of
*acquiring the membership interests |
|
2 |
Add to the result of step 1 the step 2 amount worked out under
section 705-70, which is about the value of the joining entity’s
liabilities |
To ensure that the joining entity’s liabilities at the joining time,
which are part of the joined group’s cost of acquiring the joining entity,
are reflected in the allocable cost amount |
|
3 |
Add to the result of step 2 the step 3 amount worked out under
section 705-90, which is about undistributed, frankable profits accruing to
the joined group before the joining time |
To increase the allocable cost amount to reflect the undistributed, taxed
profits and so prevent double taxation |
|
4 |
Subtract from the result of step 3 the step 4 amount worked out under
section 705-95, which is about pre-joining time distributions out of
certain profits |
To prevent the allocable cost amount reflecting return of part of the
amount paid to *acquire the
*membership interests in the joining
entity |
|
5 |
Subtract from the result of step 4 the step 5 amount worked out under
section 705-100, which is about certain losses accruing to the joined group
before the joining time |
To prevent: |
|
6 |
Subtract from the result of step 5 the step 6 amount worked out under
section 705-110, which is about losses that the joining entity transferred
to the *head company under
Subdivision 707-A |
To stop the joined group getting benefits both through higher
*tax cost setting amounts for the joining
entity’s assets and through losses transferred to the head
company |
|
7 |
Subtract from the result of step 6 the step 7 amount worked out under
section 705-115, which is about certain deductions to which the
*head company is entitled |
To stop the joined group getting benefits both through the
*tax cost of the joining entity’s assets
being set and through certain tax deductions of the joining entity being
inherited by the head company |
|
8 |
If the remaining amount is positive, it is the joined group’s
allocable cost amount. Otherwise the joined group’s allocable cost amount
is nil. |
|
(1) For the purposes of step 1 in the table in section 705-60, the
step 1 amount is the sum of the following amounts for each
*membership interest that
*members of the joined group hold in the
joining entity at the joining time:
|
Working out the step 1 amount |
||
|---|---|---|
|
Item |
If the market value of the membership interest is... |
The amount is... |
|
1 |
equal to or greater than its *cost
base |
its cost base |
|
2 |
less than its *cost base but greater than
its *reduced cost base |
its *market value |
|
3 |
less than or equal to its *reduced cost
base |
its reduced cost base |
No indexation of cost base of pre-CGT membership interests
(2) If the *membership interest is a
*pre-CGT asset, in working out its
*cost base for the purposes of
subsection (1) no element is indexed.
Adjustment if value shifting or loss transfer provision could
apply
(3) If, on the assumption that the
*members of the joined group had, just before
the joining time, *disposed of their
*membership interests in the joining entity,
the *cost base or the
*reduced cost base of the membership interests
would have been changed by a provision of this Act, then the cost base or
reduced cost base of the membership interests that is to be used in
subsection (1) of this section is instead:
(a) the cost base as it would have been so changed; or
(b) the reduced cost base, as it would have been so changed, but ignoring
the amount of any reduction resulting from the application of subsection
160ZK(5) of the Income Tax Assessment Act 1936.
Note: For example, a change in the cost base or reduced cost
base may be required under provisions that apply where a loss transfer or value
shift involving the joining entity has occurred.
(4) Also, if a provision mentioned in subsection (3) would, because
of events that happened before the joining time, apply to a
*CGT event that happens after the joining time
in relation to the *members’
*membership interests in the joining entity,
the provision does not so apply.
Reduction in cost base under subsection 110-55(7) to be added
back
(5) If, in working out the *reduced cost
base of the *membership interest for the
purposes of subsection (1), a reduction has taken place under subsection
110-55(7) (about certain distributions of pre-acquisition profits), the reduced
cost base is increased by the amount of that reduction.
Rights and options to acquire membership interests
(6) For the purposes of this section, if at the joining time a
*member of the joined group holds a right or
option (including a contingent right or option), created or issued by the
joining entity, to acquire a *membership
interest in the joining entity, that right or option is treated as if it were a
membership interest in the joining entity.
(1) For the purposes of step 2 in the table in section 705-60, the
step 2 amount is worked out by adding up the amounts of each thing (an
accounting liability) that, in accordance with
*accounting standards, or statements of
accounting concepts made by the Australian Accounting Standards Board, is a
liability of the joining entity at the joining time that can or must be
recognised in the entity’s statement of financial position.
Note: Liabilities that the joining entity owes to members of
the joined group would not be excluded even though the standards or statements
require that they be eliminated in consolidated accounts of a parent entity and
its subsidiaries.
Exclusion where transfer of accounting liability
(2) An amount is not to be added for an accounting liability that arises
because of the joining entity’s ownership of an asset if, on
*disposal of the asset, the accounting
liability will transfer to the new owner.
Example: A liability to rehabilitate a mine site, where,
under legislation or a licence, the liability will be transferred to the new
owner on disposal of the mine.
Note: Adjustments reducing or increasing the amount under
this section are made by sections 705-75 to 705-85.
Reduction for future deduction
(1) If some or all of an accounting liability will result in a deduction
to the *head company, the amount to be added
for the accounting liability under subsection 705-70(1) is reduced by the
following amount:
where:
double-counting adjustment means the amount of any reduction
that has already occurred in the accounting liability under subsection 705-70(1)
to take account of the future availability of the deduction.
Reduction for intra-group liabilities
(2) If the amount of an accounting liability of the joining entity that is
owed to a *member of the joined group is more
than the amount applicable under the following table, the amount to be added for
the accounting liability under subsection 705-70(1) instead equals the amount
applicable under the table.
|
Amount applicable |
||
|---|---|---|
|
Item |
If the market value of the member’s asset constituted by the
accounting liability is... |
The amount applicable is... |
|
1 |
equal to or greater than the asset’s
*cost base |
the asset’s cost base |
|
2 |
less than the asset’s *cost base but
greater than its *reduced cost base |
the asset’s *market value |
|
3 |
less than or equal to the asset’s
*reduced cost base |
the asset’s reduced cost base |
Application of subsections 705-65(2) and (4)
(3) Subsections 705-65(2) and (4) apply in relation to references in
subsection (2) of this section to an asset’s
*cost base or
*reduced cost base in a corresponding way to
that in which they apply in relation to references in the table in subsection
705-65(1) to a *membership interest’s
cost base or reduced cost base.
Adjustment for unrealised gains and losses
(1) If:
(a) for income tax purposes, an accounting liability, or a change in the
amount of an accounting liability, (other than one owed to a
*member of the joined group) is taken into
account at a later time than is the case in accordance with
*accounting standards or statements of
accounting concepts made by the Australian Accounting Standards Board;
and
Example: Accrued employee leave entitlements or foreign
exchange gains and losses.
(b) assuming that, for income tax purposes the accounting liability or
change were taken into account at the same time as is the case in accordance
with those standards or statements, the joined group’s allocable cost
amount would be different;
Note: The difference would arise because subsection
705-70(1) includes income tax liabilities and steps 3 and 5 of the table in
section 705-60 are affected by the time at which changes in liabilities are
taken into account for income tax purposes.
then the amount to be added under subsection 705-70(1) for the accounting
liability is:
(c) if the difference is an increase—increased by the amount of the
increase; and
(d) if the difference is a decrease—decreased by the amount of the
decrease.
Use of reliable estimate
(2) In working out for the purposes of subsection (1) an amount at a
particular time or in respect of a particular period, use the most reliable
basis for estimation that is available.
Example: The amount of a change in liability for employee
leave entitlements over a period.
Increase in step 2 amount for employee share interests
(1) If any *membership interest (an
employee share interest) in the joining entity needed to be
disregarded under section 703-35 in order for the joining entity to be a
*wholly-owned subsidiary of the
*head company at the joining time, the step 2
amount worked out under section 705-70 is increased by the sum of the
*market values of those interests, reduced in
each case by the reduction amount (if any) worked out under subsection (2)
of this section.
Reduction amount
(2) There is a reduction amount if the
*market value of the employee share interest at
the time it was *acquired by the employee is
more than the consideration paid or given for its acquisition. The reduction
amount is worked out by multiplying the market value of the employee share
interest at that time by the factor worked out using the formula:
where:
market value of all membership interests means the
*market value of all
*membership interests in the joining entity
just before the employee share interest was
*acquired.
market value of head company’s membership interests
means the *market value, just before the
employee share interest was *acquired, of any
*membership interests that the
*head company held, directly or indirectly in
the joining entity, continuously from that time until the joining
time.
Increase to cover certain rights, options and certain equity
interests
(3) The step 2 amount worked out under section 705-70 is increased
by:
(a) the *market value of any right or
option (including a contingent right or option), created or issued by the
joining entity, to acquire a *membership
interest in the joining entity, where that right or option is held at the
joining time by a person other than a *member
of the joined group; and
(b) the market value of each thing that, in accordance with
*accounting standards, or statements of
accounting concepts made by the Australian Accounting Standards Board, is equity
in the joining entity at the joining time, where the thing is also a
*debt interest.
(1) For the purposes of step 3 in the table in section 705-60, the
step 3 amount is the sum of all fully franked dividends (within the meaning of
subsection 46FA(11) of the Income Tax Assessment Act 1936) that the
entity that is the *head company at the joining
time would have received, on the assumptions in subsection (2) of this
section, in respect of *membership interests
that it held continuously until that time either directly or indirectly through
interposed entities.
Assumptions
(2) The assumptions are that:
(a) the undistributed profits of the joining entity at the joining time,
other than excluded profits (see subsection (3)), had been distributed as
dividends to holders of *membership interests
as those profits were earned; and
(b) the dividends were franked in accordance with section 160AQF of
the Income Tax Assessment Act 1936 to the extent they could be assuming
any income tax that would become payable on those profits was paid as those
profits were earned; and
(c) entities interposed between the *head
company and the joining entity successively distributed any of the fully franked
dividends immediately after receiving them.
Excluded profits
(3) The excluded profits are those that recouped losses of any
*sort that accrued to the joined group before
the joining time.
Loss accruing to the joined group before the joining time
(4) A loss accrued to the joined group before the joining time if and to
the extent that, assuming that as it arose it were instead a profit that was
being earned, a distribution of that profit would have been a distribution made
to the joined group out of profits that accrued to the joined group before the
joining time.
Profit accruing to the joined group before the joining
time
(5) A profit accrued to the joined group before the joining time if, on
the following assumptions:
(a) that it was distributed to holders of
*membership interests as it was earned;
and
(b) that entities interposed between the
*head company and the joining entity
successively distributed any of it immediately after receiving it;
it would have been received by the entity that is the head company at the
joining time, in respect of membership interests that it held continuously until
that time either directly or indirectly through interposed entities.
Use of reliable estimates
(6) In working out:
(a) for the purposes of subsection (2) the amount of income tax that
would become payable on the undistributed profits in respect of a particular
period; or
(b) for the purposes of subsection (4) the amount of a loss that
accrued to the joined group during a particular period; or
(c) for the purposes of subsection (5) the amount of a profit that
accrued to the joined group during a particular period;
use the most reliable basis for estimation that is available.
For the purposes of step 4 in the table in section 705-60, the step
4 amount is the sum of all distributions made by the joining entity before the
joining time that:
(a) the *head company receives directly,
or would receive indirectly if entities interposed between the head company and
the joining entity successively distributed any distribution they received
immediately after receiving it; and
(b) were made out of profits:
(i) that did not accrue to the joined group before the joining time
(see subsection 705-90(5)); or
(ii) that accrued to the joined group before the joining time and recouped
losses of any *sort that accrued to the joined
group before that time (see subsection 705-90(4)).
(1) For the purposes of step 5 in the table in section 705-60, the
step 5 amount is the sum of all losses of any
*sort of the joining entity that:
(a) had not been *utilised by the joining
entity for the income year in which the joining time occurred or any earlier
income year; and
(b) accrued to the joined group before the joining time (see subsection
705-90(4)).
(2) However, a loss is not to be taken into account under
subsection (1) to the extent that, in applying subsection 705-90(2) for the
purpose of working out the step 3 amount in the table in section 705-60,
the loss reduced the amount of the undistributed profits mentioned in that
subsection.
If:
(a) a *membership interest that a
*member of the joined group held in the joining
entity at the joining time was taken under this Act to have been
*acquired by the member for its
*market value at a particular time (the
market value time); or
(b) the *cost base and
*reduced cost base of a membership interest
that a member of the joined group held in the joining entity at the joining time
were, before that time, changed on one or more occasions by this Act so that
they equalled the market value of the membership interest at a particular time
(the last of which times is also the market value time);
then, for the purpose of sections 705-90, 705-95 and 705-100, the
*head company is taken not to have held that
membership interest, either directly or indirectly, before the market value
time.
(1) For the purposes of step 6 in the table in section 705-60, the
step 6 amount is worked out by multiplying the sum of the losses mentioned in
subsection (2) by the *general company tax
rate.
(2) The losses are the joining entity’s losses of any
*sort that:
(a) were not *utilised by the joining
entity for the income year in which the joining time occurred or any earlier
income year; and
(b) did not accrue to the joined group before the joining time (see
subsection 705-90(4)); and
(c) are transferred to the *head company
under Subdivision 707-A; and
(d) are not cancelled under section 707-145.
(1) For the purposes of step 7 in the table in section 705-60, the
step 7 amount is worked out using the following formula:
where:
acquired deductions means all deductions covered by
subsection (2) that are not owned deductions.
owned deductions means the sum of all deductions for which
the following requirements are satisfied:
(a) the deduction is covered by subsection (2);
(b) assuming the expenditure that gave rise to the deduction were instead
a profit that was earned at the time the expenditure was incurred, a
distribution of that profit would have been a distribution made to the joined
group out of profits that accrued to the joined group before the joining time
(see subsection 705-90(5)).
(2) This subsection covers any deduction to which the
*head company becomes entitled under
section 701-5 as a result of the joining entity becoming a
*subsidiary member of the joined group, other
than a deduction for expenditure:
(a) that is, forms part of or reduces, the cost of an asset of the joining
entity that becomes an asset of the head company because subsection 701-1(1)
(the single entity rule) applies; or
(b) to which section 110-40 (about expenditure on assets acquired
before 7.30 pm on 13 May 1997) applies; or
(c) to the extent that, in applying subsection 705-90(2) for the purpose
of working out the step 3 amount in the table in section 705-60, the
expenditure reduced the amount of the undistributed profits mentioned in that
subsection.
Object
(1) The object of this section is to transfer to the assets of the joining
entity any potential application of Subdivision 165-CC (about unrealised
capital and revenue losses) that existed in respect of the
*head company’s
*membership interests in the joining entity
just before the joining time. This is done because the head company’s cost
of becoming the holder of the joining entity’s assets is recognised under
this Division as an amount reflecting the group’s cost of acquiring the
joining entity.
Section applies if potential application of Subdivision 165-CC to
membership interests in joining entity
(2) This section applies if, assuming the
*head company had, just before the joining
time, made a *capital loss or a
*trading stock loss in respect of a
*CGT event that happened to a
*CGT asset consisting of its
*membership interests (the
Subdivision 165-CC membership interests) in the joining
entity, Subdivision 165-CC would apply to the head company.
Subdivision 165-CC becomes potentially applicable to proportion of
assets acquired by head company
(3) If this section applies, then, in applying Subdivision 165-CC for
the head company core purposes, the following percentage of each of the
*CGT assets, that become those of the head
company because subsection 701-1(1) (the single entity rule) applies, is taken
to have been owned by the *head company at the
changeover time mentioned in sections 165-115C and 165-115D:
Entry history rule not to give rise to application of
Subdivision 165-CC
(4) For the *head company core purposes,
section 701-5 (the entry history rule) does not have the effect that
Subdivision 165-CC applies to a *capital
loss or a *trading stock loss in respect of a
*CGT event that happens to any
*CGT asset that becomes that of the head
company because subsection 701-1(1) (the single entity rule) applies.
Object
(1) Because intra-group *membership
interests in the joining entity are disregarded under subsection 701-1(1) (the
single entity rule), the object of this section is to provide a mechanism to
ensure that the benefit of the pre-CGT status of those interests is not lost.
That mechanism involves working out a factor by which the pre-CGT status can be
attached to the joining entity’s assets and then recognised in membership
interests held in an entity that owns the assets on ceasing to be a
*subsidiary member of the joined
group.
Pre-CGT factor to be worked out for certain assets
(2) A pre-CGT factor is worked out under this section for
each asset of the joining entity at the joining time, other than one that, in
accordance with *accounting standards, is a
current asset.
Note: A pre-CGT factor is not worked out for current assets
because they would, in the ordinary course of operations of the joining entity,
be consumed or disposed of within 12 months.
How to work out pre-CGT factor
(3) The pre-CGT factor is the amount (not exceeding 1) worked out by
dividing:
(a) the sum of:
(i) for each *membership interest in the
joining entity held by the *head company that
is a *pre-CGT asset of the head
company—the interest’s *market
value at the joining time; and
(ii) for each membership interest in the joining entity held by a
*subsidiary member that has a pre-CGT
factor—the interest’s market value at the joining time multiplied by
its pre-CGT factor;
by:
(b) the sum of the market values, at the joining time, of all the joining
entity’s assets for which a pre-CGT factor is to be worked out.
Note: The treatment of membership interests in an entity
ceasing to be a member of the joined group as pre-CGT assets of members of the
group could be manipulated to produce too many pre-CGT assets if the pre-CGT
factor of an asset were not limited to 1 by the above
subsection.
[The next Division is Division 707.]
Table of Subdivisions
707-A Transfer of previously unutilised losses to head company
707-B Can a transferred loss be utilised?
707-C Amount of transferred losses that can be utilised
707-D Special rules about losses
A loss made but not utilised by an entity before the time it becomes a
member of a consolidated group is transferred to the head company of the group
at that time if the entity could have utilised the loss had the entity not
become a member of the group.
Table of sections
707-105 Who can utilise the loss?
Objects
707-110 Objects of this Subdivision
Application
707-115 What losses this Subdivision applies
to
Transfer of loss from joining entity to head company
707-120 Transfer of loss from joining entity to head
company
707-125 Modified same business test for companies’
post-1999 losses
707-130 Modified pattern of distributions
test
707-135 Transferring loss transferred to joining entity
because same business test was passed
Effect of transfer of loss
707-140 Effect of transfer of loss
Cancelling the transfer of the loss
707-145 Cancelling the transfer of the loss
What happens if the loss is not transferred?
707-150 Loss cannot be utilised for income year ending after
the joining time
(1) If the loss is transferred, the head company is treated for income
years ending after the transfer as having made the loss, so the head company can
utilise the loss for those income years to the extent permitted by:
(a) the general rules (outside this Part) about an entity utilising a loss
it has made; and
(b) the special rules about transferred losses in the other Subdivisions
of this Division that supplement and modify those general rules.
Note: If the entity from which the loss was transferred
became a subsidiary member of the consolidated group, the entity cannot utilise
the loss for those income years because of section 701-1 (single entity
rule) and section 707-140.
(2) If the loss is not transferred, then, for an income year ending
after the time the entity became a member of the consolidated group, the loss
cannot be utilised by any entity.
Note: The loss will not be transferred if the entity would
not have been able to utilise it or if the transfer is cancelled under
section 707-145.
[This is the end of the Guide.]
(1) The main objects of this Subdivision are:
(a) to provide for the transfer of a loss from an entity (the
joining entity) becoming a
*member of a
*consolidated group to the
*head company of the group (so the head company
may be able to *utilise it), if the joining
entity could have utilised the loss if it had not become a member of the group;
and
(b) to prevent the utilisation by any entity of a loss made by the joining
entity, if the joining entity could not have utilised the loss if it had not
become a member of the group.
Utilising a loss
(2) An entity utilises a loss:
(a) in the case of a *tax loss—to
the extent it is deducted from an amount of the entity’s assessable income
or *exempt income; and
(b) in the case of a *net capital
loss—to the extent that it is applied to reduce an amount of the
entity’s *capital gains; and
(c) in the case of an overall foreign loss in respect of a class of
assessable foreign income (within the meaning of section 160AFD of the
Income Tax Assessment Act 1936)—to the extent that the loss is
taken into account in reducing the entity’s income of that
class.
(1) This Subdivision applies to a loss of any
*sort if:
(a) an entity (the joining entity) becomes a
*member of a
*consolidated group (the joined
group) at a time (the joining time) in an income year (the
joining year); and
(b) the loss was made by the joining entity for an income year ending
before the joining time.
Note 1: If the joining entity had a loss transferred to it
by a previous operation of this Subdivision (when the entity was the head
company of a consolidated group), this Subdivision operates later as if the
joining entity had made the loss. See section 707-140.
Note 2: Section 707-405 may affect the income year
for which the joining entity is treated as having made the loss, if the joining
entity made the loss and the loss is referable to part of an income
year.
(2) This Subdivision applies to the loss only to the extent to which the
loss is not utilised or otherwise reduced for:
(a) an income year ending before the joining time; or
(b) a non-membership period mentioned in section 701-30 that ended
before the joining time.
(1) At the joining time, the loss is transferred from the joining entity
to the *head company of the joined group (even
if they are the same entity), to the extent (if any) that the loss could have
been *utilised by the joining entity for an
income year consisting of the *trial year
if:
(a) at the joining time, the joining entity had not become a
*member of the joined group (but had been a
*wholly-owned subsidiary of the head company if
the joining entity is not the head company); and
(b) the amount of the loss that could be utilised for the trial year were
not limited by the joining entity’s income or gains for the trial
year.
What is the trial year?
(2) The trial year is the period:
(a) starting at the latest of these times:
(i) the time 12 months before the joining time;
(ii) the time the joining entity came into existence;
(iii) the time the joining entity last ceased to be a
*subsidiary member of a
*consolidated group, if the joining entity had
been a member of a consolidated group before the joining time but was not a
*member of a consolidated group just before the
joining time; and
(b) ending just after the joining time.
Same business test involving trial year
(3) When working out whether the joining entity carried on the same
business throughout the *trial year (or a
period including the trial year) as it carried on at a particular time, assume
that the entity carried on at and just after the joining time the same business
that it carried on just before the joining time.
Transfer of loss for income year overlapping trial year
(4) If the loss was made by the joining entity for an income year all or
part of which occurs in the *trial year, the
transfer of the loss under subsection (1) is not prevented by the fact that
the loss was made for that income year.
(1) This section operates if:
(a) the joining entity made the loss for an income year starting after
30 June 1999; and
(b) subsection 165-13(3), 165-15(2) or (3) or 166-5(4) or (5) is relevant
to working out (under subsection 707-120(1)) whether the loss is transferred
from the joining entity.
(2) Work out whether the loss is transferred on the basis that subsection
165-13(3) required the joining entity to satisfy the
*same business test for:
(a) the period (the same business test period) consisting
of:
(i) the *trial year; and
(ii) the income year in which the continuity period ended, if that income
year started before the trial year; and
(b) the time (the test time) just before the end of the
income year for which the loss was made by the joining entity.
Note: Subsection 165-13(2) explains what the continuity
period is. Subdivision 707-B may affect the period for a loss made by the
joining entity because of a previous transfer under this
Subdivision.
(3) Work out whether the loss is transferred on the basis that:
(a) subsection 165-15(2) specified that the period (the same
business test period) for the *same
business test consisted of:
(i) the *trial year; and
(ii) the income year in which the person began to control, or became able
to control, the voting power in the company, if that income year started before
the trial year; and
(b) subsection 165-15(3) required the same business test to be applied to
the company’s business immediately before the time (the test
time) just before the end of the income year for which the loss was made
by the joining entity.
(4) If Subdivision 166-A would apply to the joining entity for an
income year consisting of the *trial year, work
out whether the loss is transferred on the basis that:
(a) subsection 166-5(4) treated the joining entity as having satisfied the
condition in section 165-13 if the joining entity satisfied the
*same business test for the period (the
same business test period) consisting of:
(i) the trial year; and
(ii) the income year described in subsection (5) of this section, if
that income year started before the trial year; and
(b) subsection 166-5(5) required the same business test to be applied to
the *business that the joining entity carried
on at the time (the test time) just before the end of the income
year for which the loss was made by the joining entity.
Note: Subdivision 166-A applies to public listed
companies and their 100% subsidiaries unless they choose that
Subdivision 165-A apply to them without the modifications made by
Subdivision 166-A.
(5) For the purposes of subparagraph (4)(a)(ii), the income year
is:
(a) the income year in which occurred the first time covered by paragraph
166-5(2)(a) or (b) for which there was no
*substantial continuity of ownership of the
joining entity as between the start of the
*test period and that time; or
(b) the income year of the joining entity containing the time at which the
joining entity is taken under subsection 707-210(5) to fail to meet the
condition in section 165-12, if that subsection is relevant to working out
whether the joining entity can *utilise the
loss.
Note 1: Section 707-205 affects the start of the test
period if the joining entity made the loss under a previous operation of this
Subdivision.
Note 2: Section 707-210 is about whether a company can
utilise certain losses transferred to it under this Subdivision from a
company.
(6) Subsection (4) of this section has effect despite subsection
707-210(6).
Note: Subsection 707-210(6) modifies section 166-5 for
working out whether a company can utilise certain losses transferred to it under
this Subdivision from a company.
(1) This section operates for the purpose of working out (under subsection
707-120(1)) whether the loss is transferred from the joining entity, if
section 267-20 in Schedule 2F to the Income Tax Assessment Act
1936 is relevant for that purpose.
Note 1: That section is relevant if the joining entity has
been a non-fixed trust (as defined in that Schedule) at any time in the period
from the start of the income year in which the entity made the loss until the
time it became a subsidiary member of the joined group (and was not an excepted
trust, as defined in that Schedule, at all times in the
period).
Note 2: That section prevents an entity from utilising a tax
loss (and, through section 160AFD of that Act, an overall foreign loss)
unless the entity meets the conditions in subsection 267-30(2) (if applicable)
and section 267-35 in that Schedule by passing the pattern of distributions
test for certain income years.
(2) Section 267-30 in that Schedule has effect as if the income year
mentioned in that section were the joining year, and not the
*trial year.
Note: Section 267-30 in that Schedule requires the
joining entity to pass the pattern of distributions test for the income year
mentioned in that section if that entity distributed income or capital in that
income year or within 2 months after the end of that income
year.
(3) Section 267-35 in that Schedule has effect as if the reference in
that section to an earlier income year were to an income year earlier than the
joining year.
(4) Disregard each distribution (if any) of income or capital (within the
meaning of that Schedule) made by the joining entity after the joining time, so
far as it was made from an amount of the entity’s income or capital
attributable to a time after the joining time, in working out:
(a) whether section 267-30 in that Schedule requires the joining
entity to pass the pattern of distributions test (as defined in that Schedule);
and
(b) whether the joining entity passes that test as required by
section 267-30 or 267-35 in that Schedule.
Note: Disregarding that percentage of a distribution may
affect a test year distribution of income or a test year distribution of
capital, as those terms are defined in section 269-65 in that Schedule, and
thus affect whether the joining entity passes the pattern of distributions test
under section 269-60 in that Schedule.
(1) This section operates if the loss had been transferred to the joining
entity (by a previous operation of this Subdivision) because the entity
from which the loss was transferred carried on during a particular period
the same business as it carried on at a particular time.
(2) The loss is not transferred from the joining entity to the
*head company of the joined group (despite
section 707-120), unless the joining entity satisfies the
*same business test for:
(a) the *trial year (the same
business test period); and
(b) the time (the test time) just before the end of the
income year in which the loss was transferred to the joining entity.
(1) To the extent that the loss is transferred under section 707-120
from the joining entity to the *head company of
the joined group, this Act operates (except so far as the contrary intention
appears) for the purposes of income years ending after the transfer as
if:
(a) the head company had made the loss for the income year in which the
transfer occurs; and
(b) the joining entity had not made the loss for the income year for which
the joining entity actually made the loss.
Head company may utilise loss for income year of transfer
(2) The *head company is not prevented
from *utilising the loss for the income year in
which the transfer occurs merely because this Act operates as if the head
company had made the loss (to the extent of the transfer) for that
year.
Debt forgiveness in income year for which loss is made
(3) If a debt of the *head company of the
joined group is forgiven (as defined in Subdivision 245-B in
Schedule 2C to the Income Tax Assessment Act 1936) in the income
year in which the transfer occurs, subsections 245-105(5) and (6) in that
Schedule operate as if the head company had made the loss for an earlier income
year.
Note: This subsection has the effect that the loss may be
reduced in accordance with one of those subsections by applying the total net
forgiven amount for the income year in which the transfer
occurs.
(1) The *head company of the joined group
may choose to cancel the transfer of the loss.
(2) If the *head company of the joined
group does so, this Act (except this section) operates for all income years
ending after the transfer as if it had not occurred under
section 707-120.
(3) The choice cannot be revoked.
To the extent that the loss is not transferred under
section 707-120 from the joining entity to the
*head company of the joined group, the loss
cannot be *utilised by any entity for an income
year ending after the joining time.
This Subdivision modifies rules about a company maintaining the same
ownership to be able to utilise a loss transferred to it under
Subdivision 707-A, and specifies what things happening before the transfer
are to be taken into account in working out whether the company can utilise the
loss.
Table of sections
Operative provisions
707-205 Modified period for test for maintaining same
ownership
707-210 Utilisation of certain losses transferred from a
company depends on company that made the losses earlier
[This is the end of the Guide.]
(1) This section modifies Divisions 165 and 166 for the purposes of
working out whether a company can *utilise a
*tax loss or
*net capital loss that it made because of a
transfer under Subdivision 707-A.
(2) Subdivision 165-A and Division 166 operate for those
purposes as if the *loss year started at the
time of the transfer.
Note 1: This means that the ownership test period defined by
subsection 165-12(1) and the test period defined by subsection 166-5(1) start at
the time of the transfer.
Note 2: Without this section, those periods would start at
the start of the income year in which the transfer occurred, so events occurring
before the transfer (such as changes in holdings of voting power, rights to
dividends or rights to capital or abnormal trading) could affect whether the
company could utilise the tax loss or net capital loss.
(1) This section has effect for the purposes of working out whether a
company (the latest transferee) can
*utilise for an income year a loss transferred
to it under Subdivision 707-A from a company (the latest
transferor) because:
(a) the latest transferor met the condition in section 165-12;
and
(b) the conditions in one or more of paragraphs 165-15(1)(a), (b) and (c)
did not exist in relation to the latest transferor.
Meeting conditions in section 165-12
(2) The latest transferee is taken to meet the conditions in
section 165-12 for the income year in relation to the loss if and only if
the company (the test company) described in subsection (3)
would have met those conditions for the income year had the circumstances
described in subsection (4) existed.
Note 1: The latest transferee and the test company may be
the same company.
Note 2: Section 707-405 may affect the income year
for which the test company is treated as having made the loss, if the loss is
referable to part of an income year.
(3) The test company is the first company to make the loss. However,
if:
(a) the loss was made by the latest transferor because of one or more
earlier transfers of the loss under Subdivision 707-A from a company to a
company; and
(b) one or more of those earlier transfers occurred because the company
from which that earlier transfer was made satisfied the
*same business test for the
*same business test period and
*test time specified in Division 165 or
166 or section 707-125 (as affected by section 707-205 or
Subdivision 707-D if relevant);
the test company is the company to which the loss was transferred in
the most recent transfer described in paragraph (b).
(4) The circumstances are that:
(a) the test company was not treated by Subdivision 707-A for
the income year as not having made the loss; and
(b) if the test company made the loss apart from that Subdivision and
transferred the loss to itself under that Subdivision—the test company was
not treated by that Subdivision for the income year as having made the
loss for the income year in which the transfer occurred; and
(c) nothing happened, after the time the loss was transferred from the
test company to the *head company of a
*consolidated group, to
*membership interests or voting power in an
entity that was at that time a *subsidiary
member of the group, that would affect whether the test company would meet the
conditions in section 165-12 for the income year; and
(d) if the loss has later been transferred under that Subdivision to the
head company of another consolidated group—nothing happened, after the
time of the later transfer, to membership interests or voting power:
(i) in the later transferor; or
(ii) in an entity that was at that time a subsidiary member of that other
group interposed between the later transferor and the head company;
that would affect whether the test company would meet the conditions in
section 165-12 for the income year.
Failing to meet conditions in section 165-12
(5) The latest transferee is taken to fail to meet a condition in
section 165-12 only at:
(a) the first time the test company would have failed to meet the
condition had the circumstances described in subsection (4) existed;
or
(b) the test time described in subsection 166-5(5) for the test company,
if Division 166 is relevant to working out whether the test company could
have *utilised the loss had the circumstances
described in subsection (4) existed.
Same business test applying to latest transferee under
Division 166
(6) If subsection 166-5(4) affects whether the latest transferee can
*utilise the loss for the income year because
the latest transferee is a *listed public
company or a *100% subsidiary of one for the
year, subsection 166-5(5) operates as if it required the
*same business test to be applied to the
*business the latest transferee carried on just
before the time described in subsection (5) of this section.
If the test company made the loss because of a transfer
(7) If the test company made the loss because of a transfer under
Subdivision 707-A from another entity, Divisions 165 and 166 operate
in relation to the test company for the purposes of subsection (2) as if
the test company’s *loss year started at
the time of the transfer.
Losses transferred to the head company of a consolidated group under
Subdivision 707-A can be utilised for an income year only against a
fraction of the income or gains remaining after the company has utilised other
losses and deductions.
Table of sections
Object
707-305 Object of this Subdivision
How much of a transferred loss can be utilised?
707-310 How much of a transferred loss can be
utilised?
707-315 What is a bundle of
losses?
707-320 What is the available fraction for a
bundle of losses?
707-325 Modified market value of an entity
becoming a member of a consolidated group
707-330 Losses transferred from former head
company
707-335 Limit on utilising transferred losses if
circumstances change during income year
707-340 Utilising transferred losses while exempt income
remains
707-345 Other provisions are subject to this
Subdivision
[This is the end of the Guide.]
(1) The main object of this Subdivision is to limit, in a way that gives
effect to the principles in subsections (2) and (3), the amount of losses
transferred under Subdivision 707-A that can be
*utilised for an income year by the
transferee.
(2) One principle is that the transferee is to
*utilise the transferred losses for an income
year only to the extent to which it has income or gains for the income year
remaining after reduction by its other losses and deductions.
(3) The other principle is that the amount of a transferred loss that the
transferee can *utilise is to reflect the
amount of the loss that the transferor could have
*utilised for the income year if the transferor
of the loss (whether the original maker of the loss or not) had not
become a *member of a
*consolidated group at the time of the
transfer.
(4) To give effect to those principles, this Subdivision operates on the
assumption that, if each transferor of a loss to the transferee had not become a
*member of a
*consolidated group at the time of the
transfer:
(a) all the transferors of transferred losses to the transferee would have
made income or gains for the year whose total did not exceed the
transferee’s income or gains for the year remaining after reduction by its
other losses and deductions; and
(b) a particular transferor’s income or gains for the year would
have equalled a fraction of the transferee’s income or gains for the year
remaining after reduction by its other losses and deductions.
(5) The fraction is worked out by reference to the transferor’s
market value at the time of the transfer (on the assumption that market value
reflects capacity to generate income or gains in future).
(1) This section limits the amount of losses in a particular
*bundle of losses transferred under
Subdivision 707-A that can be *utilised by
the transferee. The limit is set by reference to the
*available fraction for the bundle.
Note: Section 707-335 of this Act and
section 707-350 of the Income Tax (Transitional Provisions) Act 1997
set different limits on utilising losses in a bundle of losses in certain
circumstances.
Basic rule
(2) The transferee cannot *utilise more
of the losses in the *bundle than the
transferee would have been able to utilise (apart from this section) under the
conditions in subsections (3), (4) and (5).
(3) The first condition is that the only amount of the transferee’s
income or gains (if any) of a kind described in column 1 of an item of the table
for the income year is the *available fraction
of the amount worked out as described in column 2 of the item having regard
to:
(a) the transferee’s income or gains for the income year apart from
this section; and
(b) the transferee’s deductions for the income year and losses,
except losses transferred to the transferee under
Subdivision 707-A.
|
Income and gains |
|
|---|---|
|
Column 1 |
Column 2 |
|
1 *Capital gains |
The result of: (as appropriate) for the transferee and the income year |
|
2 Assessable foreign income of a particular class, as defined in
section 160AFD of the Income Tax Assessment Act 1936 |
The transferee’s assessable foreign income of the class for the
income year reduced by the total of the transferee’s foreign income
deductions (if any), as defined in that section, for the income year in relation
to the class |
|
3 *Exempt film income |
The transferee’s *net exempt film
income for the income year remaining after deduction of the transferee’s
*film losses (if any) |
|
4 *Assessable film income |
The transferee’s *net assessable
film income for the income year remaining after deduction of the
transferee’s *film losses (if
any) |
|
5 *Exempt income other than
*exempt film income and
*excluded exempt income |
The amount of the transferee’s *net
exempt income for the income year that would have remained after deducting from
it the transferee’s *tax losses (if any),
assuming the amount of that income were what it would have been had the
transferee not had *exempt film income
for the year |
|
6 Assessable income that is not attributable to
*capital gains, is not assessable foreign
income as defined in section 160AFD of the Income Tax Assessment Act
1936 and is not *assessable film
income |
The amount (if any) that would have been the transferee’s taxable
income (if any) for the income year if the transferee had not had for the
income year: |
(4) The second condition is that once the amounts of the
transferee’s income or gains have been worked out under
subsection (3) they are not reduced by:
(a) deductions, or losses, other than losses in the
*bundle; or
(b) taxes or expenses described in subsection 375-805(4) (which is about
*net exempt film income).
Note: One of the effects of subsection (4) is that, for
working out how much of a film loss in the bundle can be deducted from the
transferee’s net exempt film income or net assessable film
income:
(a) the transferee’s net exempt film income will be
the same as its exempt film income worked out under subsection (3);
and
(b) the transferee’s net assessable film income will
be the same as its assessable film income worked out under
subsection (3).
(5) The third condition is that once the amounts of the transferee’s
*exempt income have been worked out under
subsection (3), assume that the transferee had no losses, outgoings or
taxes described in subsection 36-20(1) (which is about
*net exempt income), in working out how much of
a *tax loss in the
*bundle can be deducted from the
transferee’s net exempt income.
(1) A bundle of losses comes into existence at the time (the
initial transfer time) a loss of any
*sort that has not previously been transferred
under Subdivision 707-A is transferred under that Subdivision from an
entity (the real loss-maker) to the
*head company of a
*consolidated group (the joined
group).
(2) At the initial transfer time, the bundle consists of
every loss (regardless of its *sort)
that:
(a) is transferred at that time under that Subdivision from the real
loss-maker to the *head company of the joined
group; and
(b) has not been transferred under that Subdivision before that
time.
Note: For certain purposes, section 707-327 of the
Income Tax (Transitional Provisions) Act 1997 treats the bundle as
including certain other losses too.
(3) The bundle still exists at a later time if it includes
at that later time at least one loss of any
*sort that could be
*utilised or otherwise reduced by an entity for
an income year ending after that time (even if one or more losses have ceased to
be included in the bundle before that later time).
Note: A bundle continues to exist even if the losses in it
are transferred again under Subdivision 707-A after the initial transfer
time.
(4) A loss ceases to be included in a
*bundle at the first time for which it is true
that the loss cannot be *utilised or otherwise
reduced by any entity for an income year ending after that time.
(1) The available fraction for a
*bundle of losses at a time is:
where:
transferee’s adjusted market value at the initial transfer
time means the amount that would be the market value, at the initial
transfer time, of the transferee to which the losses in the
*bundle were transferred at that time
if:
(a) the transferee did not have a loss of any
*sort for an income year ending before that
time; and
(b) the balance of the transferee’s
*franking account were nil at that
time.
Note: The value for the transferee will be worked out on the
basis that subsidiary members of the consolidated group headed by the transferee
are part of the transferee, because of section 701-1 (the single entity
rule).
(2) However, if an event described in an item of the table happens, the
available fraction for the
*bundle is reduced or maintained just after the
event by multiplying it by the factor identified in the item:
|
Factors affecting the available fraction |
||
|---|---|---|
|
Item |
Event |
Factor |
|
1 |
One or more losses in the *bundle are
transferred for the second or subsequent time |
The lesser of 1 and this fraction: |
|
2 |
At the same time as the losses in the
*bundle were most recently transferred, losses
in one or more other bundles were transferred from the same transferor to the
same transferee, and the losses in the bundle or one of the other bundles had
not been transferred before |
The result of dividing the lesser of: by the sum of the available fractions for all the bundles (apart from this
item applying to transfers at the time) |
|
3 |
The company to which the losses in the
*bundle were most recently transferred has
transferred to it at a later time losses in one or more other bundles |
|
|
4 |
There is an increase in the market value of the company to which the losses
in the *bundle were most recently transferred,
because of an event described in subsection 707-325(4) (but not covered by
subsection 707-325(5)) |
|
|
5 |
The available fractions (apart from this item) for all the
*bundles of losses most recently made by the
company that most recently made the losses in the bundle total more than
1.000 |
|
(3) If the transfer under Subdivision 707-A of one or more losses in
a *bundle causes events described in 2 or more
items of the table in subsection (2) to happen and require calculations of
the available fraction for that bundle and for one or more other
bundles:
(a) make the calculations required by those items in the order in which
the items appear in the table; and
(b) take account of the results of a calculation under an earlier item in
making a calculation under a later item.
(4) The available fraction for a
*bundle of losses is worked out to 3 decimal
places, rounding up if the fourth decimal place is 5 or more.
Subsections (1) and (2) have effect subject to this subsection.
(5) If, apart from this subsection, the available fraction
for a *bundle of losses would need to be worked
out by dividing a number by 0, work out the available fraction by dividing the
number by 1.
(6) The available fraction for a
*bundle of losses is 0 if, apart from this
subsection, it would be negative.
Basic rule
(1) The modified market value of an entity that becomes a
*member of a
*consolidated group at a particular time is the
amount that would be the market value of the entity at that time if:
(a) the entity had no loss of any *sort
for any income year, and the balance of its
*franking account at that time were nil;
and
(b) the *subsidiary members of the group
at that time were separate entities and not just parts of the
*head company of the group; and
(c) the entity’s market value did not include an amount
attributable (directly or indirectly) to a
*membership interest in a member of the group
(other than the entity):
(i) that is a *corporate tax entity;
or
(ii) that transferred a loss under Subdivision 707-A to the head
company of the group at or before that time; and
(d) the contribution to the entity’s market value made by a trust
(other than one that is a member described in paragraph (c)) were limited
to the amount attributable to the entity’s
*fixed entitlements (if any) at that time to
income or capital of the trust that is not attributable (directly or
indirectly) to a membership interest in such a member.
Note 1: Section 707-330 affects the modified market
value of an entity that becomes a subsidiary member of the consolidated group,
if the entity was the head company of another consolidated group just
beforehand.
Note 2: Section 707-325 of the Income Tax
(Transitional Provisions) Act 1997 provides for an entity’s modified
market value to be increased in certain circumstances for the purposes of
working out the available fraction for a bundle of losses transferred from the
entity.
Rule to prevent inflation of modified market value
(2) However, if:
(a) one or more of the events described in subsection (4) occurred in
the 4 years before the time; and
(b) the amount worked out under subsection (1) exceeds what it
would have been if none of those events had occurred;
the modified market value of the entity at the time is the
amount worked out under subsection (1), reduced by the amount worked out
under subsection (3).
(3) The amount of the reduction is the lesser of:
(a) the excess described in paragraph (2)(b); and
(b) the total increase in the market value of the entity that occurred
immediately after each event mentioned in paragraph (2)(a) because of the
event.
(4) These are the events:
(a) an injection of capital into the entity or an entity that was an
*associate of the entity (or of the trustee of
the entity, if the entity is a trust) at the time of the injection;
(b) a transaction that:
(i) did not take place at arm’s length; and
(ii) involved the entity or an entity that was an associate of the entity
(or of the trustee of the entity, if the entity is a trust) at the time of the
transaction.
(5) For the purposes of paragraph (2)(a), disregard an injection of
capital if, and only if, it is made:
(a) into a *listed public company through
a *dividend reinvestment
*scheme involving the issue of a
*share in the company to an entity that held a
share in the company before the injection; or
(b) in association with the acquisition of a
*share in a company in relation to
which:
(i) the conditions in subsection 703-35(5) are met; or
(ii) the conditions in paragraphs 703-35(5)(a), (b), (d) and (e) are met
and in relation to which the Commissioner has made a determination under
subsection 139CD(8) of the Income Tax Assessment Act 1936.
Note: Section 703-35 of this Act and section 139CD
of the Income Tax Assessment Act 1936 deal with shares acquired under
arrangements for employee shareholdings.
(1) This section has effect for working out the
*available fraction for a
*bundle of losses if:
(a) an entity (the ex-head company) becomes a
*subsidiary member of a
*consolidated group (the bigger
group) at a time (the joining time); and
(b) just before the joining time the ex-head company was the
*head company of another consolidated group
(the old group); and
(c) at the joining time the losses are transferred under
Subdivision 707-A from the ex-head company to the head company of the
bigger group.
(2) Work out the ex-head company’s
*modified market value or market value as if
each *member of the bigger group that had been
a *subsidiary member of the old group just
before the joining time were a part of the ex-head company, and not a separate
member of the bigger group, when the transfer occurred.
(3) Also, work out the ex-head company’s
*modified market value as if each
*subsidiary member of the old group had been a
part of the ex-head company while it was a subsidiary member of the old
group.
(1) This section limits the amount of losses in a particular
*bundle of losses transferred under
Subdivision 707-A that can be *utilised by
the transferee for an income year if:
(a) the losses in the bundle are transferred to the transferee from
another entity after the start of the income year; or
(b) the value of the *available fraction
for the bundle changes at a time within the period (the transferee’s
loss-holding period) described in subsection (2).
(2) The transferee’s loss-holding period:
(a) starts at the start of the income year or, if the losses in the
*bundle were transferred to the transferee from
another entity during the income year, at the time of the transfer;
and
(b) ends when one of these events occurs:
(i) the income year ends;
(ii) the transferee becomes a *subsidiary
member of a *consolidated group.
(3) The transferee cannot *utilise for
the income year more of the losses than is reasonable having regard
to:
(a) the method in section 707-310 for working out the maximum amount
of the losses the transferee could utilise for the income year (apart from this
section); and
(b) the number of days in the transferee’s loss-holding period;
and
(c) the value or values of the *available
fraction for the *bundle during the
transferee’s loss-holding period; and
(d) the number of days in the transferee’s loss-holding period for
which the available fraction for the bundle has a particular value;
and
(e) the principle that, if the transferee transferred the losses to itself
under Subdivision 707-A after the start of the income year, its utilisation
of the losses should, for the part of the transferee’s loss-holding period
before the transfer, be affected by the initial value of the available fraction
for the bundle; and
(f) any other relevant matters.
(4) Section 707-310 has effect subject to this section.
Transferred film losses and net exempt film income
(1) If:
(a) the transferee of *film losses in a
*bundle of losses has deducted from its
*net exempt film income for an income year an
amount of those losses that:
(i) is equal to the amount of *exempt
film income worked out under subsection 707-310(3) for the transferee and the
bundle; or
(ii) if section 707-335 affects the transferee’s utilisation of
losses in the bundle—is reasonable, having regard to that section;
and
(b) the transferee still has net exempt film income for the year and film
losses remaining in the bundle;
the fact the transferee still has net exempt film income does not stop it
deducting film losses remaining in the bundle from its
*net assessable film income for the
year.
Transferred tax losses and net exempt income
(2) If:
(a) the transferee of *tax losses (other
than *film losses) in a
*bundle of losses has deducted from its
*net exempt income for an income year an amount
of its tax losses (other than film losses) in the bundle that:
(i) is equal to the amount of *exempt
income worked out under subsection 707-310(3) for the transferee and the bundle;
or
(ii) if section 707-335 affects the transferee’s utilisation of
losses in the bundle—is reasonable, having regard to that section;
and
(b) the transferee still has net exempt income for the year and tax losses
(other than film losses) remaining in the bundle;
the fact the transferee still has net exempt income does not stop it
deducting tax losses (other than film losses) remaining in the bundle from its
assessable income for the year.
Limit on deduction
(3) This section does not allow the deduction for an income year of an
amount of losses in a *bundle so as to exceed
the limit set by section 707-310 or 707-335 on
*utilisation for the year of losses of that
*sort in the bundle.
The rules in this Subdivision are additional to the provisions of this
Act about *utilising losses that are outside
this Subdivision. Those provisions have effect subject to this
Subdivision.
Table of sections
707-400 Head company’s business before and after
consolidation not compared
707-405 Modified operation of other
provisions
(1) If:
(a) the *same business test applies to a
company that becomes a *head company of a
*consolidated group at a time; and
(b) apart from this section, the same business test period would start
before that time and end after it;
the same business test period starts at that time (and ends
when it would end apart from this section), for the purposes of that application
of the same business test.
(2) Subsection (1) does not apply for the purposes of working out
whether the company can transfer to itself a loss under
section 707-120.
(1) If:
(a) an entity becomes a *member of a
*consolidated group at a time; and
(b) the entity makes a non-membership period loss described in
section 701-30 for a non-membership period described in that section that
ends before the time;
the other sections of this Division operate as if the loss had been made by
the entity for an income year starting at the start of the period and ending at
the end of the period.
(2) Subsection 701-30(7) has effect subject to this section.
[The next Division is Division 709.]
Table of Subdivisions
709-A Franking accounts
Only the head company of a consolidated group has an operating franking
account. The subsidiary members’ franking accounts do not operate while
they are subsidiary members. Debits or credits that would otherwise arise in
subsidiary members’ franking accounts arise instead in the head
company’s franking account.
Table of sections
Object
709-55 Object of this Subdivision
Treatment of franking accounts at joining time
709-60 Nil balance franking account for joining
entity
Treatment of subsidiary member’s franking account
709-65 Subsidiary member’s franking account does not
operate
Treatment of head company’s franking account
709-70 Credits arising in head company’s franking
account
709-75 Debits arising in head company’s franking
account
Franking distributions by subsidiary member
709-80 Subsidiary member’s distributions on employee
shares taken to be distributions by head company
709-85 Non-share distributions by subsidiary members taken
to be distributions by head company
[This is the end of the Guide.]
The object of this Subdivision is for each
*consolidated group to operate what is in
substance a single *franking account, by
ensuring that:
(a) there is a nil balance in the franking accounts of entities becoming
*subsidiary members of the group; and
(b) the franking accounts of those subsidiary members do not operate while
they are subsidiary members; and
(c) debits or credits that would otherwise arise in the franking accounts
of the subsidiary members arise instead in the franking account of the
*head company of the group; and
(d) the head company is the only *member
of the group that can frank distributions.
(1) This section operates if an entity (the joining entity)
becomes a *subsidiary member of a
*consolidated group at a time (the
joining time).
(2) If the joining entity’s
*franking account is in surplus just before the
joining time:
(a) a debit equal to the *franking
surplus arises at the joining time in the joining entity’s franking
account; and
(b) a credit equal to the franking surplus arises at the joining time in
the franking account of the *head company of
the group.
(3) If the joining entity’s
*franking account is in deficit just before the
joining time:
(a) a credit equal to the *franking
deficit arises at the joining time in the joining entity’s franking
account; and
(b) the joining entity is liable to pay
*franking deficit tax as if the joining
entity’s income year had ended just before the joining time; and
(c) despite item 6 of the table in section 160-115, a credit
does not arise under that item in the joining entity’s franking account
because of that liability.
The *franking account of an entity that
is a *subsidiary member of a
*consolidated group does not operate during the
period:
(a) beginning just after the entity becomes a subsidiary member of the
group; and
(b) ending when the entity ceases to be a subsidiary member of the
group.
(1) This section operates if a credit would arise in the
*franking account of a
*subsidiary member of a
*consolidated group at a time (the
crediting time) apart from section 709-65.
(2) A credit arises in the *franking
account of the *head company of the group at
the crediting time.
Note: A credit can also arise in the head company’s
franking account at any time under section 160-115.
(3) The amount of the credit is the same as the amount of the credit that
would arise in the *franking account of the
*subsidiary member.
(4) This section does not apply to a credit arising in the
*subsidiary member’s
*franking account under paragraph
709-60(3)(a).
Note: Such a credit arises if the entity that became the
subsidiary member had a deficit in its franking account just before the time it
became the subsidiary member. The credit equals the deficit, creating a nil
balance in the account from that time.
(1) This section operates if a debit would arise in the
*franking account of a
*subsidiary member of a
*consolidated group at a time (the
debiting time) apart from section 709-65.
(2) A debit arises in the *franking
account of the *head company of the group at
the debiting time.
Note: A debit can also arise in the head company’s
franking account at any time under section 160-130.
(3) The amount of the debit is the same as the amount of the debit that
would arise in the *franking account of the
*subsidiary member.
(4) This section does not apply to a debit arising in the
*subsidiary member’s
*franking account under paragraph
709-60(2)(a).
Note: Such a debit arises if the entity that became the
subsidiary member had a surplus in its franking account just before the time it
became the subsidiary member. The debit equals the surplus, creating a nil
balance in the account from that time.
(1) This section operates if:
(a) a *subsidiary member of a
*consolidated group makes a
*frankable distribution; and
(b) the distribution is made because an entity (the
shareholder) owns a *share in the
subsidiary member; and
(c) the share must be disregarded under subsection 703-35(4);
and
(d) the distribution is made to the shareholder, or to another entity
because the shareholder owns the share; and
(e) the entity to which the distribution is made is not a
*member of the group.
Note: Subsection 703-35(4) requires certain shares held
under employee share schemes to be disregarded.
(2) Part 3-6 operates as if the
*distribution were a
*frankable distribution made by the
*head company of the group to a
*member of the head company.
Note: Part 3.6 deals with imputation.
(1) This section operates if:
(a) an entity holds a *non-share equity
interest in a *subsidiary member of a
*consolidated group; and
(b) the subsidiary member makes a
*non-share distribution to the entity as holder
of the interest; and
(c) the distribution is a *frankable
distribution; and
(d) the entity to which the distribution is made is not a
*member of the group.
(2) Part 3-6 operates as if the
*distribution were a
*frankable distribution made by the
*head company of the group to a
*member of the head company.
Note: Part 3.6 deals with imputation.
[The next Division is Division 711.]
If an entity ceases to be a subsidiary member of a consolidated group, the
tax cost setting amount for the group’s membership interests in the entity
reflects the group’s cost for the entity’s net assets.
Table of sections
Application and object of this Division
711-5 Application and object of this
Division
Tax cost setting amount for membership interests etc.
711-10 Tax cost setting amount worked out under this
Division
711-15 Tax cost setting amount where no multiple
exit
711-20 What is the old group’s allocable cost amount
for the leaving entity?
711-25 Terminating values of assets that the leaving entity
takes with it—step 1 in working out allocable cost amount
711-30 What is the head company’s terminating value
for an asset?
711-35 If head company becomes entitled to certain
deductions—step 2 in working out allocable cost amount
711-40 Liabilities owed to the leaving entity by members of
the old group—step 3 in working out allocable cost amount
711-45 Liabilities etc. owed by the leaving
entity—step 4 in working out allocable cost amount
711-50 Adjustment to allocable cost amount to ensure effect
of Subdivision 165-CC not avoided—step 5 in working out allocable
cost amount
711-55 Tax cost setting amount for membership interests
where multiple exit
711-60 Membership interests treated as potentially subject
to Subdivision 165-CC (about unrealised losses)
711-65 Membership interests treated as having been acquired
before 20 September 1985—simple case
711-70 Membership interests treated as having been acquired
before 20 September 1985—multiple exit case
[This is the end of the Guide.]
Application
(1) This Division has effect:
(a) for the head company core purposes set out in subsection 701-1(2);
and
(b) for the entity core purposes set out in subsection 701-1(3);
if an entity (the leaving entity) ceases to be a
*subsidiary member of a
*consolidated group (the old
group) at a particular time (the leaving time). However,
this Division does not have effect if the leaving entity ceases to be a
subsidiary member where Subdivision 705-C (about the old group joining
another consolidated group) has effect.
Object
(2) The object of this Division is, when entities cease to be
*subsidiary members, to preserve the alignment
of the *head company’s costs for
*membership interests in entities and their
assets that is established when entities become subsidiary members.
Note: The reasons for preserving this alignment are set out
in subsection 705-10(3).
(3) This is achieved by recognising the
*head company’s cost for those interests,
just before the leaving time, as an amount equal to the cost of the leaving
entity’s assets at the leaving time reduced by the amount of its
liabilities.
(4) If multiple entities cease to be
*subsidiary members at the same time, the cost
of any *membership interests that one holds in
another is treated in a similar way.
If this Division applies, the amount of the following is worked out under
the Division:
(a) the *tax cost setting amount for the
purposes of item 2 in the table in section 701-60 for each
*membership interest in the leaving entity that
*members of the old group held; and
(b) if 2 or more entities cease to be
*subsidiary members of the group at the same
time because of an event happening in relation to one of them—the tax cost
setting amount for the purposes of item 4 in the table in that section for
each membership interest that the leaving entity holds in any of the other
entities.
(1) The *tax cost setting amount for each
*membership interest in the leaving entity that
*members of the old group held, where paragraph
711-10(b) does not apply, is worked out by:
(a) first, working out the old group’s
*allocable cost amount for the leaving entity
in accordance with section 711-20; and
(b) next, if there is more than one class of membership interests in the
leaving entity—allocating the allocable cost amount to each class in
proportion to the *market value of all of the
membership interests in the class; and
(c) finally, allocating the result under paragraph (a) or (b) to each
of the membership interests, or membership interests in the class, by dividing
the result by the number of those membership interests.
Rights and options to acquire membership interests
(2) For the purposes of this section, if at the leaving time a
*member of the old group holds a right or
option (including a contingent right or option), created or issued by the
leaving entity, to acquire a *membership
interest in the leaving entity, that right or option is treated as if:
(a) it were a membership interest in the leaving entity; and
(b) it were of a different class than any other membership interest in the
leaving entity.
(1) Work out the old group’s allocable cost amount for
the leaving entity in this way:
|
Working out the old group’s allocable cost amount for the leaving
entity |
||
|---|---|---|
|
Step |
What the step requires |
Purpose of the step |
|
1 |
Start with the step 1 amount worked out under section 711-25, which is
about the *terminating values of assets that
the leaving entity takes with it when it ceases to be a
*subsidiary member. |
To ensure that the allocable cost amount includes the cost of the
assets |
|
2 |
Add to the result of step 1 the step 2 amount worked out under
section 711-35, which is about the value of deductions inherited by the
leaving entity that are not reflected in the
*terminating value of the assets that the
leaving entity takes with it. |
To ensure that the value of the deductions is reflected in the allocable
cost amount. |
|
3 |
Add to the result of step 2 the step 3 amount worked out under
section 711-40, which is about liabilities owed by
*members of the old group to the leaving entity
at the leaving time. |
To ensure that the liabilities, which are not recognised while the leaving
entity is taken to be part of the *head company
by subsection 701-1(1), are reflected in the allocable cost amount. |
|
4 |
Subtract from the result of step 3 the step 4 amount worked out under
section 711-45, which is about: |
To ensure that the allocable cost amount is reduced to reflect the
liabilities and the *market value of the
membership interests. |
|
5 |
If section 711-50 (about unrealised net losses) applies, subtract the
step 5 amount mentioned in subsection (2) of that section. |
To ensure that the *head company cannot
avoid denial of losses by *disposing of assets
through a leaving entity instead of by direct sale etc. |
|
6 |
If the amount remaining after step 5 is positive, it is the old
group’s allocable cost amount for the leaving entity. Otherwise the old
group’s allocable cost amount is nil. |
|
Note: If the amount remaining after step 5 is negative, the
head company is taken to have made a capital gain equal to the
amount.
Recalculation in order to work out amount of capital loss
(2) If it is necessary to work out whether the
*head company makes a capital loss for a
*CGT event that happens at or after the leaving
time in relation to any of the *membership
interests, the old group’s allocable cost amount for the leaving entity is
instead worked out as if the head company’s
*terminating value for any asset covered
by subsection 705-30(4) (as it applies for the purposes of section 711-30)
were instead equal to the asset’s
*reduced cost base just before the leaving
time.
(1) For the purposes of step 1 in the table in subsection 711-20(1), the
step 1 amount is worked out by adding up the
*head company’s
*terminating values of all the assets that the
head company holds at the leaving time because the leaving entity is taken by
subsection 701-1(1) (the single entity rule) to be a part of the head
company.
Goodwill
(2) If loss of control and ownership of the leaving entity by the
*head company would decrease the
*market value of the goodwill associated with
assets or businesses of the old group (other than those of the leaving entity),
the head company’s *cost base of the
asset consisting of goodwill that it holds at the leaving time because of its
control and ownership of the leaving entity is added to the step 1
amount.
Note: If the asset arose because the head company acquired
control and ownership of a joining entity, subsection 705-35(3) would have
applied in relation to the joining entity. The asset could also have arisen e.g.
because the head company acquired a business from an entity without acquiring
the entity.
(1) The *head company’s
terminating value for an asset that it holds at the leaving time
because the leaving entity is taken by subsection 701-1(1) to be a part of the
head company is worked out as follows.
(2) The amount is worked out by applying section 705-30 in a
corresponding way to the way that section applies to work out the
*terminating value for an asset that a joining
entity holds at the joining time.
(1) For the purposes of step 2 in the table in subsection 711-20(1), the
step 2 amount is worked out using the following formula:
where:
acquired deductions means all deductions covered by
subsection (2) for expenditure that constituted an acquired deduction of
the *head company under subsection 705-115(1)
when an entity (whether or not the leaving entity) became a
*subsidiary member of the old group.
owned deductions means the sum of all deductions covered by
subsection (2) that are not acquired deductions.
(2) This subsection covers any deduction to which the leaving entity
becomes entitled under section 701-40 as a result of the leaving entity
ceasing to be a *subsidiary member of the old
group, other than a deduction for expenditure:
(a) that is, forms part of or reduces, the cost of an asset that becomes
an asset of the leaving entity because subsection 701-1(1) (the single entity
rule) ceases to apply; or
(b) to which section 110-40 (about expenditure on assets acquired
before 7.30 pm on 13 May 1997) applies.
(1) For the purposes of step 3 in the table in subsection 711-20(1), the
step 3 amount is the total, for all liabilities owed by
*members of the old group to the leaving entity
at the leaving time, of the *market values of
the corresponding assets of the leaving entity.
Where cost of liability is less than its market value
(2) However, if subsection (3) applies to any of the liabilities, the
cost amount mentioned in that subsection, instead of the
*market value, is to be used under
subsection (1) for the liability in working out the step 3
amount.
(3) This subsection applies to a liability if:
(a) the *member of the old group would
have made a *capital gain or a
*capital loss for the
*CGT event that, disregarding subsection
701-1(1) (the single entity principle), would have happened when the liability
arose; and
(b) the amount (the cost amount) of:
(i) if the CGT event is or would have been CGT event D1—the
*incidental costs; or
(ii) if the CGT event is CGT event D2, D3 or F1—the expenditure
incurred; or
(iii) in any other case—the *cost
base or *reduced cost base;
that would be taken into account is less than the
*market value of the liability.
(1) For the purposes of step 4 in the table in subsection 711-20(1), the
step 4 amount is worked out by adding up the amounts of each thing (an
accounting liability) that, in accordance with
*accounting standards, or statements of
accounting concepts made by the Australian Accounting Standards Board, is a
liability of the leaving entity at the leaving time that can or must be
identified in the entity’s statement of financial position.
Exclusion where transfer of accounting liability
(2) An amount is not to be added for an accounting liability that arises
because of the leaving entity’s ownership of an asset if, on
*disposal of the asset, the accounting
liability will transfer to the new owner.
Example: A liability to rehabilitate a mine site, where,
under legislation or a licence, the liability will be transferred to the new
owner on disposal of the mine.
Reduction for future deduction
(3) If some or all of an accounting liability will result in a deduction
to the leaving entity, the amount to be added for the accounting liability is
reduced by the following amount:
where:
double-counting adjustment means the amount of any reduction
that has already occurred in the accounting liability under subsection (1)
to take account of the future availability of the deduction.
Amount for intra-group liabilities
(4) If an accounting liability of the leaving entity is owed to a
*member of the old group, the amount to be
added for the liability is the *market value of
the corresponding asset of the member.
Adjustment for unrealised gains and losses
(5) If, for income tax purposes, an accounting liability, or a change in
the amount of an accounting liability, (other than one owed to a
*member of the joined group) is taken into
account at a later time than is the case in accordance with
*accounting standards or statements of
accounting concepts made by the Australian Accounting Standards Board, the
amount to be added for the accounting liability is equal to the payment that
would be necessary to discharge the liability just before the leaving time
without an amount being included in the assessable income of, or allowable as a
deduction to, the *head company.
Note: An example is accrued employee leave entitlements or
foreign exchange gains and losses.
Increase in step 4 amount for employee share interests
(6) If any *membership interest (an
employee share interest) in the leaving entity needed to be
disregarded under section 703-35 in order for the leaving entity to be a
*wholly-owned subsidiary of the
*head company at the leaving time, the step 4
amount is increased by the sum of the *market
values of those interests.
Increase to cover certain equity interests
(7) The step 4 amount is increased by the
*market value of each thing that, in accordance
with *accounting standards, or statements of
accounting concepts made by the Australian Accounting Standards Board, is equity
in the leaving entity at the leaving time, where the thing is also a
*debt interest.
When section applies
(1) This section applies to an asset if:
(a) the *head company holds the asset at
the leaving time because the leaving entity is taken by subsection 701-1(1) to
be a part of the head company; and
(b) assuming the head company *disposed
of the asset at that time for its *market
value, the head company would, in respect of the disposal:
(i) make a *capital loss; or
(ii) be entitled to a deduction; or
(iii) make a *trading stock
loss;
and it would be prevented by Subdivision 165-CC from taking into
account or deducting some or all (the denied amount) of that loss
or deduction; and
(c) Subdivision 165-CC would have that effect other than solely
because of the operation of subsection 705-120(3) (which deems the head company
to have owned a percentage of an asset at a time that triggers the operation of
Subdivision 165-CC).
Step 5 amount
(2) If this section applies, the step 5 amount for the purposes of step 5
in the table in subsection 711-20(1) is equal to the sum of the denied amounts
for all assets to which subsection (1) of this section applies.
Effect on head company’s residual unrealised net
loss
(3) Also, for the purposes of any application of Subdivision 165-CC
to:
(a) a *capital loss made by the
*head company; or
(b) a deduction to which the head company becomes entitled; or
(c) a *trading stock loss made by the
head company;
after the leaving time, the head company’s residual unrealised net
loss under subsection 165-115BB(2) is worked out as if the head company had made
a capital loss, become entitled to a deduction or made a trading stock loss at
the leaving time, in respect of the assets to which subsection (1) of this
section applies, of an amount equal to the sum of the denied amounts for those
assets.
(1) If 2 or more entities cease to be
*subsidiary members of the old group at the
same time because of an event happening in relation to one of them, the
*tax cost setting amount for each
*membership interest mentioned in paragraphs
711-10(a) and (b) is worked out in accordance with this section.
Object
(2) The object of this section is to ensure that the
*tax cost setting amount for
*membership interests that each entity holds in
another entity reflects a proportion of the other entity’s cost for its
net assets.
Tax cost setting amounts to be worked out for certain membership
interests in all of the entities
(3) A *tax cost setting amount must be
worked out for each *membership interest (the
subject interest) that one of the entities holds in another of the
entities just before the leaving time, and this must be done:
(a) by applying section 711-15 to the subject interest as
if:
(i) a reference in that section, or any provision of this Division that
relates to it, to any membership interest that
*members of the old group hold in the leaving
entity were a reference to the subject interest; and
(ii) a reference in that section, or any provision of this Division that
relates to it, to liabilities owed by members of the old group included a
reference to liabilities owed by any of the entities that cease to be
*subsidiary members of the old group at the
leaving time; and
(b) by working out the tax cost setting amount for membership interests in
entities that are held by other entities before working out the tax cost setting
amount for membership interests in those other entities.
Tax cost setting amount for membership interests acquired by head
company
(4) Then work out the *tax cost setting
amount mentioned in paragraph 711-10(a) for the
*membership interests held by the
*head company in the same way as under
section 711-15.
Note: In doing so, tax cost setting amounts worked out under
subsection (3) of this section for membership interests held by the leaving
entity in other entities will be taken into account in working out the allocable
cost amount for the leaving entity. Those tax cost setting amounts will in turn
have been affected by any other tax cost setting amounts worked out under
subsection (3) for membership interests in other entities.
Tax cost setting amount for membership interests acquired by leaving
entity
(5) The *tax cost setting amount
mentioned in paragraph 711-10(b) for
*membership interests of which the leaving
entity becomes the holder will be one of the tax cost setting amounts worked out
under subsection (3) of this section.
Example: Companies A, B, C, D and E are all subsidiary
members that leave the old group at the same time. Just before the leaving time,
company A owned shares in company B and company C, and company B owned shares in
companies D and E.
First, work out company A’s tax cost setting amount
for membership interests in company C and company B’s tax cost setting
amount for membership interests in companies D and E by applying
section 711-15 in accordance with paragraph (3)(a)
above.
Next, work out company A’s tax cost setting amount
for membership interests in company B under that section as so applied, taking
into account the tax cost setting amount just worked out for company B’s
assets consisting of shares in companies D and E.
Finally, work out the head company’s tax cost setting
amount for membership interests in company A under section 711-15 in
accordance with subsection (4) above, taking into account the tax cost
setting amounts worked out for companies B and C.
When this section applies
(1) This section applies if, for any of the assets that are those of the
*head company of the old group at the leaving
time because the leaving entity is taken by subsection 701-1(1) to be a part of
the head company:
(a) a percentage (the entry Subdivision 165-CC
percentage) of the asset (a Subdivision 165-CC asset)
was taken by subsection 705-120(3) to have been owned by the head company at the
changeover time; and
(b) assuming the head company *disposed
of the asset at the leaving time for an amount that would cause it to:
(i) make a *capital loss; or
(ii) be entitled to a deduction; or
(iii) make a *trading stock
loss;
it would be prevented by Subdivision 165-CC from taking into account
or deducting some or all of that loss or deduction; and
(c) Subdivision 165-CC would have that effect solely because of the
operation of subsection 705-120(3) as mentioned in paragraph (a) of this
subsection.
Interests treated as potentially subject to
Subdivision 165-CC
(2) If this section applies:
(a) a percentage, worked out under subsection (4), of each of the
*membership interests in the leaving entity,
that the *head company holds in the leaving
entity just before the leaving time, is taken to have been owned by the head
company at the changeover time mentioned in sections 165-115C and 165-115D;
and
(b) the head company is taken not to have owned at the changeover time any
other part of any of those membership interests.
Note: The membership interests would include those that are
actually held by subsidiary members of the group, but which are treated as those
of the head company under the single entity rule.
How to work out the percentage
(3) The percentage is the percentage of the
*tax cost setting amount under this Subdivision
for the *membership interests that is
attributable to the entry Subdivision 165-CC percentages of all of the
Subdivision 165-CC assets.
When this section applies
(1) This section applies if:
(a) any of the assets (a pre-CGT factor asset), that the
*head company of the old group holds at the
leaving time because the leaving entity is taken by subsection 701-1(1) to be a
part of the head company, has a *pre-CGT factor
under section 705-125; and
(a) section 711-70 (about the multiple exit of
*subsidiary members) does not apply.
Interests treated as if purchased before 20 September
1985
(2) If this section applies, a number of the
*membership interests in the leaving entity
that *members of the old group hold are taken
to have been acquired before 20 September 1985.
Note: Because of the deemed acquisition of the membership
interests, this section is the only basis on which any of these interests can be
pre-CGT assets.
Number of pre-CGT membership interests
(3) The number is the result of the formula in subsection (4),
rounded down to:
(a) the nearest whole number if the result is not already a whole number;
or
(b) zero if the result is a number more than zero but less than
one.
Formula
(4) The formula is:
where:
leaving entity’s pre-CGT proportion is the amount
worked out under subsection (5).
Pre-CGT proportion
(5) Work out the leaving entity’s pre-CGT proportion in this
way:
Leaving entity’s pre-CGT proportion
Step 1. For each *pre-CGT factor
asset, multiply its *market value before the
leaving time by its *pre-CGT factor.
Step 2. Add up all the results of step 1.
Step 3. Add up the *market values
of all the assets that the *head company holds
at the leaving time because the leaving entity is taken by section 701-1 to
be a part of the head company.
Step 4. Divide the result of step 2 by the result of step
3.
Dealing with classes of membership interests
(6) If there are 2 or more classes of
*membership interests in the leaving entity,
this section operates separately in relation to each class as if the interests
in that class were all the interests in the entity.
Allocation of the number to particular membership
interests
(7) The *head company must choose which
particular *membership interests comprise the
number worked out under subsection (2).
(1) If 2 or more entities (multiple exit entities) cease to
be *subsidiary members of the old group at the
same time because of an event happening in relation to one of them, a number of
the *membership interests (subject
interests) held in any multiple exit entity by:
(a) *members of the old group;
or
(b) other multiple exit entities; or
(c) any combination of paragraphs (a) and (b);
are taken to have been acquired before 20 September 1985.
Numbers to be worked out first for bottom entities
(2) Numbers are to be worked out first for subject interests in multiple
exit entities that do not themselves hold any of the subject interests in other
multiple exit entities.
Numbers to be worked out progressively up to those subject interests
held only by members of the old group
(3) If the holders of other subject interests are or include multiple exit
entities, numbers must be worked out for the former subject interests before
both the latter and any subject interests whose holders consist entirely of
*members of the old group.
How to work out the numbers
(4) The number for subject interests in a particular multiple exit entity
that is required to be worked out under subsection (2) or (3) is worked out
by applying subsections 711-65(3) to (6) as if:
(a) a reference in those subsections to
*membership interests that members of the old
group hold in the leaving entity were a reference to the subject interests;
and
(b) assets (previously numbered assets) of the multiple exit
entity consisting of other subject interests for which a number has been worked
out as required by subsection (2) or (3) of this section were assets that
the *head company holds at the leaving time
because the entity is taken by section 701-1 to be a part of the
*head company; and
(c) each previously numbered asset were treated as having a
*pre-CGT factor of 1.
Example: Companies A, B, C, D and E are all subsidiary
members that leave the old group at the same time. Just before the leaving time,
company A owned shares in company B and company C, and company B owned shares in
companies D and E.
First, work out company A’s number for membership
interests in company C and company B’s number for membership interests in
companies D and E.
Next, work out company A’s number for membership
interests in company B, taking into account the number just worked out for
company B’s assets consisting of shares in companies D and
E.
Finally, work out the old group’s number for
membership interests in company A, taking into account the numbers worked out
for its assets consisting of shares in companies B and C.
Note: Because of the deemed acquisition of the membership
interests, this section is the only basis on which any of the subject interests
can be pre-CGT assets.
Allocation of the number to particular membership
interests
(5) The *head company must:
(a) choose which particular *membership
interests comprise any number worked out under this section; and
(b) if any *membership interest that is
so chosen is held by a multiple exit entity—inform that entity of the
fact.
[The next Division is Division 719.]
A MEC group and a potential MEC group each consist of certain
Australian-resident entities that are wholly-owned subsidiaries of a foreign top
company.
A company that is a first-tier subsidiary of the top company is a tier-1
company.
A MEC group cannot be formed unless there are at least 2 tier-1 companies
of the top company that are eligible to be members of the group.
A MEC group becomes consolidated at a time chosen by the eligible tier-1
companies.
One of the eligible tier-1 companies becomes the head company of the
group.
The remaining members of the group are the subsidiary members.
Table of sections
Basic concepts
719-5 What is a MEC group?
719-10 What is a potential MEC group?
719-15 What is an eligible tier-1
company?
719-20 What is a top company and a
tier-1 company?
719-25 Head company and subsidiary members of a MEC
group
719-30 Treating entities as wholly-owned subsidiaries by
disregarding employee shares
719-35 Treating entities held through non-fixed trusts as
wholly-owned subsidiaries
719-40 Special conversion event—potential MEC
group
719-45 Application of sections 703-20 and
703-25
Choice to consolidate a potential MEC group
719-50 Eligible tier-1 companies may choose to consolidate a
potential MEC group
719-55 When choice starts to have effect
Provisional head company
719-60 Appointment of provisional head
company
719-65 Qualifications for the provisional head company of a
MEC group
719-70 Income year of new provisional head company to be the
same as that of former provisional head company
Head company
719-75 Head company
Notice of events affecting group
719-80 Notice of events affecting MEC group
[This is the end of the Guide.]
When MEC group comes into existence
(1) A MEC (multiple entry consolidated) group comes into
existence when:
(a) a choice, by 2 or more *eligible
tier-1 companies of a *top company, that the
*potential MEC group derived from those
companies be consolidated starts to have effect under section 719-55;
or
(b) a *special conversion event happens
to a potential MEC group derived from an eligible tier-1 company of a top
company.
Original members of a MEC group that results from a choice
(2) A MEC group that results from a choice by 2 or more companies under
section 719-50 consists of the potential MEC group derived from time to
time from whichever one or more of those companies continue to be eligible
tier-1 companies of the top company. This subsection has effect subject to
subsection (4) (which deals with new eligible tier-1 members).
Original members of a MEC group that results from a special conversion
event
(3) A MEC group that results from a special conversion event consists of
the potential MEC group derived from time to time from whichever one or more of
the following companies continue to be eligible tier-1 companies of the top
company:
(a) the company mentioned in paragraph 719-40(1)(b);
(b) the companies specified in the notice under paragraph
719-40(1)(e).
This subsection has effect subject to subsection (4) (which deals with
new eligible tier-1 members).
New eligible tier-1 members of a MEC group
(4) If:
(a) a MEC group consists of the members of a potential MEC group derived
from one or more eligible tier-1 companies of a top company; and
(b) at a particular time after the MEC group came into existence, one or
more other companies become eligible tier-1 companies of the top company;
and
(c) within the applicable period worked out under subsection (6), the
*provisional head company of the MEC group
gives the Commissioner a written notice, in the
*approved form:
(i) specifying one or more of the companies mentioned in
paragraph (b); and
(ii) stating that the specified companies are to become members of the MEC
group with effect from that time; and
(d) either:
(i) the specified companies were not members of another MEC group
immediately before that time; or
(ii) the specified companies were members of another MEC group immediately
before that time, and each eligible tier-1 company in that other MEC group is
specified in the notice under paragraph (c) or not mentioned in
paragraph (b);
then, with effect from that time, the MEC group mentioned in
paragraph (a) is taken to consist of the potential MEC group derived from
time to time from whichever one or more of the following companies continue to
be eligible tier-1 companies of the top company:
(e) the companies mentioned in paragraph (a);
(f) the companies specified in the notice under
paragraph (c).
(5) To avoid doubt, paragraph (4)(a) applies to a MEC group even if
the composition of the group has been worked out because of one or more previous
applications of subsection (4).
(6) For the purposes of paragraph (4)(c), if:
(a) subsection 719-75(1), (2) or (3) would apply to the
*MEC group concerned in relation to the
*income year of a company in which the time
mentioned in paragraph (4)(b) occurred; and
(b) in a case where subsection 719-75(1) or (2) applies—the company
will be the *head company of the group as at
the end of the income year; and
(c) in a case where subsection 719-75(3) applies—the company will be
the *head company of the group immediately
before the group ceased to exist;
the applicable period is:
(d) if the company is required to give the Commissioner an
*income tax return for the income year in which
the time mentioned in paragraph (4)(b) occurred—the period:
(i) beginning at that time; and
(ii) ending on the day on which the company gives that return;
or
(e) if the company is not required to give the Commissioner an income tax
return for the income year in which the time mentioned in paragraph (4)(b)
occurred—the period:
(i) beginning at that time; and
(ii) ending at the end of the period within which the company would have
been required to give an income tax return for that income year, if the company
had been required to give an income tax return for that income year.
Continued existence of MEC group
(7) If a MEC group (the first MEC group) consists of the
members of a potential MEC group derived from one or more eligible tier-1
companies of a top company, the first MEC group continues to exist
until:
(a) the potential MEC group ceases to exist; or
(b) there is a change in the identity of the top company, and the eligible
tier-1 companies that were members of the first MEC group immediately before the
change become members of another MEC group immediately after the change;
or
(c) there ceases to be a provisional head company of the first MEC
group.
The first MEC group ceases to exist when one of those events
happens.
Note: Subsection 719-10(7) sets out the circumstances in
which the potential MEC group ceases to exist.
(1) A potential MEC group derived from one or more
*eligible tier-1 companies of a
*top company consists of the following
members:
(a) those eligible tier-1
companies;
(b) all of the other entities (if any) which:
(i) meet the requirements of the table; or
(ii) are entities to which subsection (4) applies; or
(iii) are entities to which subsection (5) applies.
|
Requirements for other entities |
||
|---|---|---|
|
Column 1 |
Column 2 |
Column 3 |
|
The entity must be a company, trust or partnership and, if it is a company,
all or some of its taxable income (if any) must have been taxable at a rate that
is or equals the *general company tax rate
apart from this Part The entity must not be covered by an item in the table in
section 703-20 The entity must not be a non-profit company (as defined in the Income
Tax Rates Act 1986) |
The entity must: |
The entity must be: |
(2) For the purposes of column 3 of the table, if there are one or more
entities interposed between an entity (the test entity) and an
eligible tier-1 company, the test entity can be a wholly-owned subsidiary of the
eligible tier-1 company only if each of the interposed entities:
(a) meets the conditions in columns 1 and 2 of the table; or
(b) holds membership interests only as a nominee of one or more entities
each of which is:
(i) an eligible tier-1 company of the top company; or
(ii) a wholly-owned subsidiary of an eligible tier-1 company of the top
company, being a subsidiary that meets the conditions in columns 1 and 2 of the
table.
(3) For the purposes of subparagraph (2)(b)(ii), in determining
whether an entity is a wholly-owned subsidiary of an eligible
*tier-1 company of the
*top company, assume that all of the
*membership interests that are beneficially
owned by eligible tier-1 companies of the top company were owned by a single
eligible tier-1 company of the top company.
Entities to which subsection (4) applies
(4) This subsection applies to an entity (the test entity)
if:
(a) the test entity is a company; and
(b) one or more entities are interposed between the test entity and an
*eligible tier-1 company of the
*top company; and
(c) at least one of those interposed entities is:
(i) a company that is a foreign resident; or
(ii) a trust that does not meet the conditions in item 1, 2 or 3 of
the table in section 703-25; and
(d) each interposed entity is one of the following:
(i) an entity that, because of one or more previous applications of
subsection (1), is a member of the
*potential MEC group concerned;
(ii) a company to which subparagraph (c)(i) applies;
(iii) a trust to which subparagraph (c)(ii) applies;
(iv) an entity that holds *membership
interests only as a nominee of one or more entities each of which is mentioned
in subparagraph (i), (ii) or (iii) of this paragraph;
(v) a partnership, where each partner is a company that is a foreign
resident or a trust that does not meet the conditions in item 1, 2 or 3 of
the table in section 703-25; and
(e) the test entity would meet the requirements of the table in
subsection (1) of this section if it were assumed that:
(i) each interposed entity that is a company to which
subparagraph (c)(i) applies were a company that met the requirements of
columns 1 and 2 of the table; and
(ii) each interposed entity that is a trust to which
subparagraph (c)(ii) applies were a trust that met the requirements of
columns 1 and 2 of the table.
Entities to which subsection (5) applies
(5) This subsection applies to an entity (the test entity)
if:
(a) the test entity is a trust or a partnership; and
(b) subsection (4) applies to one or more other entities;
and
(c) the test entity would meet the requirements of the table in
subsection (1) if it were assumed that the other entity, or each of the
other entities, were one of those *eligible
tier-1 companies mentioned in subsection (1).
Only one eligible tier-1 company in a potential MEC group
(6) To avoid doubt, if:
(a) there is only one *eligible tier-1
company of a *top company; and
(b) there are no entities which meet the requirements of the table in
subsection (1); and
(c) there are no entities to which subsection (4) or (5)
applies;
the *potential MEC group derived from the
eligible tier-1 company consists of the eligible tier-1 company alone.
When potential MEC group ceases to exist
(7) If a *potential MEC group is derived
from one or more *eligible tier-1 companies of
a *top company, the potential MEC group ceases
to exist when:
(a) none of those companies are eligible tier-1 companies of the top
company; or
(b) there is a change in the identity of the top company, and the eligible
tier-1 companies that were members of the group immediately before the change
are not the same as the eligible tier-1 companies that are members of the group
immediately after the change.
Continuity of potential MEC group
(8) If:
(a) a *potential MEC group is derived
from one or more *eligible tier-1 companies of
a *top company; and
(b) there is a change in the identity of the top company in relation to
the potential MEC group; and
(c) the eligible tier-1 companies that were members of the group
immediately before the change are the same as the eligible tier-1 companies that
are members of the group immediately after the change;
the change does not affect the continuity of:
(d) the group; or
(e) the status of any of those companies as eligible tier-1 companies of
the top company.
(1) A *tier-1 company of a
*top company is an eligible tier-1
company if subsection (2) does not apply to the tier-1
company.
(2) This subsection applies to a *tier-1
company if:
(a) there are one or more entities interposed between the tier-1 company
and the *top company; and
(b) the conditions in subsection (3) are satisfied in relation to at
least one of those interposed entities.
(3) For the purposes of paragraph (2)(b), the conditions are as
follows:
(a) the interposed entity must be one of the following:
(i) a company that is a foreign resident;
(ii) a *prescribed dual
resident;
(iii) a trust that does not meet the conditions in item 1, 2 or 3 of
the table in section 703-25;
(iv) a trust that meets the conditions in item 1, 2 or 3 of the table
in section 703-25 and is not a
*wholly-owned subsidiary of another
*tier-1 company of the
*top company;
(v) an entity covered by an item in the table in
section 703-20;
(vi) a company that is an Australian resident, where no part of its
taxable income (if any) would be taxable at a rate that is or equals the
*general company rate;
(vii) a non-profit company (as defined in the Income Tax Rates Act
1986) that is a wholly-owned subsidiary of another tier-1 company of the top
company;
(b) the interposed entity must not hold
*membership interests only as nominee of one or
more entities each of which is:
(i) another tier-1 company of the top company; or
(ii) an entity that is a wholly-owned subsidiary of another tier-1 company
of the top company;
(c) at least one of the following entities must hold a membership interest
in the interposed entity:
(i) another tier-1 company of the top company;
(ii) a wholly-owned subsidiary of another tier-1 company of the top
company;
(iii) an entity that holds membership interests only as a nominee of one
or more entities each of which is mentioned in subparagraph (i) or
(ii).
(4) For the purposes of subparagraphs (3)(a)(iv) and (vii) and
paragraphs (3)(b) and (c), in determining whether an entity is a
wholly-owned subsidiary of another *tier-1
company of the *top company, assume that all of
the *membership interests that are beneficially
owned by tier-1 companies of the top company were owned by a single tier-1
company of the top company.
(1) At a particular time, a company is:
(a) a top company if the requirements in item 1 of the
table are met; or
(b) a tier-1 company of the top company if the requirements
in item 2 of the table are met.
|
Top companies and tier-1 companies |
|||
|---|---|---|---|
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
|
1 Top company |
No specific requirements |
The company must be a foreign resident |
The company must not be a *wholly-owned
subsidiary of another company (other than a company that is a
*prescribed dual resident, or a company that is
an Australian resident that fails to meet a condition in column 2 of
item 2) |
|
2 Tier-1 company |
The company must have all or some of its taxable income (if any) taxed at a
rate that is or equals the *general company tax
rate apart from this Part The company must not be covered by an item in the table in
section 703-20 |
The company must be an Australian resident (but not a
*prescribed dual resident) |
The company: |
(2) For the purposes of paragraph (b) of column 4 of item 2 of
the table, in determining whether a company (the test company) is a
*tier-1 company, if 2 or more other companies
beneficially own all of the *membership
interests in the test company, and each of those other companies:
(a) is a *wholly-owned subsidiary of the
*top company; and
(b) meets the conditions in columns 2 and 3 of item 2 of the
table;
the test company is taken to be a wholly-owned subsidiary of one of those
other companies.
(1) The head company of a
*MEC group is worked out under
section 719-75.
(2) The remaining members of the group are the subsidiary
members of the group.
(1) The object of this section is to ensure that an entity is not
prevented from being a *wholly-owned subsidiary
of another entity, just because there are minor holdings of
*shares in a company issued under
*arrangements for employee
shareholdings.
(2) For the purposes of this Division, in determining whether an entity is
a wholly-owned subsidiary of another entity, disregard particular
*shares in a company if:
(a) the shares are covered by subsection (3); and
(b) the total number of those shares is not more than 1% of the number of
ordinary shares in the company.
(3) A *share in a company is covered by
this subsection if the share is beneficially owned by an entity and:
(a) the entity acquired (as defined in section 139G of the Income
Tax Assessment Act 1936) the share either:
(i) in the circumstances described in subsection 139C(1) or (2) of that
Act; or
(ii) by exercising a right the entity acquired (as so defined) in those
circumstances; and
(b) all the shares in the company available for acquisition in those
circumstances are ordinary shares and all the rights available for acquisition
in those circumstances are rights to acquire ordinary shares; and
(c) if the entity acquired the share in those circumstances—at the
time of the acquisition, at least 75% of the permanent employees (as defined in
section 139GB of that Act) of the employer (as defined in
section 139GA of that Act) were or had earlier been entitled to acquire in
those circumstances:
(i) shares in the company or rights to acquire shares in the company;
or
(ii) shares in a holding company (as defined in section 139GC of that
Act) of the company or rights to acquire such shares; and
(d) the conditions in subsections 139CD(6) and (7) of that Act are met in
relation to the acquisition of the share by the entity; and
(e) the company is not covered by section 139DF of that
Act.
Note: Section 139CD of the Income Tax Assessment Act
1936 sets out certain preconditions for shares and rights acquired under
employee share schemes to be qualifying shares and qualifying rights.
Section 139C of that Act explains when a share or right is acquired under
an employee share scheme. Section 139DF prevents shares and rights relating
to certain companies from being qualifying shares and rights.
(4) A *share may be disregarded under
subsection (2) even though the condition in paragraph (3)(c) is not
met, if the Commissioner has made a determination under subsection 139CD(8) of
the Income Tax Assessment Act 1936 in relation to the share.
(1) This section operates to ensure that an entity (the test
entity) is not prevented from being a
*wholly-owned subsidiary of a company, just
because there is a trust that is not a *fixed
trust interposed between the test entity and the company.
(2) For the purposes of this Division, in determining whether the test
entity is a *wholly-owned subsidiary of the
company, assume that the interposed trust is a
*fixed trust and all its objects are
beneficiaries.
(1) A special conversion event happens at a particular time
to a *potential MEC group derived from an
*eligible tier-1 company of a
*top company if:
(a) at that time, the group is not a *MEC
group as a result of a choice under section 719-50; and
(b) immediately before that time, a company is:
(i) that eligible tier-1 company; and
(ii) the *head company of a
*consolidated group; and
(c) at that time, one or more other companies become eligible tier-1
companies of the top company; and
(d) immediately after that time, no
*membership interests in the company mentioned
in paragraph (b) are beneficially owned by another member of the potential
MEC group derived from:
(i) the company mentioned in paragraph (b); and
(ii) the companies mentioned in paragraph (c); and
(e) within the applicable period worked out under subsection (2), the
company mentioned in paragraph (b) gives the Commissioner a written notice,
in the *approved form:
(i) specifying one or more of the companies mentioned in
paragraph (c); and
(ii) stating that a MEC group is to come into existence as a result of the
specified companies becoming eligible tier-1 companies of the top company;
and
(f) either:
(i) the companies specified in the notice under paragraph (e) were
not members of another MEC group at that time; or
(ii) the companies specified in the notice under paragraph (e) were
members of another MEC group at that time, and each eligible tier-1 company in
that other MEC group is specified in the notice or not mentioned in
paragraph (c).
(2) For the purposes of paragraph (1)(e), the applicable
period is:
(a) if the company mentioned in paragraph (1)(b) is required to give
the Commissioner an *income tax return for the
income year in which the time mentioned in paragraph (1)(c)
occurred—the period:
(i) beginning at that time; and
(ii) ending on the day on which the company gives that return;
or
(b) if the company mentioned in paragraph (1)(b) is not required to
give the Commissioner an income tax return for the income year in which the time
mentioned in paragraph (1)(c) occurred—the period:
(i) beginning at that time; and
(ii) ending at the end of the period within which the company would have
been required to give an income tax return for that income year, if the company
had been required to give an income tax return for that income year.
(1) For the purposes of this Division, if an item in section 703-20
refers to an income year, an entity is covered by that item at a particular time
if, and only if, that time is in that income year.
(2) For the purposes of this Division, if a condition in item 1, 2 or
3 of the table in section 703-25 refers to an income year, an entity meets
that condition at a particular time if, and only if, that time is in that income
year.
Making a choice to consolidate
(1) If:
(a) a *potential MEC group (the
first group) derived from 2 or more
*eligible tier-1 companies of a
*top company is in existence at the start of a
particular day; and
(b) that day is after 30 June 2002; and
(c) none of those eligible tier-1 companies is already a member of a
*MEC group or a
*consolidated group;
those eligible tier-1 companies may give the Commissioner a written notice
in the *approved form, jointly:
(d) specifying that day; and
(e) making a choice that the first group be consolidated on and after that
day.
Note: The notice must also include an appointment of an
eligible tier-1 company to be the provisional head company of the
*MEC group—see subsection 719-60(1).
Choice cannot be revoked or specified day amended
(2) A choice cannot be revoked and the specification of the day cannot be
amended.
Time at which choice must be given to Commissioner
(3) If, as a result of a choice:
(a) subsection 719-75(1), (2) or (3) would apply to the
*MEC group concerned in relation to the
*income year of a company in which the
specified day occurred; and
(b) in a case where subsection 719-75(1) or (2) applies—the company
will be the *head company of the group as at
the end of the income year; and
(c) in a case where subsection 719-75(3) applies—the company will be
the *head company of the group immediately
before the group ceased to exist;
notice of the choice must be given to the Commissioner:
(d) if the company is required to give the Commissioner an
*income tax return for the income year in which
the specified day occurred—during the period:
(i) beginning on the specified day; and
(ii) ending on the day on which the company gives that return;
or
(e) if the company is not required to give the Commissioner an income tax
return for the income year in which the specified day occurred—during the
period:
(i) beginning on the specified day; and
(ii) ending at the end of the period within which the company would have
been required to give an income tax return for that income year, if the company
had been required to give an income tax return for that income year.
Company ceases to be an eligible tier-1 company before choice is given
to the Commissioner
(4) If:
(a) as a result of a choice:
(i) subsection 719-75(1), (2) or (3) would apply to the
*MEC group concerned in relation to the
*income year of a company in which the
specified day occurred; and
(ii) in a case where subsection 719-75(1) or (2) applies—the company
will be the *head company of the group as at
the end of the income year; and
(iii) in a case where subsection 719-75(3) applies—the company will
be the *head company of the group immediately
before the group ceased to exist; and
(b) another company (the other company) that was an eligible
tier-1 company at the start of the specified day ceased to exist at a time
before the day on which notice of the choice was given to the Commissioner;
and
(c) having regard to all relevant circumstances, it would be reasonable to
conclude that the other company would have been a party to the choice if the
other company had continued to exist;
the other company is taken to have authorised the company that will be the
head company as mentioned in subparagraph (a)(ii) or (iii):
(d) to make the choice on behalf of the other company; and
(e) to do, on behalf of the other company, anything else under:
(i) subsection (1) of this section; or
(ii) subsection 719-60(1) or (3).
When choice starts to have effect
(1) A choice under section 719-50 is taken to have started to have
effect on the day specified in the choice.
Choice does not have effect—notice is wrong
(2) A choice does not have effect (and is taken not to have had effect) if
the Commissioner is satisfied that the choice contains information that is
incorrect in a material particular.
Note: The choice does not have effect if the choice omitted
material information, because the notice would not have been in the approved
form.
Commissioner may give effect to choice despite wrong
notice
(3) Subsection (2) does not prevent the choice from having effect as
described in subsection (1) if the Commissioner gives the company that, as
a result of the choice, will become the
*provisional head company of the group, written
notice that the choice has effect despite the incorrect information.
Appointment on formation of group—choice
(1) If companies give notice of a choice under section 719-50, the
notice must include an appointment, made jointly by the companies, of one of
those companies to be the provisional head company of the
*MEC group concerned. The appointment comes, or
is taken to have come, into force at the time when the choice starts or started
to have effect.
Appointment on formation of group—special conversion
event
(2) If a *special conversion event
happens to a *potential MEC group, the
*eligible tier-1 companies that were the
members of the MEC group that resulted from the event are taken to have
appointed the company mentioned in paragraph 719-40(1)(b) as the provisional
head company of the *MEC group. The appointment
is taken to have come into force when the event happened.
Appointment after formation of group
(3) If a *cessation event happens to the
*provisional head company of a
*MEC group, then:
(a) if:
(i) the group came into existence because of a choice under
section 719-50; and
(ii) the event happens more than 28 days before notice of the choice is
given;
on the day on which notice of the choice is given; or
(b) in any other case—within 28 days after the cessation
event;
the *eligible tier-1 companies that are or
were members of the MEC group immediately after the cessation event may give the
Commissioner a written notice in the *approved
form, jointly appointing one of those companies to be the provisional head
company of the group. The appointment is taken to have come into force
immediately after the cessation event.
Qualifications for provisional head company
(4) An appointment of a company under subsection (1) or (3) as the
*provisional head company of a
*MEC group has no effect unless, at the time
the appointment comes into force, the company is qualified to be the
*provisional head company of the MEC group
under section 719-65.
Appointment remains in force until cessation event
(5) The appointment of a company as the
*provisional head company of a
*MEC group remains in force until a
*cessation event happens to the
company.
What is a cessation event?
(6) A cessation event happens to a
*provisional head company of a
*MEC group if:
(a) the company ceases to be qualified to be the
*provisional head company of the group under
section 719-65; or
(b) the company ceases to exist.
Qualifications for the provisional head company
(1) A company is qualified to be the
*provisional head company of a
*MEC group if:
(a) the company is an *eligible tier-1
company of the *top company; and
(b) no *membership interests in the
company are beneficially owned by another member of the group.
(2) Subsection (1) has effect subject to
subsection (3).
Period during which new provisional head company must have been a member
of the group
(3) If:
(a) a company (the new company) is to be appointed as the
*provisional head company of a
*MEC group under subsection 719-60(3);
and
(b) the appointment will come into force immediately after a
*cessation event happens to the former
provisional head company of the group; and
(c) a company (the original company) (which may be
the former provisional head company) was appointed as the provisional head
company of the group under subsection 719-60(1) or (2);
the new company is not qualified to be the provisional head company of the
group unless the new company has been a member of the group at all times during
the period:
(d) beginning at whichever of the following times is applicable:
(i) if the group came into existence as a result of a choice under
section 719-50, and the cessation event happened in the income year of the
original company in which the group came into existence—the time when the
group came into existence;
(ii) in any other case—the start of the income year of the former
provisional head company in which the cessation event happened; and
(e) ending when the cessation event happened.
If:
(a) a company (the new company) is appointed as the
*provisional head company of a
*MEC group under subsection 719-60(3);
and
(b) the appointment comes into force immediately after a
*cessation event happens to the former
provisional head company of the group;
then:
(c) if, for the income year in which the cessation event happened, the
former provisional head company had not adopted an accounting period in place of
the financial year concerned—the new company is taken not to have adopted
an accounting period in place of that financial year; or
(d) if, for the income year in which the cessation event happened, the
former provisional head company had adopted an accounting period in place of the
financial year concerned—the new company is taken to have adopted an
accounting period in place of that financial year that is the same as the
accounting period adopted by the former provisional head company.
Group in existence throughout income year
(1) If:
(a) a company is the *provisional head
company of a *MEC group at the end of the
income year of the company; and
(b) the group was in existence throughout the income year;
the company is the head company of the group at all times during the income
year.
Group comes into existence in income year
(2) If:
(a) a company is the *provisional head
company of a *MEC group at the end of the
income year of the company; and
(b) the group is in existence at the end of the income year; and
(c) the group came into existence in the income year;
that company is the head company of the group at all times during the
period:
(d) beginning when the group came into existence; and
(e) ending at the end of the income year.
Group ceases to exist in income year
(3) If:
(a) a *MEC group ceases to exist in an
income year of a company; and
(b) the company was the *provisional head
company of the group immediately before the group ceased to exist;
that company is the head company of the group at all times during the
period:
(c) beginning at whichever is the later of:
(i) the start of the income year; and
(ii) the time the group came into existence; and
(d) ending at the time when the group ceased to exist.
(1) If an event (the notifiable event) described in column 2
of an item of the table happens in relation to a
*MEC group, the entity described in column 3 of
the item must give the Commissioner notice in the
*approved form of the notifiable
event.
|
Notice of events |
||
|---|---|---|
|
Column 1 Item |
Column 2 If this event happens: |
Column 3 Notice must be given by: |
|
1. |
An entity becomes a member of a *MEC
group |
The *provisional head company of the
group |
|
2. |
An entity ceases to be a member of a MEC group |
The provisional head company of the group |
|
3. |
A *cessation event happens to the
*provisional head company of a MEC
group |
The company, or the person (if any) who was its public officer just before
it ceased to exist if the company ceased to be the provisional head company
because it ceases to exist |
(2) The entity described in column 3 of the relevant item must give notice
of the notifiable event:
(a) if:
(i) the group came into existence because of a choice under
section 719-50; and
(ii) the notifiable event happens more than 28 days before notice of the
choice is given;
on the day on which notice of the choice is given; or
(b) if:
(i) the group results from a *special
conversion event; and
(ii) a choice under section 703-50 is made in relation to the
*consolidated group mentioned in paragraph
719-40(1)(b); and
(iii) the notifiable event happens more than 28 days before notice of the
choice is given;
on the day on which notice of the choice is given; or
(c) in any other case—within 28 days after the notifiable
event.
[The next Division is Division 721.]
If the head company of a consolidated group fails to meet an income
tax related liability by the time it becomes due and payable, entities that were
subsidiary members of the group during the period to which the liability relates
can also be responsible for all or part of the liability.
Table of sections
Object
721-5 Object of this Division
When this Division operates
721-10 When this Division operates
Joint and several liability of contributing member
721-15 Head company and contributing members jointly and
severally liable to pay group liability
721-20 Limit on liability where group first comes into
existence
Tax sharing agreements
721-25 When a group liability is covered by a tax sharing
agreement
721-30 TSA contributing members liable for contribution
amounts
721-35 When a TSA contributing member has left the group
clear of the group liability
[This is the end of the Guide.]
The object of this Division is to secure the payment of certain tax
liabilities of the *head company of a
*consolidated group where the head
company fails to meet all of those liabilities by the time they become due and
payable. Accordingly:
(a) if a relevant liability is not covered by a tax sharing
agreement—this Division provides for a process to make certain entities
that were *subsidiary members of the group for
at least part of the period to which each tax liability relates jointly and
severally liable with the head company for those liabilities; or
(b) if a relevant liability is covered by a tax sharing
agreement—this Division:
(i) provides for a process to make each of those entities liable for the
amount determined under the agreement in relation to the liability;
but
(ii) exempts an entity from a liability determined under the agreement if
it leaves the group in certain circumstances.
(1) This Division operates if:
(a) a *tax-related liability mentioned in
subsection (2) (a group liability) of the
*head company of a
*consolidated group was not paid or otherwise
discharged in full by the time the liability became due and payable (the
head company’s due time); and
(b) one or more entities (the contributing members) were
*subsidiary members of the group for at least
part of the period to which the group liability relates.
Note: This Division operates even if some or all of the
contributing members were no longer members of the group at the head
company’s due time.
(2) The following table lists the
*tax-related liabilities for the purposes of
paragraph (1)(a) and the periods to which each of those liabilities
relate:
|
Tax-related liabilities of the head company and the periods to which
they relate |
||
|---|---|---|
|
Item |
The tax-related liability of the head company that becomes due and
payable as specified in this provision ... |
... relates to this period |
|
5 |
section 160ARDZ of the Income Tax Assessment Act 1936
(untainting tax) |
the franking year (within the meaning of Part IIIAA of the Income
Tax Assessment Act 1936) of the *head
company in which the untainting tax became due and payable |
|
10 |
subsection 160ARU(1) of the Income Tax Assessment Act 1936 (franking
deficit tax) |
the franking year (within the meaning of Part IIIAA of the Income
Tax Assessment Act 1936) of the *head
company in which the franking deficit tax became due and payable |
|
15 |
subsection 160ARU(2) of the Income Tax Assessment Act 1936 (franking
deficit tax—part year assessment) |
the franking year (within the meaning of Part IIIAA of the Income
Tax Assessment Act 1936) of the *head
company in which the franking deficit tax became due and payable |
|
20 |
section 160ARUA of the Income Tax Assessment Act 1936 (deficit
deferral tax) |
the franking year (within the meaning of Part IIIAA of the Income
Tax Assessment Act 1936) of the *head
company in which the deficit deferral tax became due and payable |
|
25 |
section 204 of the Income Tax Assessment Act 1936 (income tax,
including any liability taken to be income tax for the purposes of that
section) |
the income year to which the income tax relates |
|
30 |
section 45-61 in Schedule 1 to the Taxation Administration Act
1953 (quarterly *PAYG instalment) |
the *instalment quarter to which the
*instalment relates |
|
35 |
section 45-70 in Schedule 1 to the Taxation Administration Act
1953 (annual *PAYG instalment) |
the income year to which the *instalment
relates |
|
40 |
section 8AAE of the Taxation Administration Act 1953 (general
interest charge) |
the period provided for in this table for the
*tax-related liability to which the general
interest charge relates |
|
45 |
subsection 45-230(4) in Schedule 1 to the Taxation Administration
Act 1953 (general interest charge on shortfall in quarterly instalment
worked out on basis of varied rate) |
the *instalment quarter to which the
general interest charge relates |
|
50 |
subsection 45-232(5) in Schedule 1 to the Taxation Administration
Act 1953 (general interest charge on shortfall in quarterly instalment
worked out on basis of estimated benchmark tax) |
the *instalment quarter to which the
general interest charge relates |
|
55 |
subsection 45-235(5) in Schedule 1 to the Taxation Administration
Act 1953 (general interest charge on shortfall in annual
instalment) |
the income year to which the general interest charge relates |
(1) The following are jointly and severally liable to pay the group
liability:
(a) the
*head company; and
(b) each contributing member (other than a contributing member excluded by
subsection (2)).
Note: A group liability is a tax-related liability in
relation to the head company and each contributing member. For rights of
contribution in respect of such a liability, see subsection 265-45(2) in
Schedule 1 to the Taxation Administration Act 1953.
(2) For the purposes of paragraph (1)(b), a contributing member is
excluded by this subsection if it is, at the head company’s due time,
prohibited according to the effect of an Australian law from entering into any
arrangement under which the entity becomes subject to a liability referred to in
subsection (1).
(3) Subsection (1) does not operate if the group liability is covered
by a tax sharing agreement (see section 721-25).
(4) The joint and several liability of the contributing members under
subsection (1) arises just after the *head
company’s due time.
(5) The joint and several liability of a particular contributing member
under subsection (1) becomes due and payable by the member 14 days after
the Commissioner gives the member written notice under this subsection of the
liability.
Note 1: If the Commissioner gives this notice to one
contributing member, and gives this notice to another contributing member on
another day, the 2 contributing members will have different due and payable
dates for the same liability.
Note 2: This section does not affect the time at which the
group liability arose for, or became due and payable by, the head
company.
(6) To the extent that the contributing members’ liability under
subsection (1) is not a liability for income tax, that liability is to be
treated as a liability for income tax for the purposes of section 254 of
the Income Tax Assessment Act 1936.
(1) This section operates if the group came into existence during the
period to which a group liability relates.
(2) The contributing members’ liability under subsection 721-15(1)
to pay the group liability is limited to the proportion of the group liability
that is reasonably attributable to the period:
(a) beginning at the time the group came into existence; and
(b) ending at the time when the period to which the group liability
relates ends.
(1) For the purposes of this Division, a group liability is covered by a
tax sharing agreement if, just before the head company’s due
time:
(a) an agreement existed between the
*head company of the group and one or more of
the contributing members (the TSA contributing members);
and
(b) a particular amount (the contribution amount) could be
determined under the agreement for each TSA contributing member in relation to
the group liability; and
(c) the contribution amounts for each of the TSA contributing members in
relation to the group liability, as determined under the agreement, represented
a reasonable allocation of the total amount of the group liability among the
head company and the TSA contributing members; and
(d) the agreement complied with the requirements (if any) set out in the
regulations.
(2) Despite subsection (1), the group liability is not covered
by a tax sharing agreement for the purposes of this Division if:
(a) the agreement mentioned in paragraph (1)(a) was entered into as
part of an arrangement; and
(b) a purpose of the arrangement was to prejudice the recovery by the
Commissioner of some or all of the amount of the group liability or liabilities
of that kind.
(3) Despite subsection (1), the group liability is taken never to
have been covered by a tax sharing agreement for the purposes of this
Division if:
(a) the Commissioner gives the *head
company of the group written notice under this subsection (whether before,
at or after the head company’s due time) in relation to the group
liability; and
(b) the notice requires the head company to give the Commissioner a copy
of the agreement mentioned in paragraph (1)(a) in the approved form within
14 days after the notice is given; and
(c) the Commissioner does not receive a copy of the agreement by the time
required.
Note: If this subsection operates, joint and several
liability can arise under section 721-15 in relation to the group
liability.
(1) This section operates if a group liability is covered by a tax sharing
agreement.
(2) Each TSA contributing member is liable to pay to the Commonwealth an
amount equal to the contribution amount for that member in relation to the group
liability.
(3) Despite subsection (2), a TSA contributing member is not liable
under that subsection if the member left the group clear of the group liability
(see section 721-35).
(4) The liability of a TSA contributing member under subsection (2)
arises just after the *head company’s due
time.
(5) The liability of a TSA contributing member under subsection (2)
becomes due and payable by the member 14 days after the Commissioner gives the
member written notice under this subsection of the liability.
Note: This section does not affect the time at which the
group liability arose for, or became due and payable by, the head
company.
(6) The liability of a TSA contributing member under subsection (2)
is to be treated as a liability for income tax for the purposes of
section 254 of the Income Tax Assessment Act 1936.
For the purposes of subsection 721-30(3), a TSA contributing member left
the group clear of the group liability if:
(a) the TSA contributing member ceased to be a member of the group at a
time (the leaving time) before the
*head company’s due time; and
(b) the cessation of membership was not part of an arrangement, a purpose
of which was to prejudice the recovery by the Commissioner of some or all of the
amount of the group liability or liabilities of that kind; and
(c) before the leaving time, the TSA contributing member had paid to the
head company:
(i) if the contribution amount for that member in relation to the group
liability could be determined before the leaving time—an amount equal and
attributable to that amount; or
(ii) otherwise—an amount that is a reasonable estimate of, and
attributable to, that amount.
[The next Division is Division 820.]
Income Tax (Transitional
Provisions) Act 1997
1 Section 405-1 (link
note)
Repeal the link note, substitute:
[The next Division is Division 700.]
2 After Part 3-45
Insert:
Table of sections
700-1 Application of Part 3-90 of Income Tax
Assessment Act 1997
Part 3-90 of the Income Tax Assessment Act 1997 applies on
and after 1 July 2002.
[The next Division is Division 703.]
Table of sections
703-30 Debt interests that are not membership
interests
(1) For the purposes of Part 3-90 of the Income Tax Assessment Act
1997, this section affects whether an interest or right that is held by an
entity on or after 1 July 2002 and relates to another entity is a
membership interest of the entity in the other entity.
(2) Apply Division 974 of the Income Tax Assessment Act 1997
in determining under Subdivision 960-G of that Act whether the interest or
right is a membership interest of the entity in the other entity.
Note: Under Subdivision 960-G of the Income Tax
Assessment Act 1997, a debt interest relating to an entity is not a
membership interest in the entity. Division 974 of that Act explains what a
debt interest is.
(3) This section has effect whether or not the debt and equity test
amendments (as defined in item 118 of Schedule 1 to the New
Business Tax System (Debt and Equity) Act 2001) apply to transactions in
relation to the interest or right at the relevant time.
[The next Division is Division 707.]
Table of Subdivisions
707-C Amount of transferred losses that can be utilised
707-D Special rules about losses
Table of sections
707-325 Increasing the available fraction for a bundle of
losses by increasing the real loss-maker’s modified market
value
707-327 Choosing available fraction to apply to value
donor’s loss
707-328 Income year and conditions for possible transfer
under Division 170 of the Income Tax Assessment Act
1997
707-329 Modified market value at a time before
8 December 2004
707-350 Alternative loss utilisation regime to
Subdivision 707-C of the Income Tax Assessment Act
1997
Conditions for increasing real loss-maker’s modified market
value
(1) This section affects the working out of the available fraction for a
bundle of losses under subsection 707-320(1) of the Income Tax Assessment Act
1997 if:
(a) the transferee mentioned in that subsection chooses under
subsection (5) of this section to increase the available fraction using a
percentage of the modified market value of a company (the value
donor) other than the real loss-maker mentioned in subsection 707-315(1)
of that Act for the bundle; and
(b) both the real loss-maker and the value donor became members of the
group mentioned in subsection 707-315(1) of that Act in connection with the
bundle at the time (which is the initial transfer time mentioned in that
subsection in connection with the bundle) the group became a consolidated group;
and
(c) the initial transfer time is before 1 July 2004; and
(d) the bundle includes a loss that is not:
(i) an overall foreign loss (as defined in section 160AFD of the
Income Tax Assessment Act 1936); or
(ii) a loss whose utilisation is affected by section 707-350 (about
utilisation of certain losses originally made for an income year ending on or
before 21 September 1999); and
(e) the value donor would have been able to transfer the loss to the
transferee under Subdivision 707-A of the Income Tax Assessment Act
1997 at the initial transfer time had the value donor:
(i) made the loss for the income year for which the real loss-maker made
it; and
(ii) not utilised it; and
(f) the requirement in subsection (2) is met.
(2) It must have been possible for the real loss-maker to have transferred
the loss to the value donor under Subdivision 170-A or 170-B of the
Income Tax Assessment Act 1997 for an income year consisting of the
period described in section 707-328 had the conditions in that section
existed.
Increase in the modified market value of the real
loss-maker
(3) Work out the available fraction for the bundle of losses as if the
modified market value of the real loss-maker at the initial transfer time were
increased by the amount worked out using the formula:
(4) In subsection (3):
total of real loss-maker’s Division 170 losses in
bundle is the total of the amount of each loss:
(a) that is covered by paragraphs (1)(d) and (e); and
(b) in relation to which the requirements in subsection (2) are
met.
total of real loss-maker’s non-foreign losses in bundle
is the total of the amount of each loss that is described in
paragraph (1)(d).
Choice to increase available fraction
(5) The transferee may choose to use a fixed percentage (greater than 0%
and not more than 100%) of the value donor’s modified market value to
increase the available fraction for the bundle. The transferee may do so only by
the day on which it lodges its income tax return for the first income year for
which it utilises (except in accordance with section 707-350) losses
transferred to it under Subdivision 707-A of the Income Tax Assessment
Act 1997.
(6) The choice cannot be amended or revoked.
If this section applies more than once for the same value
donor
(7) If subsection (3) applies 2 or more times in relation to the same
value donor but different real loss-makers, the transferee cannot choose for
those applications percentages of the value donor’s modified market value
at the initial transfer time that result in the total of the amounts worked out
under those applications exceeding that value.
Increase in real loss-maker’s value reduces value donor’s
value
(8) Work out the available fraction for a bundle of losses transferred
under Subdivision 707-A of the Income Tax Assessment Act 1997
from the value donor at the initial transfer time as if the value
donor’s modified market value at the time were reduced by the amount
worked out under subsection (3).
This section does not affect utilisation of overall foreign
losses
(9) This section has effect for working out the available fraction of a
bundle of losses only so far as it affects the utilisation of a tax loss, film
loss or net capital loss. It does not affect the utilisation of an overall
foreign loss (as defined in section 160AFD of the Income Tax Assessment
Act 1936) included in a bundle of losses:
(a) transferred from the real loss-maker under Subdivision 707-A of
the Income Tax Assessment Act 1997; or
(b) transferred from the value donor under that Subdivision.
Note: If a bundle of losses includes an overall foreign loss
and a loss of another sort:
(a) utilisation of the overall foreign loss is limited by
the available fraction for the bundle worked out apart from this section;
and
(b) utilisation of the loss of the other sort is limited by
the available fraction for the bundle as affected by this section, if
applicable.
Conditions for choosing available fraction for value donor’s
loss
(1) This section has effect for the purposes of working out under
Subdivision 707-C of the Income Tax Assessment Act 1997 how much of
a tax loss, film loss or net capital loss can be utilised if:
(a) section 707-325 affects the available fraction for a bundle of
other losses by increasing the modified market value of the real loss-maker of
those other losses by an amount worked out by reference to the value
donor’s modified market value; and
(b) the loss was transferred under Subdivision 707-A of that Act at
the initial transfer time from the value donor; and
(c) the loss is not a loss whose utilisation is affected by
section 707-350 (about utilisation of certain losses originally made for an
income year ending on or before 21 September 1999); and
(d) each company covered by subsection (2) would have been able to
transfer the loss under Subdivision 707-A of that Act at the initial
transfer time had the company:
(i) made the loss for the income year for which the value donor made it;
and
(ii) not utilised it; and
(e) the requirement in subsection (3) is met.
(2) This subsection covers:
(a) the real loss-maker; and
(b) each other company (if any) by reference to which the available
fraction for the bundle was affected under an application of
section 707-325 separate from the application of that section mentioned in
paragraph (1)(a) of this section.
(3) It must have been possible for the value donor to have transferred an
amount (greater than a nil amount) of the loss to each company covered by
subsection (2) under Subdivision 170-A or 170-B of the Income Tax
Assessment Act 1997 for an income year consisting of the period described in
section 707-328 had the conditions in that section existed.
Treating value donor’s loss as included in bundle
(4) If the transferee mentioned in subsection 707-325(1) chooses,
sections 707-310, 707-335 (except paragraph 707-335(2)(a)) and 707-340 of
the Income Tax Assessment Act 1997 (and subsections 707-315(3) and (4) of
that Act, so far as they relate to those sections) operate as if, at the initial
transfer time:
(a) the bundle of losses included the loss; and
(b) the loss was not included in any other bundle of losses.
Note: This section has the effect that the utilisation of
the loss will be affected by the available fraction for the bundle of
losses.
Choice to treat value donor’s loss as included in
bundle
(5) A choice for the purposes of subsection (4):
(a) may be made only by the day on which the transferee lodges its income
tax return for the first income year for which it utilises (except in accordance
with section 707-350) losses transferred to it under Subdivision 707-A
of the Income Tax Assessment Act 1997; and
(b) cannot be revoked.
Loss already in bundle with increased available fraction
(6) Subsection (4) does not apply in relation to the loss if it was
covered by paragraphs 707-325(1)(d) and (e) and subsection 707-325(2) in an
application of section 707-325 separate from the application of that
section mentioned in paragraph (1)(a) of this section.
Note: This means that a loss that provided a basis for
working out an increased available fraction for a bundle of losses under
section 707-325 cannot be treated under this section as if it were included
in another bundle of losses.
(1) This section sets out the period and conditions referred to:
(a) in subsections 707-325(2) and 707-327(3); and
(b) in connection with the requirement that it must have been possible for
a company (the notional transferor) to transfer to another company
(the notional transferee) for an income year a loss under
Subdivision 170-A or 170-B of the Income Tax Assessment Act
1997.
Period to be treated as income year for transfer
(2) The period:
(a) starts at the later of these times:
(i) the start of the trial year;
(ii) the start of the income year for which the loss was made;
and
(b) ends immediately after the initial transfer time mentioned in
subsection 707-320(1) of the Income Tax Assessment Act 1997.
Note: For the purposes of identifying the trial year using
the definition in section 707-120 of the Income Tax Assessment Act
1997, the notional transferor mentioned in this section is the same as the
joining entity mentioned in that section, and the initial transfer time
mentioned in this section is the same as the joining time mentioned in that
section.
Conditions
(3) The first condition is that neither the notional transferor nor the
notional transferee became a subsidiary member of a consolidated group before,
at or after the initial transfer time mentioned in the relevant
subsection.
(4) The second condition is that neither of those Subdivisions had been
amended to provide only for transfers involving an Australian branch (as defined
in section 160ZZV of the Income Tax Assessment Act 1936) of a
foreign bank.
(5) The third condition is that the notional transferee’s income or
gains for the income year were great enough not to prevent the
transfer.
(6) The fourth condition is that those Subdivisions operated as if the
notional transferor had made the loss for the income year if the notional
transferor had actually made it for an income year ending just before the
initial transfer time.
Disregard an event that is described in subsection 707-325(4) of the
Income Tax Assessment Act 1997 and occurred on or before 8 December
2000 in working out under section 707-325 of that Act the modified market
value of an entity at the time it becomes a member of a consolidated group on a
day before 8 December 2004.
[The next section is section 707-350.]
(1) This section affects the way in which one or more losses of one
particular sort in a bundle of losses transferred under Subdivision 707-A
of the Income Tax Assessment Act 1997 before 1 July 2004 can be
utilised by the transferee if:
(a) they were actually made (disregarding that Subdivision) by a company
(the real loss-maker) for an income year ending on or before
21 September 1999; and
(b) they were transferred at the time (the initial transfer
time) the transferee became the head company of a consolidated group;
and
(c) they were transferred to the transferee from the real loss-maker
because:
(i) the real loss-maker met the conditions in section 165-12 of that
Act; and
(ii) the conditions in one or more of paragraphs 165-15(1)(a), (b) and (c)
did not exist in relation to the real loss-maker; and
(d) none of them had been transferred under that Subdivision before the
initial transfer time; and
(e) the transferee has made a choice under subsection (5).
Losses to be utilised only after non-transferred losses
(2) The transferee may utilise for an income year the losses only
after utilising for the year losses (the non-transferred
losses) of the same sort that the transferee made without a transfer
under Subdivision 707-A of the Income Tax Assessment Act 1997 (even
if the income year for which the transferee made the losses is earlier than an
income year for which the transferee made any of the non-transferred
losses).
Further limit on utilising the losses
(3) The amount of the losses that the transferee may utilise for an income
year cannot exceed the amount worked out for the year using the
table.
|
Limit on utilising the losses |
||
|---|---|---|
|
Item |
For this income year: |
The amount of the losses that the transferee may utilise cannot
exceed: |
|
1 |
The first income year ending after the initial transfer time |
1/3 of the total of
the amounts of the losses that were transferred to the transferee |
|
2 |
The second income year ending after the initial transfer time |
The difference between: |
|
3 |
The third income year ending after the initial transfer time, or a later
income year |
The difference between: |
Subdivision 707-C of Income Tax Assessment Act 1997
disapplied
(4) Subdivision 707-C of the Income Tax Assessment Act 1997
operates as if the losses had been made by the transferee without being
transferred under Subdivision 707-A of that Act.
Note: This has 2 effects. First, Subdivision 707-C of
that Act does not limit utilisation of the losses. Secondly, it affects the
limit that Subdivision sets on utilising other losses in any bundle (because
that limit depends on the transferee’s income and gains remaining after
utilisation of losses that have not been transferred under
Subdivision 707-A of that Act).
Making choice
(5) The transferee may choose that this section apply to the utilisation
for any income year of all losses (of any sort) in the bundle that meet the
conditions in paragraphs (1)(a), (b), (c) and (d). The transferee may do so
only by the day on which it lodges its income tax return for the first income
year for which it could utilise any losses transferred to it under
Subdivision 707-A of the Income Tax Assessment Act 1997 (as
described in subsection (1) or otherwise).
When choice has effect
(6) The choice has effect for that income year and all later income years
(and cannot be revoked).
Future transfer of the losses not affected
(7) This section does not limit the transfer under Subdivision 707-A
of the Income Tax Assessment Act 1997 of any of the losses from the
transferee to another company.
Table of sections
707-405 Special rules about losses referable to part of
income year
Section 707-405 of the Income Tax Assessment Act 1997 has
effect in relation to this Division, and Division 170 of that Act as it has
effect for the purposes of this Division, in the same way as that section has
effect in relation to Division 707 of that Act.
[The next Division is Division 820.]
Income Tax Assessment Act
1997
1 Subsection 4-15(2) (after table
item 1A)
Insert:
|
1B |
An entity is a *member of a
*consolidated group at any time in the income
year |
Part 3-90 |
2 Application
The amendment of section 4-15 of the Income Tax Assessment Act
1997 made by this Schedule applies to the income year including 1 July
2002 and each later income year.
Part 2—Head
company terminology
Income Tax Assessment Act
1997
3 Section 166-220
Omit “(the head company)”, substitute “(the
tested company)”.
4 Subsections 166-225(1) and
(2)
Omit “*head company”,
substitute “tested company”.
5 Paragraphs 166-225(2)(a), (b) and
(c)
Omit “head company”, substitute “tested
company”.
6 Subsection 166-230(1)
(heading)
Repeal the heading, substitute:
Notional shareholder of the tested company
7 Subsection 166-230(1)
Omit “*head company”,
substitute “tested company”.
8 Paragraph 166-230(1)(a)
Omit “head company”, substitute “tested
company”.
9 Subparagraphs 166-230(1)(b)(i) and
(ii)
Omit “head company”, substitute “tested
company”.
10 Subsections 166-230(2) and
(3)
Omit “*head company”,
substitute “tested company”.
11 Paragraph 166-230(3)(a)
Omit “head company”, substitute “tested
company”.
12 Subparagraphs 166-230(3)(b)(i) and
(ii)
Omit “head company”, substitute “tested
company”.
13 Subsections 166-235(1) and
(2)
Omit “*head company”,
substitute “tested company”.
14 Section 166-250
Omit “*head company”,
substitute “tested company”.
15 Paragraphs 166-250(a) and
(b)
Omit “head company”, substitute “tested
company”.
16 Section 166-255
Omit “*head company”,
substitute “tested company”.
Part 3—Limiting
access to group concessions
Income Tax Assessment Act
1997
17 Subsection 104-175(6)
After “section 104-180”, insert “or
104-182”.
18 After
section 104-180
Insert:
*CGT event J1 does not happen if the
recipient company ceases to be a *subsidiary
member of a *consolidated group at the break-up
time (whether or not it becomes a subsidiary member of another consolidated
group at that time).
19 Application of amendments of
Subdivision 104-J
The amendments of Subdivision 104-J of the Income Tax Assessment
Act 1997 made by this Schedule apply in relation to a break-up time
happening after 30 June 2002.
20 Section 126-40
Repeal the section, substitute:
A roll-over may be available for the transfer of a CGT asset between 2
companies, or the creation of a CGT asset by one company in another,
if:
(a) both companies are members of the same wholly-owned group;
and
(b) at least one of the companies is a foreign resident.
21 Subsection 126-50(5)
(table)
Repeal the table, substitute:
|
Additional requirements |
|||
|---|---|---|---|
|
Item |
At the time of the trigger event the originating company must
be: |
At the time of the trigger event the recipient company must
be: |
The roll-over asset must have the necessary connection with
Australia: |
|
1 |
Either: |
A foreign resident |
Either: |
|
2 |
A foreign resident |
An Australian resident but not a
*prescribed dual resident |
Either: |
22 At the end of
section 126-50
Add:
(6) If at the time of the trigger event:
(a) the originating company or the recipient company is an Australian
resident; and
(b) that company is a *member of a
*consolidatable group;
that company must also at that time be a member of a
*consolidated group or
*MEC group.
(7) If the originating company is a foreign resident, it must not
have *acquired the
*CGT asset described in subsection (8)
because of:
(a) a single *CGT event giving rise to a
roll-over under a previous application of this Subdivision (as amended by the
New Business Tax System (Consolidation) Act (No. 1) 2002) involving
an Australian resident originating company other than the company that is the
recipient company for the current application of this Subdivision; or
(b) a series (whether or not it is the longest possible series) of
consecutive CGT events giving rise to roll-overs under previous applications of
this Subdivision (as amended by the New Business Tax System (Consolidation)
Act (No. 1) 2002), the earliest involving an Australian resident
originating company other than the company that is the recipient company for the
current application of this Subdivision.
(8) Subsection (7) operates in relation to the
*CGT asset:
(a) that was involved in the trigger event in a disposal case;
or
(b) because of which the originating company was able to create the CGT
asset that was involved in the trigger event in a creation case.
(9) Subsection (7) does not apply if each of the following companies
mentioned in that subsection:
(a) the recipient company for the roll-over under the current application
of this Subdivision;
(b) the Australian resident originating company for the roll-over
under:
(i) for paragraph (7)(a)—the previous application of this
Subdivision; or
(ii) for paragraph (7)(b)—the earliest previous application of
this Subdivision for that series of consecutive
*CGT events;
was, at the time of its roll-over, the
*head company of the same
*MEC group.
23 Application of amendments of
Subdivision 126-B
(1) The amendments of Subdivision 126-B of the Income Tax
Assessment Act 1997 made by this Schedule apply in relation to a trigger
event happening after 30 June 2003, except a trigger event to which
subitem (2) applies.
(2) This subitem and subitem (3) apply to a trigger event
if:
(a) the originating company involved in the trigger event becomes a member
of a consolidated group, or MEC group, on the day (the consolidation
day) on which that group comes into existence; and
(b) the consolidation day either is before 1 July 2003 or is
both:
(i) the first day of the first income year starting after 30 June
2003 of the group’s head company (for a consolidated group) or provisional
head company (for a MEC group) on the consolidation day; and
(ii) before 1 July 2004; and
(c) the originating company was not a member of a consolidated group or
MEC group before the consolidation day.
(3) The amendments of Subdivision 126-B of the Income Tax
Assessment Act 1997 made by this Schedule apply in relation to the trigger
event if it happens on or after the consolidation day.
Income Tax Assessment Act
1997
24 Division 170
(heading)
Repeal the heading, substitute:
25 Subdivision 170-A
(heading)
Repeal the heading, substitute:
26 Section 170-1
Repeal the section, substitute:
A company can transfer a surplus amount of its tax loss to another company
so that the other company can deduct the amount in the income year of the
transfer. One of the companies must be an Australian branch of a foreign bank,
and both companies must be members of the same wholly-owned group.
27 After subsection
170-5(2)
Insert:
(2A) One of the companies must be an Australian branch of a foreign bank.
The other company must be:
(a) the head company of a consolidated group or MEC group; or
(b) not a member of a consolidatable group.
28 At the end of
section 170-30
Add:
(3) One of the companies must be an Australian branch (as defined in
Part IIIB of the Income Tax Assessment Act 1936) of a
*foreign bank.
Note: The Australian branch can be taken to be a separate
entity from the foreign bank for this Subdivision. See Part IIIB of the
Income Tax Assessment Act 1936.
(4) The other company must be covered by an item of this table.
|
The other company |
||
|---|---|---|
|
Item |
The other company must: |
At this time: |
|
1 |
Be the *head company of a
*consolidated group |
The end of the *deduction year or, if the
company ceases to be *in existence during the
deduction year, just before the cessation |
|
2 |
Be the *head company of a
*MEC group |
The end of the *deduction year or, if the
group ceases to exist during the deduction year because the company ceases to be
*in existence, just before the
cessation |
|
3 |
Not be a *member of a
*consolidatable group |
The end of the *deduction year or, if the
company ceases to be *in existence during the
deduction year, just before the cessation |
Note: The heading to section 170-30 is altered by
adding at the end “etc.”.
29 Subdivision 170-B
(heading)
Repeal the heading, substitute:
30 Section 170-101
Repeal the section, substitute:
A company can transfer a surplus amount of its net capital loss to another
company so that the other company can apply the amount in working out its net
capital gain for the income year of the transfer. One of the companies must be
an Australian branch of a foreign bank, and both companies must be members of
the same wholly-owned group.
31 After subsection
170-105(2)
Insert:
(2A) One of the companies must be an Australian branch of a foreign bank.
The other company must be:
(a) the head company of a consolidated group or MEC group; or
(b) not a member of a consolidatable group.
32 At the end of
section 170-130
Add:
(3) One of the companies must be an Australian branch (as defined in
Part IIIB of the Income Tax Assessment Act 1936) of a
*foreign bank.
Note: The Australian branch can be taken to be a separate
entity from the foreign bank for this Subdivision. See Part IIIB of the
Income Tax Assessment Act 1936.
(4) The other company must be covered by an item of this table.
|
The other company |
||
|---|---|---|
|
Item |
The other company must: |
At this time: |
|
1 |
Be the *head company of a
*consolidated group |
The end of the application year or, if the company ceases to be
*in existence during the application year, just
before the cessation |
|
2 |
Be the *head company of a
*MEC group |
The end of the application year or, if the group ceases to exist during the
application year because the company ceases to be
*in existence, just before the
cessation |
|
3 |
Not be a *member of a
*consolidatable group |
The end of the application year or, if the company ceases to be
*in existence during the application year, just
before the cessation |
Note: The heading to section 170-130 is altered by
adding at the end “etc.”.
33 Section 195-10
After “within”, insert “certain”.
34 Paragraph 195-15(5)(b)
After “within”, insert “certain”.
35 Section 195-30
After “within”, insert “certain”.
36 Paragraph 195-35(5)(b)
After “within”, insert “certain”.
37 Basic rule about application of amendments of
Division 170
(1) The amendments of Division 170 of the Income Tax Assessment Act
1997 made by this Schedule apply in relation to a company for each of
its:
(a) income years starting after 30 June 2003; and
(b) non-membership periods (if any) under section 701-30 of the
Income Tax Assessment Act 1997 starting after 30 June
2003.
(2) This item does not apply in relation to a company to which item 38
applies.
38 Different application for members of certain
groups
(1) This item applies to a company if:
(a) the company becomes a member of a consolidated group or MEC group on
the day (the consolidation day) the group comes into existence;
and
(b) the consolidation day either is before 1 July 2003 or is
both:
(i) the first day of the first income year starting after 30 June
2003 of the group’s head company (for a consolidated group) or provisional
head company (for a MEC group) on the consolidation day; and
(ii) before 1 July 2004; and
(c) the company was not a member of a consolidated group or MEC group
before the consolidation day.
(2) The amendments of Division 170 of the Income Tax Assessment Act
1997 made by this Schedule apply in relation to the company for each of
its:
(a) income years starting on or after the consolidation day; and
(b) non-membership periods (if any) under section 701-30 of the
Income Tax Assessment Act 1997 starting on or after the consolidation
day.
39 Transfer for final income year before
amendments apply
(1) In this item:
apportioning day of a company means:
(a) if item 37 applies to the company—1 July 2003;
or
(b) if item 38 applies to the company—the consolidation
day.
Application
(2) This item applies to these transfers under Subdivision 170-A or
170-B of the Income Tax Assessment Act 1997 involving a
company:
(a) a transfer by the company of a loss it made for the income year (the
final year) just before the first income year for which the
amendments of those Subdivisions by this Schedule apply to the
company;
(b) a transfer to the company for the final year of a loss made for that
income year or an earlier income year.
However, this item does not apply to a transfer involving companies that
would satisfy either subsections 170-30(3) and (4) or 170-130(3) and (4) of that
Act (as amended by this Schedule) if those subsections applied for the final
year.
Object
(3) The main object of this item is to ensure that the company can
either:
(a) transfer a loss it makes for the final year only so far as the loss is
attributable to so much of the final year as occurs before its apportioning day;
or
(b) utilise a loss transferred to it to reduce income or gains for the
final year only so far as the income or gains are attributable to so much of the
final year as occurs before its apportioning day.
Apportioning limit on transferring
company’s loss for final year
(4) Despite section 170-45 of the Income Tax Assessment Act
1997, the amount of a tax loss made for the final year by the company that
can be transferred cannot exceed the amount worked out using the
formula:
Note: If the company’s final year ends just before its
apportioning day, this subitem does not reduce the amount of the tax loss the
company can transfer.
(5) Despite section 170-145 of the Income Tax Assessment Act
1997, a net capital loss made for the final year by the company:
(a) can be transferred only if the sum of the capital losses made by the
company during the final year before its apportioning day exceeds the sum of the
capital gains made by the company during the final year before its apportioning
day; and
(b) cannot be transferred to an extent greater than that excess.
Note: If the company’s final year ends just before its
apportioning day, this subitem does not reduce the amount of the net capital
loss the company can transfer.
Apportioning limit based on transferee
company’s income or gains for final year
(6) Despite section 170-45 of the Income Tax Assessment Act
1997, the amount of a tax loss (for the final year or an earlier income
year) that can be transferred to the company for the final year cannot exceed
the amount worked out using the formula:
Note: If the company’s final year ends just before its
apportioning day, this subitem does not reduce the amount of the tax loss that
can be transferred to the company.
(7) Despite section 170-145 of the Income Tax Assessment Act
1997, a net capital loss (for the final year or an earlier income year) can
be transferred to the company for the final year:
(a) only if the company would have had a net capital gain for the final
year apart from that section had the final year ended on the day before the
company’s apportioning day; and
(b) only to the extent to which it could have been transferred
consistently with subsection 170-145(6) of that Act if the result of step 1 of
the method statement had been the amount of the company’s net capital gain
worked out on the basis described in paragraph (a) of this
subitem.
Note: If the company’s final year ends just before its
apportioning day, this subitem does not reduce the amount of the net capital
loss that can be transferred to the company.
Transfer not prevented by transferor joining
consolidated group
(8) Subsections 170-45(1) and 170-145(1) of the Income Tax Assessment
Act 1997 apply in relation to a transfer from a company (whether or not it
is the company mentioned in subitem (4) or (5)) that becomes a member of a
consolidated group or MEC group as if the fact that the company becomes such a
member does not affect its ability to carry forward losses for the final year or
an earlier income year.
Application to non-membership periods less than a
year
(9) If, under section 701-30 of the Income Tax Assessment Act
1997, the company has a non-membership period that ends just before the
company first becomes a subsidiary member of a consolidated group or MEC group,
Subdivisions 170-A and 170-B of that Act and subitems (3) to (8)
(inclusive) apply in relation to the period in the same way as they apply in
relation to the final year.
Part 4—Anti-avoidance
provision for franking credit trading
Income Tax Assessment Act
1936
40 After section 177EA
Insert:
Expressions to have same meanings as in section 177EA and Income
Tax Assessment Act 1997
(1) Unless the contrary intention appears, expressions used in this
section:
(a) if those expressions are defined in section 177EA—have the
same meanings as in that section (subject to subsection (10) of this
section); and
(b) otherwise—have the same meanings as in the Income Tax
Assessment Act 1997.
This section and section 177EA do not limit each
other
(2) This section does not limit the operation of section 177EA, and
section 177EA does not limit the operation of this section.
Application of section
(3) This section applies if:
(a) there is a scheme for a disposition of membership interests in an
entity (the joining entity); and
(b) as a result of the disposition, the joining entity becomes a
subsidiary member of a consolidated group; and
(c) a credit arises in the franking account of the head company of the
group because of the joining entity becoming a subsidiary member of the group;
and
(d) having regard to the relevant circumstances of the scheme, it would be
concluded that the person, or one of the persons, who entered into or carried
out the scheme or any part of the scheme did so for a purpose (whether or not
the dominant purpose but not including an incidental purpose) of enabling the
credit referred to in paragraph (c) to arise in the head company’s
franking account.
Bare acquisition of membership interests
(4) It is not to be concluded for the purposes of paragraph (3)(d)
that a person entered into or carried out a scheme for a purpose mentioned in
that paragraph merely because the person acquired membership interests in the
joining entity.
Commissioner to determine no franking credit
(5) The Commissioner may make, in writing, a determination that no credit
is to arise in the head company’s franking account because of the joining
entity becoming a subsidiary member of the consolidated group. A determination
does not form part of an assessment.
Effect of determination
(6) A determination under subsection (5) has effect according to its
terms.
Notice of determination
(7) If the Commissioner makes a determination under subsection (5),
the Commissioner must serve notice in writing of the determination on the head
company. The notice may be included in a notice of assessment.
Evidence of determination
(8) The production of:
(a) a notice of a determination; or
(b) a document signed by the Commissioner, a Second Commissioner or a
Deputy Commissioner purporting to be a copy of a determination;
is conclusive evidence:
(c) of the due making of the determination; and
(d) except in proceedings under Part IVC of the Taxation
Administration Act 1953 on an appeal or review relating to the
determination, that the determination is correct.
Objections
(9) If a taxpayer to whom a determination relates is dissatisfied with the
determination, the taxpayer may object against it in the manner set out in
Part IVC of the Taxation Administration Act 1953.
Relevant circumstances
(10) The relevant circumstances of a scheme include the
following:
(a) the extent and duration of the risks of loss, and the opportunities
for profit or gain, from holding membership interests in the joining entity that
are respectively borne by or accrue to the parties to the scheme, and whether
there has been any change in those risks and opportunities for the head company
or any other party to the scheme (for example, a change resulting from the
making of any contract, the granting of any option or the entering into of any
arrangement with respect to any membership interests in the joining
entity);
(b) whether the head company, or a person holding membership interests in
the head company, would, in the year of income in which the joining entity
became a subsidiary member of the group or any later year of income, derive a
greater benefit from franking credits than other persons who held membership
interests in the joining entity immediately before it became a subsidiary member
of the group;
(c) the extent (if any) to which the joining entity was able to pay a
franked dividend or distribution immediately before it became a subsidiary
member of the group;
(d) whether any consideration paid or given by or on behalf of, or
received by or on behalf of, the head company in connection with the scheme (for
example, the amount of any interest on a loan) was calculated by reference to
the franking credit benefits to be received by the head company;
(e) the period for which the head company held membership interests in the
joining entity;
(f) any of the matters referred to in subparagraphs 177D(b)(i) to
(viii).
Taxation Administration Act
1953
1 At the end of Division 45 in
Schedule 1
Add:
This Subdivision allows the members of a consolidated group to be treated
as a single entity for the purposes of Pay as you go (PAYG) instalments.
Generally, the head company of the group is the entity liable to pay PAYG
instalments.
The PAYG instalments provisions in this Part apply to the head company in
much the same way as they apply to any other company. However, the operation of
some of these provisions is modified by this Subdivision.
This Subdivision also contains special rules to deal with changes in the
membership of the group.
Note 1: This Subdivision starts to apply to the head company
of the group at a time that is later than the time when the group first comes
into existence: see section 45-705.
Note 2: Subdivision 45-R sets out special rules for the
period after the group comes into existence but before this Subdivision begins
to apply to the head company of the group.
Table of sections
Application of Subdivision
45-705 Application
Usual operation of this Part for consolidated group
members
45-710 Single entity rule
45-715 When instalments are due—modification of
section 45-61
45-720 Head company cannot be an annual
payer—modification of section 45-140
Membership changes
45-755 Entry rule (for an entity that becomes a subsidiary
member of a consolidated group)
45-760 Exit rule (for an entity that ceases to be a
subsidiary member of a consolidated group)
45-775 Commissioner’s power to work out different
instalment rate or GDP-adjusted notional tax
[This is the end of the Guide.]
This Subdivision applies to the *head
company of a *consolidated group during the
period:
(a) beginning at the start of the
*instalment quarter during which the
Commissioner gives the company its *initial
head company instalment rate; and
(b) ending at the end of the instalment quarter during which the company
ceases to be the head company of the group.
If an entity is a *subsidiary member of
a *consolidated group for any period during
which this Subdivision applies to the *head
company of the group:
(a) that entity; and
(b) any other subsidiary member of the group;
are taken for the purposes of this Part to be parts of that head company
(rather than separate entities) during that period.
Note: That means, amongst other things, the head company
would be liable to pay instalments for that period as if the subsidiary members
were parts of the head company.
If:
(a) the *head company of a
*consolidated group is liable to pay an
instalment for an *instalment quarter;
and
(b) this Subdivision applies to the head company during that
quarter;
then, despite subsection 45-61(2), the instalment is due on or before the
21st day of the month after the end of that quarter whether or not the head
company is a *deferred BAS payer on that
day.
Despite any other provisions in this Part, the
*head company of a
*consolidated group cannot choose to be an
*annual payer under section 45-140
while this Subdivision applies to the head company.
[The next section is section 45-755.]
(1) Despite any other provisions in this Part, an entity is liable to pay
an instalment for an *instalment quarter or
income year (as appropriate) during which the entity becomes a
*subsidiary member of a
*consolidated group if:
(a) this Subdivision applies to the *head
company of the group at any time during that quarter or year (as appropriate);
and
(b) the entity would otherwise be liable to pay an instalment for that
quarter or year (as appropriate) if it had not become a subsidiary member of the
group; and
(c) the entity becomes a subsidiary member of the group on a day other
than the first day of that quarter or the first day of that year (as
appropriate).
Note: Under paragraph (b), this section could apply to
an entity that, at the time of becoming a subsidiary member of the group, was
not a subsidiary member of another consolidated group, or was a member of
another consolidated group but this Subdivision did not apply to the head
company of that other group at that time.
Modifications for a quarterly payer who pays 4 instalments annually on
the basis of GDP-adjusted notional tax
(2) Subsections (3) and (4) apply to the entity if:
(a) the entity would have been a
*quarterly payer who pays 4 instalments
annually on the basis of GDP-adjusted notional tax at the end of the
*instalment quarter mentioned in
subsection (1) if it had not become a
*subsidiary member of the group; and
(b) the amount of the instalment payable by the entity for that quarter
would have been worked out under paragraph 45-112(1)(b); and
(c) that quarter is not the fourth instalment quarter in an income
year.
(3) For the purposes of working out the amount of the instalment payable
by the entity for that *instalment quarter,
subsection 45-410(5) applies to the entity as if that quarter were the fourth
instalment quarter in the income year for which the entity is liable to pay an
instalment.
(4) For the purposes of working out the
*acceptable amount of the entity’s
instalment for that instalment quarter, subsection 45-232(3) applies to the
entity as if that quarter were the fourth instalment quarter in the income year
for which the entity is liable to pay an instalment.
(1) This section applies to an entity that satisfies both of the following
conditions:
(a) the entity ceases to be a *subsidiary
member of a *consolidated group during an
*instalment quarter and this Subdivision
applies to the *head company of the group at
any time during that quarter;
(b) the entity does not, at the time it ceases to be a subsidiary member
of the group, become a subsidiary member of another consolidated group the head
company of which is one to which this Subdivision applies at that
time.
(2) This Part applies to the entity as if:
(a) the Commissioner had given the entity an instalment rate equal to the
most recent instalment rate given to the *head
company mentioned in paragraph (1)(a) before the end of the
*instalment quarter mentioned in that
paragraph; and
(b) the entity were a *quarterly payer
who pays on the basis of instalment income at the end of that instalment
quarter, and of each subsequent instalment quarter, until:
(i) if the Commissioner first gives the entity an instalment rate worked
out on the basis of the *base assessment
covered by subsection (3) during the first instalment quarter of an income
year—immediately before the end of that first instalment quarter;
or
(ii) if that rate is given to the entity during any other instalment
quarter of an income year—immediately after the end of the last instalment
quarter of that year.
(3) This section only covers the first
*base assessment of the entity for an income
year that is, or includes, a period after the entity ceases to be a
*subsidiary member of the group.
[The next section is section 45-775.]
(1) This section applies if any of the following changes (the
membership change) occurs in relation to a
*consolidated group while this Subdivision
applies to the *head company of the
group:
(a) an entity becomes a *subsidiary
member of the group or a number of entities become subsidiary members of the
group;
(b) an entity ceases to be a subsidiary member of the group or a number of
entities cease to be subsidiary members of the group.
(2) If the Commissioner, having regard to the object of this Part and the
membership change, is of the opinion that it would be reasonable to do so, the
Commissioner may work out:
(a) an instalment rate that is higher, or lower, than the most recent
instalment rate given by the Commissioner to the
*head company under section 45-15;
or
(b) an amount of *GDP-adjusted notional
tax that is higher, or lower, than the amount of GDP-adjusted notional tax
worked out for the purposes of the most recent amount of instalment notified by
the Commissioner to the head company under paragraph 45-112(1)(a).
(3) The new instalment rate or amount of
*GDP-adjusted notional tax must be a rate or
amount that, in the opinion of the Commissioner, is reasonable having regard to
the object of this Part and the membership change.
Note 1: Subdivision 45-J does not apply for the purpose
of working out an instalment rate under this section.
Note 2: Section 45-405 does not apply for the purpose
of working out an amount of GDP-adjusted notional tax under this
section.
This Subdivision deals with the application of this Part to members of a
consolidated group after the group has come into existence but before the
members of the group are treated under Subdivision 45-Q as a single entity
for the purposes of this Part.
Table of sections
Operative provisions
45-855 Section 701-1 disregarded for certain
purposes
45-860 Member having a different instalment
period
45-865 Credit rule
45-870 Head company’s liability to GIC on shortfall in
quarterly instalment
45-875 Other rules about the general interest
charge
[This is the end of the Guide.]
If:
(a) an amount is required to be worked out for the purpose of determining
the *instalment income of an entity that is a
*member of a
*consolidated group for a period that is all or
a part of a *consolidation transitional year
for the entity; and
(b) the period ends before Subdivision 45-Q starts to apply to the
*head company of the group;
that amount must be worked out without regard to any application of
section 701-1 of the Income Tax Assessment Act 1997 to the entity in
relation to the period.
Different instalment period—instalment quarter
(1) If:
(a) but for Subdivision 45-Q, a
*subsidiary member of a
*consolidated group would be liable to pay an
instalment for an *instalment quarter of the
subsidiary member during which Subdivision 45-Q starts to apply to the
*head company of the group; and
(b) that quarter ends before the end of the instalment quarter of the head
company during which that Subdivision starts to apply to the head
company;
then, despite section 45-710, the subsidiary member is liable to pay
an instalment for that quarter.
Different instalment period—income year
(2) If:
(a) but for Subdivision 45-Q, a
*subsidiary member of a
*consolidated group would be liable to pay an
annual instalment for an income year of the subsidiary member during which
Subdivision 45-Q starts to apply to the
*head company of the group; and
(b) that year ends before the end of the income year of the head company
during which that Subdivision starts to apply to the head company;
then, despite section 45-710, the subsidiary member is liable to pay
an instalment for that year.
Assumptions for working out amount of instalment
(3) The amount of the instalment must be worked out on the following
assumptions:
(a) that the *instalment quarter or
income year of the *subsidiary member (as
appropriate) consists only of the period that is the part of the quarter or year
occurring before Subdivision 45-Q starts to apply to the
*head company of the group;
(b) that an amount required to be worked out for the purpose of
determining the *instalment income of the
subsidiary member for that period is worked out under
section 45-855.
(1) When the Commissioner:
(a) makes an assessment of the income tax that the
*head company of a
*consolidated group is liable to pay for a
*consolidation transitional year for the head
company; or
(b) determines that the head company does not have a taxable income for
that year, or that no income tax is payable on its taxable income for that
year;
the head company is, in addition to any credit to which it is entitled
under section 45-30 for that year, entitled to a credit in relation to
instalments payable by an entity that is a
*subsidiary member of the group at any time
during that year.
(2) The credit is equal to:
(a) the sum of so much of each instalment payable by the entity (even if
it has not paid it) for an *instalment quarter
of a *consolidation transitional year for the
entity, or for that year, as is reasonably attributable to so much of that
quarter or year:
(i) which is, or is included in, the consolidation transitional year for
the *head company; and
(ii) during which the entity is a
*subsidiary member of the group;
minus
(b) the sum of so much of each credit that the entity has claimed under
section 45-215 or 45-420 for each instalment quarter covered by
paragraph (a) as is reasonably attributable to:
(i) for a credit under section 45-215—so much of the preceding
instalment quarters of that consolidation transitional year for the entity which
is covered by subparagraphs (a)(i) and (ii); or
(ii) for a credit under section 45-420—so much of that
instalment quarter and the preceding instalment quarters of that consolidation
transitional year for the entity which is covered by subparagraphs (a)(i)
and (ii).
Liability for the general interest charge
(1) Subject to subsections (3) and (4), the
*head company of a
*consolidated group is liable to pay the
*general interest charge under this section for
an *instalment quarter in a
*consolidation transitional year for the head
company if:
(a) the instalment payable by at least one
*member of the group for that quarter is worked
out:
(i) under paragraph 45-112(1)(b) or (c); or
(ii) by using an instalment rate under section 45-205; and
(b) the sum of instalments payable by the members of the group for that
quarter, reduced by credits claimed by those members under section 45-215
or 45-420 for that quarter, is less than
17/80 of the head
company’s *benchmark tax for that
consolidation transitional year.
Note: 17/80 of the head company’s benchmark
tax represents an amount that is 85% of one quarter of that benchmark
tax.
Amount on which the charge is payable
(2) Subject to subsections (3) and (4), the
*general interest charge is payable on the
amount worked out in accordance with the following method statement (if the
amount is a positive amount).
Method statement
Step 1. Work out the amount that is
1/4 of the
*benchmark tax of the
*head company for that
*consolidation transitional year of that head
company.
Step 2. Work out the sum of instalments that would have been payable
by all the *members of the group for that
*instalment quarter of that
*head company if none of the members had worked
out its instalment for that quarter under paragraph 45-112(1)(b) or (c) or by
using an instalment rate under section 45-205.
Step 3. Work out the sum of instalments payable by all the
*members of the group for that
*instalment quarter, reduced by credits claimed
by the members under section 45-215 or 45-420 for that quarter.
Step 4. Reduce the lesser of the results of steps 1 and 2 by the
result of step 3. The result of this step is the amount on which the
*general interest charge is payable if it is a
positive amount. No general interest charge is payable if the result of this
step is nil or a negative amount.
Amounts of instalments or credits that are taken into
account
(3) In working out an amount of instalment or credit for a
*subsidiary member of the group for the
purposes of any of the following provisions:
(a) paragraph (1)(b);
(b) step 2 or 3 of the method statement;
take into account only an amount of instalment or credit covered by that
provision that is reasonably attributable to a period in that
*consolidation transitional year of the
*head company during which it is a subsidiary
member of the group.
Members having different instalment quarters
(4) In working out an amount of instalment or credit for a
*subsidiary member whose
*instalment quarters differ from those of the
*head company for the purposes of any of the
following provisions:
(a) paragraph (1)(a) or (b);
(b) step 2 or 3 of the method statement;
a reference to an instalment quarter in a
*consolidation transitional year of the head
company in any of those provisions includes a reference to the last instalment
quarter of that subsidiary member ending before the end of that instalment
quarter of the head company.
(1) The *general interest charge under
section 45-870 for an *instalment quarter
in an income year is payable by the *head
company for each day in the period that:
(a) started at the beginning of the day by which the instalment for that
quarter was due to be paid; and
(b) finishes at the end of the day on which the head company’s
assessed tax for that income year is due to be paid.
(2) The Commissioner must give the *head
company written notice of the *general interest
charge. The head company must pay the charge within 14 days after the notice is
given to the head company.
(3) If any of the *general interest
charge remains unpaid at the end of the 14 days, the
*head company is also liable to pay the general
interest charge on the unpaid amount for each day in the period that:
(a) starts at the end of those 14 days; and
(b) finishes at the end of the last day on which, at the end of the day,
any of the following remains unpaid:
(i) the unpaid amount;
(ii) general interest charge on the unpaid amount.
(4) The Commissioner may, if he or she is satisfied that because special
circumstances exist it would be fair and reasonable to do so, remit the whole or
any part of any *general interest charge
payable under section 45-870.
Part 2—Consequential
amendments
Taxation Administration Act
1953
2 Subsection 8AAB(5) (after table
item 17H)
Insert:
|
17J |
45-870 and 45-875 in Schedule 1 |
Taxation Administration Act 1953 |
3 Subsection 45-15(2) in Schedule 1 (at the
end of note 1)
Add “or 45-775”.
4 At the end of section 45-30 in
Schedule 1 (after the note)
Add:
(4) If:
(a) you are a *subsidiary member of a
*consolidated group at any time during a
*consolidation transitional year for you;
and
(b) an amount of instalment payable by you, or an amount of credit claimed
by you under section 45-215 or 45-420, is taken into account in working out
a credit to which the *head company of that
consolidated group is entitled under section 45-865 for a consolidation
transitional year for the head company;
that amount, to the extent to which it is so taken into account under that
section, is not to be taken into account in working out any credit to which you
are entitled under this section for any year.
5 Subsection 45-61(2) in Schedule 1
(note)
Renumber the note as note 1.
6 At the end of subsection 45-61(2) in
Schedule 1 (after the note)
Add:
Note 2: If you are the head company of a consolidated group
to which Subdivision 45-Q applies, the instalment is due on or before the
21st day of the month after the end of the quarter: see
section 45-715.
7 Subsection 45-120(1) in Schedule 1 (after
note 1)
Insert:
Note 1A: The operation of this section and other provisions
relating to instalment income is affected by sections 45-855 and 45-860
(about a member of a consolidated group during a period before the members of
the group are treated as a single entity for the purposes of this
Part.)
8 At the end of subsection 45-140(1) in
Schedule 1
Add:
Note: You cannot choose to be an annual payer while you are
the head company of a consolidated group to which Subdivision 45-Q applies:
see section 45-720.
9 After subsection 45-230(2) in
Schedule 1
Insert:
(2A) If the variation quarter is in a
*consolidation transitional year for you as a
*subsidiary member of a
*consolidated group, a reference in
subsection (2) to:
(a) your *instalment income for the
variation quarter; or
(b) your instalment income for the earlier instalment quarters in the
income year;
is taken to be a reference to so much of that income as is reasonably
attributable to the period in that quarter or those quarters (as appropriate)
during which you are not a subsidiary member of the group.
10 At the end of section 45-232 in
Schedule 1
Add:
Modifications for subsidiary member of consolidated group
(7) Subsections (1) to (6) apply to you with the modifications set
out in subsections (8) to (10) if the variation quarter is in a
*consolidation transitional year for you as a
*subsidiary member of a
*consolidated group.
(8) For the purposes of subsection (7), a reference in
subsection (1), (3), (3A), (3B), (3C) and (3D) to your
*benchmark tax for that year is taken to be a
reference to the amount worked out as follows:
(9) For the purposes of subsection (7), a reference in this section
to:
(a) the acceptable amount of your instalment for an
*instalment quarter in an income year;
or
(b) the acceptable amount of your instalment for the earlier instalment
quarter in an income year; or
(c) the acceptable amounts of your instalments for the earlier instalment
quarters in an income year;
is taken to be a reference to so much of the acceptable amount of
instalment or acceptable amounts of instalments, worked out under
subsection (3), (3A), (3B), (3C) or (3D) for that quarter or those quarters
(as appropriate), as is reasonably attributable to the period in that quarter or
those quarters (as appropriate) during which you are not a
*subsidiary member of the group.
(10) For the purposes of subsection (7), a reference to the actual
amount in subsection (2) is taken to be a reference to so much of the
actual amount worked out under that subsection as is reasonably attributable to
the period in the variation quarter during which you are not a
*subsidiary member of the group.
11 Subsection 45-320(1) in
Schedule 1
Omit “An”, substitute “Except as provided by
section 45-775, an”.
12 After subsection 45-330(2) in
Schedule 1
Insert:
Special rule for an entity that is, or has been, the head company of a
consolidated group
(2A) If an entity has *tax losses
transferred to it under Subdivision 707-A of the Income Tax Assessment
Act 1997, the adjusted taxable income of the entity is worked
out under subsection (1) as if paragraph (1)(c) were replaced by the
following provision:
(c) the lesser of the following amounts:
(i) the amount of any tax loss, to the extent that you can carry it
forward to the next income year;
(ii) the amount of any tax loss that you have deducted in the base
year.
13 Subsection 45-405(1) in
Schedule 1
Omit “Your”, substitute “Except as provided by
section 45-775, your”.
Income Tax Assessment Act
1997
1 After
Subdivision 960-F
Insert:
Table of sections
960-130 Members of entities
960-135 Membership interest in an entity
(1) The following table sets out who is a member of various
entities.
|
Members |
||
|---|---|---|
|
Item |
Entity |
Member |
|
1 |
company |
a member of the company or a stockholder in the company |
|
2 |
partnership |
a partner in the partnership |
|
3 |
trust (except a *corporate unit trust or a
*public trading trust) |
a beneficiary, unitholder or object of the trust |
|
4 |
*corporate unit trust |
a unitholder of the trust |
|
5 |
*public trading trust |
a unitholder of the trust |
(2) If 2 or more entities jointly hold interests or rights that give rise
to membership of another entity, each of them is a member of the
other entity.
(3) An entity is not a member of another entity just
because the entity holds one or more interests or rights relating to the other
entity that are *debt interests. This
subsection has effect despite subsections (1) and (2) of this
section.
Example: An entity is not a member of a company as
defined in this section merely because it is a member of the company in the
ordinary sense of the term because it holds a finance share in the company, if
the finance share is a debt interest. However, if the entity holds other shares
in the company that are not debt interests, it will be a member because of those
other shares.
If you are a *member of an
entity:
(a) each interest, or set of interests, in the entity; or
(b) each right, or set of rights, in relation to the entity;
by virtue of which you are a member of the entity is a membership
interest of yours in the entity.
Note: In conjunction with subsection 960-130(3), this means
that a debt interest is not a membership interest.
Example: A member of a company holds a finance share in a
company that is a debt interest and some other shares in the company that are
not debt interests. Only the other shares are membership interests in the
company. The finance share is not, because the member is not a member of the
company because of that share (see subsection 960-130(3)).
2 Subsection 995-1(1)
Insert:
allocable cost amount has the meaning given by
section 705-60 and subsection 711-20(1).
3 Subsection 995-1(1)
Insert:
available fraction for a
*bundle of losses has the meaning given by
section 707-320.
4 Subsection 995-1(1)
Insert:
bundle of losses has the meaning given by
section 707-315.
5 Subsection 995-1(1)
Insert:
cessation event, in relation to a
*provisional head company of a
*MEC group, has the meaning given by subsection
719-60(6).
6 Subsection 995-1(1)
Insert:
consolidatable group has the meaning given by
section 703-10.
7 Subsection 995-1(1)
Insert:
consolidated group has the meaning given by
section 703-5.
8 Subsection 995-1(1)
Insert:
consolidation transitional year, for a
*member of a
*consolidated group, is an income year for that
member:
(a) during all or any part of which the consolidation of the group has
effect; and
(b) to which either of the following applies:
(i) during that year the Commissioner gives the
*head company of the group its
*initial head company instalment
rate;
(ii) that year ends before the Commissioner gives the head company that
rate.
9 Subsection 995-1(1)
Insert:
eligible tier-1 company has the meaning given by
section 719-15.
10 Subsection 995-1(1) (at the end of the
definition of film loss)
Add “and affected by section 701-30”.
11 Subsection 995-1(1) (definition of head
company)
Repeal the definition, substitute:
head company:
(a) in relation to a *consolidated group
or *consolidatable group—has the meaning
given by section 703-15; and
(b) of a *MEC group—has the meaning
given by section 719-75.
12 Subsection 995-1(1)
Insert:
initial head company instalment rate, for an entity that is
the *head company of a
*consolidated group, means the instalment rate
given to the entity by the Commissioner that is worked out on the basis of that
entity’s first *base assessment as the
head company of the consolidated group.
13 Subsection 995-1(1)
Insert:
MEC group has the meaning given by
section 719-5.
14 Subsection 995-1(1) (definition of
member of a company)
Repeal the definition.
15 Subsection 995-1(1)
Insert:
member of a *consolidated
group or *consolidatable group has the meaning
given by section 703-15.
16 Subsection 995-1(1)
Insert:
member of an entity has the meaning given by
section 960-130.
17 Subsection 995-1(1)
Insert:
membership interest in an entity has the meaning given by
section 960-135.
18 Subsection 995-1(1)
Insert:
modified market value of an entity has the meaning given by
section 707-325.
19 Subsection 995-1(1) (at the end of the
definition of net capital loss)
Add “and affected by section 701-30”.
20 Subsection 995-1(1)
Insert:
over-depreciated has the meaning given by subsection
705-50(6).
21 Subsection 995-1(1)
Insert:
over-depreciation has the meaning given by subsection
705-50(6).
22 Subsection 995-1(1)
Insert:
potential MEC group has the meaning given by
section 719-10.
23 Subsection 995-1(1)
Insert:
pre-CGT factor has the meaning given by subsection
705-125(2).
24 Subsection 995-1(1)
Insert:
provisional head company of a
*MEC group means the company that holds an
appointment in force under section 719-60 as the provisional head company
of the group.
25 Subsection 995-1(1)
Insert:
retained cost base asset has the meaning given by subsection
705-25(5).
26 Subsection 995-1(1) (definition of same
business test period)
Omit “and 166-40”, substitute “, 166-40, 707-125 and
707-135, and affected by section 707-400”.
27 Subsection 995-1(1)
Insert:
sort of loss has the meaning given by
section 701-1.
28 Subsection 995-1(1)
Insert:
special conversion event, in relation to a
*potential MEC group, has the meaning given by
section 719-40.
29 Subsection 995-1(1)
Insert:
subsidiary member:
(a) of a *consolidated group or a
*consolidatable group—has the meaning
given by section 703-15; and
(b) of a *MEC group—has the meaning
given by section 719-25.
30 Subsection 995-1(1)
Insert:
tax cost is set has the meaning given by
section 701-55.
31 Subsection 995-1(1)
Insert:
tax cost setting amount has the meaning given by
section 701-60.
32 Subsection 995-1(1) (definition of tax
loss)
Omit “or 175-35”, substitute “, 175-35 or
701-30”.
33 Subsection 995-1(1)
Insert:
terminating value has the meaning given by
sections 705-30 and 711-30.
34 Subsection 995-1(1) (definition of test
time)
Omit “and 166-86”, substitute “, 166-85, 707-125 and
707-135”.
35 Subsection 995-1(1)
Insert:
tier-1 company has the meaning given by
section 719-20.
36 Subsection 995-1(1)
Insert:
top company has the meaning given by
section 719-20.
37 Subsection 995-1(1)
Insert:
trial year has the meaning given by
section 707-120.
38 Subsection 995-1(1)
Insert:
utilise a loss has the meaning given by
section 707-110.
39 Subsection 995-1(1)
Insert:
wholly-owned subsidiary of an entity has the meaning given by
section 703-30.
