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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repealed as set out in the applicable items in the Schedule concerned, and any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 | |