INCOME TAX ASSESSMENT ACT 1997 - SECT 716.335 Entity leaving group with asset allocated to head company's low - value pool

INCOME TAX ASSESSMENT ACT 1997 - SECT 716.335

  (1)   This section sets out rules affecting the * head company of a * consolidated group and an entity (the leaving entity ) that ceases to be a * subsidiary member of the group at a time (the leaving time ) in an income year (the leaving year ), if:

  (a)   a * depreciating asset becomes an asset of the leaving entity at the leaving time because section   701 - 1 (Single entity rule) ceases to apply to the leaving entity; and

  (b)   the asset was in the head company's low - value pool.

Note:   Section   701 - 40 (Exit history rule) treats the asset as having been allocated to the leaving entity's low - value pool, with the taxable use percentage estimated by the head company, for the income year for which the head company allocated the asset to the head company's low - value pool.

Objects

  (2)   The main objects of this section are:

  (a)   to ensure that the decline in value of assets in the * head company's low - value pool and the decline in value of assets in the leaving entity's low - value pool are worked out so that:

  (i)   for the leaving year, the * depreciating asset is taken into account in working out the decline in value of assets in the head company's low - value pool only; and

  (ii)   for later income years, the depreciating asset is taken into account in working out the decline in value of assets in the leaving entity's low - value pool only; and

  (b)   to specify the * adjustable value of the depreciating asset just before and at the leaving time.

Reduced decline in value for leaving entity for leaving year

  (3)   The decline in value worked out for the leaving year under subsection   40 - 440(1) for assets in the leaving entity's low - value pool is reduced by such amount as is reasonable to prevent duplication of deductions for the leaving year in respect of the * depreciating asset by the * head company and the leaving entity.

Reduced closing pool balance for head company's pool for leaving year

  (4)   The * closing pool balance of the * head company's low - value pool for the leaving year is reduced by so much of the balance as reasonably relates to the * depreciating asset.

Cost of head company's membership interests in leaving entity etc.

  (5)   Sections   701 - 15, 701 - 40 and 701 - 60 and Division   711 have effect as if the * adjustable value of the * depreciating asset for the * head company just before and at the leaving time were such amount as is reasonable, having regard to:

  (a)   the reduction described in subsection   (4) of this section; and

  (b)   the taxable use percentage estimated for the depreciating asset by the head company under section   40 - 435.

Note 1:   Section   701 - 15 provides that, for each membership interest the head company holds in the leaving entity, the interest's tax cost is set just before the leaving time at the interest's tax cost setting amount, which is defined by section   701 - 60 as the amount worked out under certain sections of Division   711.

Note 2:   Division   711 sets the interest's tax cost setting amount by reference to the head company's terminating value of the asset, which is to be worked out under section   711 - 30 by reference to the adjustable value of the asset for the head company just before the leaving time.

Note 3:   Section   701 - 40 has the effect that the adjustable value of the asset for the leaving entity at the leaving time is the same as the adjustable value of the asset for the head company then.