Commonwealth Consolidated Acts Commonwealth Consolidated ActsObject
(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.