Commonwealth Consolidated Acts

NEW BUSINESS TAX SYSTEM (CONSOLIDATION AND OTHER MEASURES) ACT (NO. 1) 2002 - SCHEDULE 12

Income Tax Assessment Act 1997

Add:

(3)

Despite subsection (1), if the ^* tax loss is transferred because the conditions in section 170-32 are met, the ^* income company is taken to have incurred the tax loss for the income year for which the first prior transferor mentioned in that section incurred the tax loss.

(4)

Despite subsection (1), if the ^* tax loss is transferred because the condition in subsection 170-42(4) is met, the ^* income company is taken to have incurred the tax loss for the income year for which that subsection assumes the income company incurred the tax loss.

Repeal the heading, substitute:

Add:

Note: In some cases, this condition may not apply, or may be taken to be met even if it is not actually met. See sections 170-32 and 170-33.

Insert:

When the conditions in this section apply

(1)

The conditions in this section apply instead of the conditions in subsections 170-30(1) and (2) if:

(a)

the ^* income company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936 ) of a ^* foreign bank; and

(b)

the ^* loss company incurred the ^* tax loss because of one or more transfers of the tax loss under Subdivision 707-A.

Conditions

(2)

Each transferor ( prior transferor ) of the ^* tax loss under Subdivision 707-A must have been a company.

(3)

It must have been possible to meet the conditions in subsections 170-30(1) and (2) in relation to the ^* loss company and the ^* income company assuming:

(a)

the ^* loss year were so much of the income year in which the ^* tax loss was transferred to the loss company under Subdivision 707-A as occurred after the transfer; and

(b)

so much (if any) of the ^* deduction year as occurred before the transfer were disregarded.

(4)

The ^* income company and each prior transferor must both be ^* in existence during at least part of each of these periods:

(a)

the period consisting of:

(i)

if the prior transferor incurred the ^* tax loss apart from Subdivision 707-A—the ^* loss year; or

(ii)

if the prior transferor incurred the tax loss because of a transfer under Subdivision 707-A (other than a transfer from the prior transferor to itself)—so much of the income year in which the transfer occurred as was after the transfer (but before any later transfer of the loss from the prior transferor under that Subdivision);

(b)

so much of the income year during which the tax loss was transferred under Subdivision 707-A from the prior transferor to another company as occurs before the transfer (but after the start of the period described in paragraph (a));

(c)

any intervening income year.

(5)

The ^* income company must be a member of the same ^* wholly-owned group as each prior transferor during the whole or part of the periods described in subsection (4) for the prior transferor when both were ^* in existence.

(1)

The conditions in subsections 170-30(1) and (2) are taken to be met in relation to the ^* loss company and the ^* income company if:

(a)

the loss company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936 ) of a ^* foreign bank; and

(b)

the income company is covered by item 1 or 2 of the table in subsection 170-30(4) (because the company is the ^* head company of a ^* consolidated group or ^* MEC group at the time described in that item); and

(c)

the relevant circumstances in this section exist.

Circumstances

(2)

One circumstance is that there is another company (the first link company ) in relation to which all these conditions are met:

(a)

the first link company became a ^* subsidiary member of a ^* consolidated group or ^* MEC group after the start of the ^* loss year but before the time described in the item of the table in subsection 170-30(4) that covers the ^* income company;

(b)

the ^* tax loss could have been transferred from the ^* loss company to the first link company under this Subdivision (apart from subsection 170-30(4) and this section) for a ^* deduction year consisting of the ^* trial year for the first link company becoming a subsidiary member of that group had:

(i)

the first link company continued to be ^* in existence as a separate entity (rather than being part of the head company of that group) when it was a subsidiary member of that group; and

(ii)

the trial year not started before the start of the loss year; and

(iii)

the first link company had enough assessable income for the trial year;

(c)

the tax loss would have been incurred by the income company because of one or more transfers under Subdivision 707-A assuming the tax loss had been made by the first link company (apart from that Subdivision) for the loss year.

(3)

If the condition in paragraph (2)(c) could be met only if there had been a transfer described in that paragraph involving a company other than the first link company and the ^* income company, another circumstance is that the other company and the ^* loss company were ^* in existence and members of the same ^* wholly-owned group for the period:

(a)

starting when the ^* tax loss would have been transferred under Subdivision 707-A to the other company as described in that paragraph; and

(b)

ending when the tax loss would have been transferred under Subdivision 707-A from the other company as described in that paragraph.

(4)

It does not matter whether or not any of the transfers mentioned in subsection (3) would have involved the first link company or the ^* income company as well as the other company.

(5)

Another circumstance is that the conditions in subsections 170-30(1) and

(2)

would have been met for the ^* loss company and the ^* income company assuming:

(a)

the ^* loss year consisted of the part of the income year in which the ^* tax loss would have been transferred to the income company under Subdivision 707-A as described in paragraph (2)(c) occurring after the time the transfer would have occurred; and

(b)

so much (if any) of the ^* deduction year as occurred before the time the transfer would have occurred were disregarded.

Omit "Note:", substitute "Note 1:".

Add:

Note 2: Division 707 affects the operation of Subdivision 165-A if the loss company incurred the tax loss because of a transfer under Subdivision 707-A.

Omit "Note:", substitute "Note 1:".

Add:

Note 2: The condition in subsection (2) may not apply in some cases. See section 170-42.

Insert:

(1)

The condition in subsection (2) of this section applies to the ^* income company instead of the condition in subsection 170-40(2) if the conditions in subsections 170-30(1) and (2) are met in relation to the ^* loss company and the income company apart from section 170-33 and either:

(a)

both these circumstances exist:

(i)

after the start of the ^* loss year but before the relevant time described in subsection 170-30(4), the income company became the ^* head company of a ^* consolidated group or of a ^* MEC group that came into existence after the start of the loss year;

(ii)

the loss year and ^* deduction year are not the same; or

(b)

all these circumstances exist:

(i)

the income company is, at the relevant time described in subsection 170-30(4), the head company of a MEC group;

(ii)

before that time but after the end of the loss year, the MEC group was involved in an application event described in section 719-300 (but not covered by subsection 719-300(4) or (5));

(iii)

the income company would be taken under section 719-305 to have transferred losses to itself under Subdivision 707-A, assuming it had made losses while head company of the group or of a consolidated group involved in the event;

(iv)

the MEC group or consolidated group came into existence before the start of the ^* loss year.

Note: An application event involves either expanding an existing MEC group by including extra eligible tier-1 companies of the top company for the group or creating a MEC group because more companies become eligible tier-1 companies of the top company of which the head company of a consolidated group is an eligible tier-1 company.

(2)

The ^* income company must have been able to deduct the ^* tax loss in the ^* deduction year assuming that it had incurred the tax loss for the ^* loss year.

(3)

The condition in subsection (4) of this section applies to the ^* income company instead of the condition in subsection 170-40(2) if the conditions in subsections 170-30(1) and (2) are met in relation to the ^* loss company and the income company because of section 170-33.

(4)

The ^* income company must have been able to deduct the ^* tax loss in the ^* deduction year assuming that it had incurred the tax loss, for the income year in which the loss would have been transferred to it as described in paragraph 170-33(2)(c), because of one or more transfers under Subdivision 707-A described in that paragraph.

Add:

(4)

Subsections (2) and (3) do not apply if the transfer occurs because either or both of the conditions in subsections 170-42(2) and (4) are met. In that case, the amount transferred also cannot exceed the amount worked out as follows:

Method statement

Step 1. Identify each ^* bundle of losses that, on the assumption in subsection 170-42(2) or (4) (as appropriate), would have included the ^* tax loss or ^* film loss (as appropriate).

Note 1: There will be 2 or more bundles of losses identified if both of the conditions in subsections 170-42(2) and (4) are met.
Note 2: There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph 170-42(4) if the conditions in subsections 170-30(1) and (2) are met in relation to the loss company and the income company because of multiple applications of section 170-33 each involving a different first link company.

Step 2. For each ^* bundle identified, work out how much of the ^* tax loss or ^* film loss (as appropriate) the ^* income company would have been able to deduct in the ^* deduction year assuming that:

(a) the loss could have been deducted in that year only after the deduction in that year of any other losses of that ^* sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the ^* loss company to the income company for that year; and
(b) if the bundle would have included 2 or more transferable losses of that sort—those losses could have been deducted only in the order in which the loss company incurred them.

Note 1: If the assumption in subsection 170-42(2) is relevant to the bundle, it would have included losses incurred by the income company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707-A.
Note 2: If the assumption in paragraph 170-42(4) is relevant to the bundle, it would have included losses actually incurred by the first link company and transferred (by one or more transfers under Subdivision 707-A) to the income company.

Step 3. Total every result of step 2 for the ^* tax loss or ^* film loss (as appropriate).

Add:

(3)

If:

(a)

the ^* loss company has 2 or more ^* tax losses, or 2 or more ^* film losses, it can transfer for the ^* deduction year; and

(b)

it incurred at least one of those losses apart from Subdivision 707-A and at least one of those losses because of a transfer under that Subdivision;

it can transfer under this Subdivision the losses it incurred because of a transfer under Subdivision 707-A only after transferring under this Subdivision the losses it incurred apart from that Subdivision.

(4)

For the purposes of subsection (3), treat a loss incurred by the company both apart from that Subdivision and because of a transfer under that Subdivision as a loss incurred because of a transfer under that Subdivision.

(5)

Subsections (1) and (2) have effect subject to subsection (3).

The amendments of Subdivision 170-A of the Income Tax Assessment Act 1997 made by this Schedule apply in relation to deduction years ending after 1 July 2002.

Add:

(3)

Despite subsection (1), if the ^* net capital loss is transferred because the conditions in section 170-132 are met, the gain company is taken to have made the net capital loss for the income year for which the first prior transferor mentioned in that section made the net capital loss.

(4)

Despite subsection (1), if the ^* net capital loss is transferred because the condition in subsection 170-142(4) is met, the gain company is taken to have made the net capital loss for the income year for which that subsection assumes the gain company made the net capital loss.

Repeal the heading, substitute:

Add:

Note: In some cases, this condition may not apply, or may be taken to be met even if it is not actually met. See sections 170-132 and 170-133.

Insert:

When the conditions in this section apply

(1)

The conditions in this section apply instead of the conditions in subsections 170-130(1) and (2) if:

(a)

the gain company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936 ) of a ^* foreign bank; and

(b)

the ^* loss company made the ^* net capital loss because of one or more transfers of the net capital loss under Subdivision 707-A.

Conditions

(2)

Each transferor ( prior transferor ) of the ^* net capital loss under Subdivision 707-A must have been a company.

(3)

It must have been possible to meet the conditions in subsections 170-130(1) and (2) in relation to the ^* loss company and the gain company assuming:

(a)

the capital loss year were so much of the income year in which the ^* net capital loss was transferred to the loss company under Subdivision 707-A as occurred after the transfer; and

(b)

so much (if any) of the application year as occurred before the transfer were disregarded.

(4)

The gain company and each prior transferor must both be ^* in existence during at least part of each of these periods:

(a)

the period consisting of:

(i)

if the prior transferor made the ^* net capital loss apart from Subdivision 707-A—the capital loss year; or

(ii)

if the prior transferor made the net capital loss because of a transfer under Subdivision 707-A (other than a transfer from the prior transferor to itself)—so much of the income year in which the transfer occurred as was after the transfer (but before any later transfer of the loss from the prior transferor under that Subdivision);

(b)

so much of the income year during which the net capital loss was transferred under Subdivision 707-A from the prior transferor to another company as occurs before the transfer (but after the start of the period described in paragraph (a));

(c)

any intervening income year.

(5)

The gain company must be a member of the same ^* wholly-owned group as each prior transferor during the whole or part of the periods described in subsection (4) for the prior transferor when both were ^* in existence.

(1)

The conditions in subsections 170-130(1) and (2) are taken to be met in relation to the ^* loss company and the gain company if:

(a)

the loss company is an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936 ) of a ^* foreign bank; and

(b)

the gain company is covered by item 1 or 2 of the table in subsection 170-130(4) (because the company is the ^* head company of a ^* consolidated group or ^* MEC group at the time described in that item); and

(c)

the relevant circumstances in this section exist.

Circumstances

(2)

One circumstance is that there is another company (the first link company ) in relation to which all these conditions are met:

(a)

the first link company became a ^* subsidiary member of a ^* consolidated group or ^* MEC group after the start of the capital loss year but before the time described in the item of the table in subsection 170-130(4) that covers the gain company;

(b)

the ^* net capital loss could have been transferred from the ^* loss company to the first link company under this Subdivision (apart from subsection 170-130(4) and this section) for an application year consisting of the ^* trial year for the first link company becoming a subsidiary member of that group had:

(i)

the first link company continued to be ^* in existence as a separate entity (rather than being part of the head company of that group) when it was a subsidiary member of that group; and

(ii)

the trial year not started before the start of the capital loss year; and

(iii)

the first link company had enough ^* capital gains for the trial year;

(c)

the net capital loss would have been made by the gain company because of one or more transfers under Subdivision 707-A assuming the net capital loss had been made by the first link company (apart from that Subdivision) for the capital loss year.

(3)

If the condition in paragraph (2)(c) could be met only if there had been a transfer described in that paragraph involving a company other than the first link company and the gain company, another circumstance is that the other company and the ^* loss company were ^* in existence and members of the same ^* wholly-owned group for the period:

(a)

starting when the ^* net capital loss would have been transferred under Subdivision 707-A to the other company as described in that paragraph; and

(b)

ending when the net capital loss would have been transferred under Subdivision 707-A from the other company as described in that paragraph.

(4)

It does not matter whether or not any of the transfers mentioned in subsection (3) would have involved the first link company or the gain company as well as the other company.

(5)

Another circumstance is that the conditions in subsection 170-130(1) and

(2)

would have been met for the ^* loss company and the gain company assuming:

(a)

the capital loss year consisted of the part of the income year in which the ^* net capital loss would have been transferred to the gain company under Subdivision 707-A as described in paragraph (2)(c) occurring after the time the transfer would have occurred; and

(b)

so much (if any) of the application year as occurred before the time the transfer would have occurred were disregarded.

Repeal the note, substitute:

Note 2: Division 707 affects the operation of Subdivision 165-CA if the loss company made the net capital loss because of a transfer under Subdivision 707-A.

Note 3: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5 or 102-10.

Add:

Note 3: The condition in subsection (2) may not apply in some cases. See section 170-142.

Insert:

(1)

The condition in subsection (2) of this section applies to the gain company instead of the condition in subsection 170-140(2) if the conditions in subsections 170-130(1) and (2) are met in relation to the ^* loss company and the gain company apart from section 170-133 and either:

(a)

both these circumstances exist:

(i)

after the start of the capital loss year but before the relevant time described in subsection 170-130(4), the gain company became the ^* head company of a ^* consolidated group or of a ^* MEC group that came into existence after the start of the capital loss year;

(ii)

the capital loss year and application year are not the same; or

(b)

all these circumstances exist:

(i)

the gain company is, at the relevant time described in subsection 170-130(4), the head company of a MEC group;

(ii)

before that time but after the end of the capital loss year, the MEC group was involved in an application event described in section 719-300 (but not covered by subsection 719-300(4) or (5));

(iii)

the gain company would be taken under section 719-305 to have transferred losses to itself under Subdivision 707-A, assuming it had made losses while head company of the group or of a consolidated group involved in the event;

(iv)

the MEC group or consolidated group came into existence before the start of the capital loss year.

Note: An application event involves either expanding an existing MEC group by including extra eligible tier-1 companies of the top company for the group or creating a MEC group because more companies become eligible tier-1 companies of the top company of which the head company of a consolidated group is an eligible tier-1 company.

(2)

The gain company must have been able to apply the ^* net capital loss in working out its ^* net capital gain for the application year assuming that it had made the net capital loss for the capital loss year.

(3)

The condition in subsection (4) of this section applies to the gain company instead of the condition in subsection 170-140(2) if the conditions in subsections 170-130(1) and (2) are met in relation to the ^* loss company and the gain company because of section 170-133.

(4)

The gain company must have been able to apply the ^* net capital loss in working out its ^* net capital gain for the application year assuming that it had made the net capital loss, for the income year in which the loss would have been transferred to it as described in paragraph 170-133(2)(c), because of one or more transfers under Subdivision 707-A described in that paragraph.

Add:

(7)

Subsection (6) does not apply if the transfer occurs because either or both of the conditions in subsections 170-142(2) and (4) are met. In that case, the amount transferred also cannot exceed the amount worked out as follows:

Method statement

Step 1. Identify each ^* bundle of losses that, on the assumption in subsection 170-142(2) or (4) (as appropriate), would have included the ^* net capital loss.

Note 1: There will be 2 or more bundles of losses identified if both of the conditions in subsections 170-142(2) and (4) are met.
Note 2: There will be more than 1 bundle of losses identified on the basis of the assumption in paragraph 170-142(4) if the conditions in subsections 170-130(1) and (2) are met in relation to the loss company and the gain company because of multiple applications of section 170-133 each involving a different first link company.

Step 2. For each ^* bundle identified, work out how much of the ^* net capital loss the gain company would have been able to apply in working out its ^* net capital gain for the application year assuming that:

(a) the loss could have been applied in that year only after the application in that year of any other losses of that ^* sort that would have been included in the bundle, other than losses (the transferable losses ) that could be transferred from the ^* loss company to the gain company for that year; and
(b) if the bundle would have included 2 or more transferable losses of that sort—those losses could have been applied only in the order in which the loss company made them.

Note 1: If the assumption in subsection 170-142(2) is relevant to the bundle, it would have included losses made by the gain company and transferred (or taken to be transferred) to the company (from itself) under Subdivision 707-A.
Note 2: If the assumption in paragraph 170-142(4) is relevant to the bundle, it would have included losses actually made by the first link company and transferred (by one or more transfers under Subdivision 707-A) to the gain company.

Step 3. Total every result of step 2 for the ^* net capital loss.

Add:

(2)

If:

(a)

the ^* loss company has 2 or more ^* net capital losses it can transfer for the application year; and

(b)

it made at least one of those losses apart from Subdivision 707-A and at least one of those losses because of a transfer under that Subdivision;

it can transfer under this Subdivision the losses it made because of a transfer under Subdivision 707-A only after transferring under this Subdivision the losses it made apart from that Subdivision.

(3)

For the purposes of subsection (2), treat a loss made by the company both apart from Subdivision 707-A and because of a transfer under that Subdivision as a loss made because of a transfer under that Subdivision.

(4)

Subsection (1) has effect subject to subsection (2).

The amendments of Subdivision 170-B of the Income Tax Assessment Act 1997 made by this Schedule apply in relation to application years ending after 1 July 2002.

Add:

(5)

If, had a loss been made by a company as assumed under a provision of Division 170, the loss would have been transferred under Subdivision 707-A, this Subdivision and other provisions that relate to or may affect the ^* available fractions for one or more ^* bundles of losses (including sections 707-140 and 719-325) operate as if the transfer had occurred.

Note: Section 707-140 provides for a choice to cancel a transfer under Subdivision 707-A. Section 719-325 provides for a choice to cancel all losses in certain bundles of losses. A choice under one of those sections may result in a bundle not coming into existence, or not being in existence after a certain time.

(6)

To avoid doubt, a choice under section 707-145 or 719-325, as it operates because of subsection (5) of this section, relating to the loss does not affect or prevent:

(a)

a transfer of the loss that would have occurred under Subdivision 707-A as described in another application of that subsection involving a different company; or

(b)

^* utilisation of the loss by the company that actually made the loss and is different from the company assumed under Division 170 to have made the loss.

Note: Therefore a choice under section 707-145 or 719-325, as operating because of subsection (5) of this section, will be able to cause only one bundle not to exist, and will not affect the existence of other bundles that are treated as existing because of other operations of that subsection.

Income Tax (Transitional Provisions) Act 1997

Insert:

Table of sections

170-45 Special rules affecting utilisation of losses in a bundle do not affect the amount of a tax loss that can be transferred
170-55 Ordering rule for losses previously transferred under Subdivision 707-A of the Income Tax Assessment Act 1997

In working out an amount under subsection 170-45(4) of the Income Tax Assessment Act 1997 (which may limit the amount of a tax loss that can be transferred under Subdivision 170-A of that Act), disregard these sections of this Act:

(a)

section 707-325 (which lets the available fraction for a bundle of losses be greater than it would otherwise be);

(b)

section 707-327 (which effectively lets the available fraction relevant to the utilisation of a loss be chosen in some cases);

(c)

section 707-350 (which sets the limit on utilising certain losses in a bundle).

If 2 or more losses that a company can transfer for an income year under Subdivision 170-A of the Income Tax Assessment Act 1997 were previously transferred to it under Subdivision 707-A of that Act, it must transfer first those losses (if any) covered by subsection 707-350(1).

Subdivision 170-A of the Income Tax (Transitional Provisions) Act 1997 applies to income years ending after 1 July 2002.

Repeal the heading, substitute:

Add:

In working out an amount under subsection 170-145(7) of the Income Tax Assessment Act 1997 (which may limit the amount of a net capital loss that can be transferred under Subdivision 170-B of that Act), disregard these sections of this Act:

(a)

section 707-325 (which lets the available fraction for a bundle of losses be greater than it would otherwise be);

(b)

section 707-327 (which effectively lets the available fraction relevant to the utilisation of a loss be chosen in some cases);

(c)

section 707-350 (which sets the limit on utilising certain losses in a bundle).

If 2 or more losses that a company can transfer for an income year under Subdivision 170-B of the Income Tax Assessment Act 1997 were previously transferred to it under Subdivision 707-A of that Act, it must transfer first those losses (if any) covered by subsection 707-350(1).

The amendments of Subdivision 170-B of the Income Tax (Transitional Provisions) Act 1997 made by this Schedule apply to income years ending after 1 July 2002.