Commonwealth Consolidated Acts

NEW BUSINESS TAX SYSTEM (CONSOLIDATION AND OTHER MEASURES) ACT (NO. 1) 2002 - SCHEDULE 2

Income Tax Assessment Act 1997

Omit "124-380(5)", substitute "124-380(7)".

Add:

(2)

You are taken to have chosen to obtain the roll-over if:

(a)

immediately before the time referred to in section 124-365 as the completion time, the original company is the ^* head company of a ^* consolidated group; and

(b)

immediately after the completion time, the interposed company is the head company of the group.

Note: The consolidated group continues in existence because of section 703-70.

Insert:

(1A)

You are taken to have chosen to obtain the roll-over if:

(a)

immediately before the time referred to in section 124-375 as the completion time, the original company is the ^* head company of a ^* consolidated group; and

(b)

immediately after the completion time, the interposed company is the head company of the group.

Note: The consolidated group continues in existence because of section 703-70.

Repeal the subsection, substitute:

Choice to be made by interposed company

(5)

If:

(a)

immediately before the completion time, the original company is the ^* head company of a ^* consolidated group; and

(b)

immediately after the completion time, the interposed company is the head company of a ^* consolidatable group consisting only of itself and the ^* members of the group immediately before the completion time;

the interposed company must choose that the consolidated group is to continue in existence at and after the completion time.

Note: Sections 703-65 to 703-80 deal with the effects of the choice for the consolidated group.

(6)

If subsection (5) of this section does not apply, the interposed company must choose that section 124-385 apply.

(7)

In either case, the interposed company must make the choice within 2 months after the completion time, or within such further time as the Commissioner allows. The choice cannot be revoked.

Note: This is an exception to the general rule about choices in section 103-25.

Repeal the group heading, substitute:

Insert:

(1A)

This section applies if the interposed company so chooses under subsection 124-380(6).

Add:

(1)

There are additional consequences if:

(a)

under subsection 124-360(2), you are taken to obtain the roll-over and, at the time immediately before you ^* dispose of your ^* shares in the original company, some or all of them are your ^* trading stock or ^* revenue assets; or

(b)

under subsection 124-370(1A), you are taken to obtain the roll-over and, at the time immediately before the original company redeems or cancels your shares in it, some or all of them are your trading stock or revenue assets.

Trading stock

(2)

The amount included in your assessable income because of the ^* disposal, redemption or cancellation of each of your ^* shares in the original company that is your ^* trading stock at that time is equal to:

(a)

if the share has been your trading stock ever since the start of the income year in which that time occurs—the total of:

(i)

its ^* value as trading stock at the start of the income year; and

(ii)

the amount (if any) by which its cost has increased since the start of the income year; or

(b)

otherwise—its cost at that time.

(3)

For each of the ^* shares in the interposed company that you acquired in return for those of your shares in the original company that were your ^* trading stock at that time, you are taken to have paid:

Note: The amount worked out under the formula becomes the cost of each of those shares in the interposed company.

Revenue assets

(4)

For each of your ^* shares in the original company that is a ^* revenue asset at that time, your assessable income includes the total of the amounts that (apart from this subsection) would be subtracted from the gross disposal proceeds in calculating any profit or loss on your disposing of, or ceasing to own, that share at that time.

(5)

For each of the ^* shares in the interposed company that you acquired in return for those of your shares in the original company that were ^* revenue assets at that time, you are taken to have paid:

_{8
At the end of subsection 703-5(2)}

Add:

Note: The group does not cease to exist in some cases where a shelf company is interposed between the head company and its former members: see subsection 124-380(5) and section 703-70.

Repeal the link note.

Insert:

Sections 703-70 to 703-80 set out the effects if a company (the interposed company ) chooses under subsection 124-380(5) that a ^* consolidated group is to continue in existence at and after the time referred to in that subsection as the completion time.

Note: The choice is one of the conditions for a compulsory roll-over under Subdivision 124-G on an exchange of shares in the head company of a consolidated group for shares in the interposed company.

(1)

The ^* consolidated group is taken not to have ceased to exist under subsection 703-5(2) because the company referred to in subsection 124-380(5) as the original company ceases to be the ^* head company of the group.

(2)

To avoid doubt, the interposed company is taken to have become the ^* head company of the ^* consolidated group at the completion time, and the original company is taken to have ceased to be the head company at that time.

Note: A further result is that the original company is taken to have become a subsidiary member of the group at that time. Section 703-80 deals with the original company's tax position for the income year that includes the completion time.

(3)

A provision of this Part that applies on an entity becoming a ^* subsidiary member of a ^* consolidated group does not apply to an entity being taken to have become such a member as a result of this section, unless the provision is expressed to apply despite this subsection.

Note: An example of the effect of this subsection is that there is no resetting under section 701-10 of the tax cost of assets of the original company that become assets of the interposed company because of subsection 701-1(1) (the single entity rule).

(4)

To avoid doubt, subsection (3) does not affect the application of subsection 701-1(1) (the single entity rule).

(1)

Everything that happened in relation to the original company before the completion time:

(a)

is taken to have happened in relation to the interposed company instead of in relation to the original company; and

(b)

is taken to have happened in relation to the interposed company instead of what would (apart from this section) be taken to have happened in relation to the interposed company before that time;

just as if, at all times before the completion time:

(c)

the interposed company had been the original company; and

(d)

the original company had been the interposed company.

Note: This section treats the original company and the interposed company as having in effect exchanged identities throughout the period before the completion time, but without affecting any of the original company's other attributes.

(2)

To avoid doubt, subsection (1) also covers everything that, immediately before the completion time, was taken, because of:

(a)

section 701-1 (Single entity rule); or

(b)

section 701-5 (Entry history rule); or

(c)

one or more previous applications of this section; or

(d)

section 719-90 (about the effects of a change of head company of a MEC group);

to have happened in relation to the original company.

(3)

Subsections (1) and (2) have effect:

(a)

for the head company core purposes in relation to an income year ending after the completion time; and

(b)

for the entity core purposes in relation to an income year ending after the completion time; and

(c)

for the purposes of determining the respective balances of the ^* franking accounts of the original company and the interposed company at and after the completion time.

(4)

Subsections (1) and (2) have effect subject to:

(a)

section 701-40 (Exit history rule); and

(b)

a provision of this Act to which section 701-40 is subject because of section 701-85 (about exceptions to the core rules in Division 701).

Note: An example of provisions covered by paragraph (b) of this subsection is Subdivision 717-E (about transferring to a company leaving a consolidated group various surpluses under the CFC and FIF rules in Parts X and XI of the Income Tax Assessment Act 1936 ).

In applying section 701-30 to the original company for the income year that includes the completion time, disregard a non-membership period that starts before the completion time.

Note 1: Section 701-30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Its application can also affect the entity's tax position in later income years.

Note 2: Under section 703-75 the interposed company inherits the original company's tax position for the part of the income year that ends before the completion time, with the consequence that the original company's taxable income, income tax payable, and losses of any sort, for that part are each nil.

Because of section 703-75 and this section, the only tax payable by the original company for the income year arises because of the application of section 701-30 to non-membership periods in the income year after the completion time.

[The next Division is Division 705.]

The amendments made by items 1 to 7 apply on and after 1 July 2002.