Commonwealth Consolidated Acts

NEW BUSINESS TAX SYSTEM (CONSOLIDATION, VALUE SHIFTING, DEMERGERS AND OTHER MEASURES) ACT 2002 - SCHEDULE 2

Income Tax Assessment Act 1997

Add:

Note: As a consequence of fixing the trading stock's value at the end of the income year under this subsection, no election would be available under section 70-45 to value the trading stock at that time.

Note: The heading to subsection 701-25(4) is altered by omitting " cost " and substituting " value ".

After "ends", insert ", or, if section 701-30 applies, of the income year that is taken by subsection (3) of that section to end,".

Note: The heading to subsection 701-35(4) is altered by omitting " cost " and substituting " value ".

Add:

Note: As a consequence of fixing the trading stock's value at the end of the income year under this subsection, no election would be available under section 70-45 to value the trading stock at that time.

After "above", insert "is to apply in relation to the asset".

Repeal the paragraph, substitute:

(a)

the following income year (the joining adjustment year ):

(i)

if the combining entity is the ^* head company and the joining time occurs at the start of an income year—the income year before that income year; or

(ii)

if the combining entity is the head company and subparagraph (i) does not apply—the income year in which the joining time occurs; or

(iii)

in any other case—the income year that ends, or, if section 701-30 applies, the income year that is taken by subsection (3) of that section to end, at the joining time; and

Omit "income year", substitute "adjustment year".

Omit "income year and", substitute "adjustment year and".

Omit "income year", substitute "adjustment year".

After "started", insert ", or, if section 701-30 applies, the income year that is taken by subsection (3) of that section to have started,".

Repeal the paragraph, substitute:

(a)

the following income year (the leaving adjustment year ):

(i)

if the separating entity is the ^* head company—the income year in which the leaving time occurs; or

(ii)

in any other case—the income year that starts, or, if section 701-30 applies, the income year that is taken by subsection (3) of that section to start, at the leaving time.

Omit "income year", substitute "adjustment year".

Repeal the paragraph, substitute:

(a)

the entity ^* acquired, at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, a ^* depreciating asset to which Division 40 applies and held the asset continuously until the entity became a ^* subsidiary member of the group; and

After " ^* depreciating asset", insert "to which Division 40 applies".

Repeal the paragraph, substitute:

(a)

the joining entity ^* acquired, at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, a ^* depreciating asset to which Division 40 applies and held the asset continuously until the joining time; and

Insert:

(aa)

subsection (5) does not apply to the asset; and

After "franked dividends", insert "or distributions included in the step 4 amount mentioned in step 4 in the table in section 705-60".

After " ^* depreciating asset", insert "to which Division 40 applies".

Omit "the ^* members of the joined group had, just before the joining time, ^* disposed of their ^* membership interests in the joining entity", substitute "a ^* CGT event had happened just before the joining time in relation to the ^* membership interest".

Omit "the membership interests" (twice occurring), substitute "the membership interest".

Insert:

Reduction if section 165-115ZD could apply

(3A)

If, on the assumption that:

(a)

the ^* members of the joined group had, just before the joining time, ^* disposed of their ^* membership interest in the joining entity; and

(b)

the consideration received by the members for the disposal were equal to the ^* market value of the membership interest at that time;

the ^* reduced cost base of the membership interest would have been reduced as a result of the operation of section 165-115ZD of this Act or the Income Tax (Transitional Provisions) Act 1997 , then the reduced cost base of the membership interest that is to be used in subsection (1) of this section is reduced by the amount of that reduction.

After "subsection (3)", insert "or (3A)".

After " ^* CGT event", insert "or a ^* realisation event".

Insert:

Reduction in reduced cost base under subsection 165-115ZA(3) to be added back

(5A)

If:

(a)

in working out the ^* reduced cost base of the ^* membership interest for the purposes of subsection (1), a reduction has taken place under subsection 165-115ZA(3) (about alterations in ownership or control of loss companies); and

(b)

the reduction is to some extent attributable to so much of an amount that was taken into account both in working out the amount of the reduction and in working out:

(i)

the step 5 amount under section 705-100; or

(ii)

the step 6 amount under section 705-110;

the reduced cost base is, to the extent mentioned in paragraph (b), increased by:

(c)

if subparagraph (b)(i) applies—the amount of that reduction; or

(d)

if subparagraph (b)(ii) applies—the amount of that reduction multiplied by the ^* general company tax rate.

Repeal the note.

Insert:

Where liability valued differently for joined group

(1A)

However, if, in accordance with those ^* accounting standards or statements, the amount of an accounting liability of the joining entity would be different when it became an accounting liability of the joined group, the different amount is treated as the amount of the liability.

Note: Liabilities that the joining entity owes to members of the joined group would not be excluded under subsection (1) or (1A) even though the standards or statements require that they be eliminated in consolidated accounts of a parent entity and its subsidiaries.

Omit "and (4)", substitute ", (3) and (3A)".

Note: The heading to subsection 705-75(3) is altered by omitting " and (4) " and substituting " , (3) and (3A) ".

Add:

Application of subsection 705-65(4)

(4)

Subsection 705-65(4) applies in relation to assets mentioned in subsection (2) of this section in a corresponding way to that in which it applies in relation to members' ^* membership interests.

Reduction in reduced cost base under subsection 165-115ZA(3) to be added back

(5)

If:

(a)

in working out the ^* reduced cost base of a ^* member's asset for the purposes of subsection (2), a reduction has taken place under subsection 165-115ZA(3) (about alterations in ownership or control of loss companies); and

(b)

the reduction is to some extent attributable to so much of an amount that was taken into account both in working out the amount of the reduction and in working out:

(i)

the step 5 amount under section 705-100; or

(ii)

the step 6 amount under section 705-110;

the reduced cost base is, to the extent mentioned in paragraph (b), increased by:

(c)

if subparagraph (b)(i) applies—the amount of that reduction; or

(d)

if subparagraph (b)(ii) applies—the amount of that reduction multiplied by the ^* general company tax rate.

Repeal the section, substitute:

(1)

For the purposes of step 3 in the table in section 705-60, the step 3 amount is worked out in accordance with this section.

Undistributed profits

(2)

First work out the undistributed profits of the joining entity at the joining time. These are the amounts that, in accordance with ^* accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, are retained profits of the joining entity that could be recognised in the joining entity's statement of financial position if that statement were prepared as at the joining time.

Extent to which dividends paid out of undistributed profits would be frankable

(3)

Then work out the extent to which the undistributed profits, if they had been distributed as dividends at the joining time, could have been franked in accordance with section 160AQF of the Income Tax Assessment Act 1936 on the assumptions in subsection (4) of this section.

Assumptions for purposes of subsection (3)

(4)

The assumptions are that the joining entity's franking account balance at the end of the income year that ends, or, if section 701-30 applies, of the income year that is taken by subsection (3) of that section to end, at the joining time had been adjusted to take account of franking credits or franking debits that would arise if the following were paid just before the joining time:

(a)

the income tax, or ^* refund of income tax, on the joining entity's taxable income for that income year; and

(b)

any income tax, or refund of income tax, that has not yet been paid (regardless of whether it has become payable or due for payment) on the joining entity's taxable income for any earlier income year, other than one excluded by subsection (5).

Exclusion of certain income years where previous membership of a consolidated group

(5)

If the joining entity was previously a ^* subsidiary member of a ^* consolidated group, any income year earlier than the one that started, or, if section 701-30 applies, the one that is taken by subsection (3) of that section to have started, when the joining entity ceased to be a subsidiary member of that group is excluded for the purposes of paragraph (4)(b) of this section.

Undistributed profits must have accrued to joined group and not recouped losses

(6)

Next:

(a)

work out the extent to which the undistributed profits that, if they had been distributed as dividends at the joining time, could have been so franked accrued to the joined group before the joining time (subsection (7) states what it means for a profit to accrue to the joined group before the joining time); and

(b)

then exclude those that recouped losses of any ^* sort that accrued to the joined group before the joining time (subsection (8) states what it means for a loss to accrue to the joined group before the joining time).

The result is the step 3 amount.

Profit accruing to the joined group before the joining time

(7)

A profit accrued to the joined group before the joining time if, on the following assumptions:

(a)

that it was distributed to holders of ^* membership interests as it accrued; and

(b)

that entities interposed between the ^* head company and the joining entity successively distributed any of it immediately after receiving it;

it would have been received by the entity that is the head company at the joining time, in respect of membership interests that it held continuously until that time either directly or indirectly through interposed entities.

Loss accruing to the joined group before the joining time

(8)

A loss accrued to the joined group before the joining time if and to the extent that, assuming that as it arose it were instead a profit that was accruing, a distribution of that profit would have been a distribution made to the joined group out of profits that accrued to the joined group before the joining time.

Use of reliable estimates

(9)

In working out:

(a)

for the purposes of subsection (4), the amount of income tax, or ^* refund of income tax, on the joining entity's taxable income for a particular income year and the extent to which it has not yet been paid; or

(b)

for the purposes of subsection (7), the amount of a profit that accrued to the joined group during a particular period; or

(c)

for the purposes of subsection (8), the amount of a loss that accrued to the joined group during a particular period;

use the most reliable basis for estimation that is available.

Omit "705-90(5)", substitute "705-90(7)".

Omit "705-90(4)", substitute "705-90(8)".

Omit "705-90(4)", substitute "705-90(8)".

Repeal the subsection, substitute:

(2)

However, a loss is not to be taken into account under subsection (1) to the extent that it reduced the undistributed profits comprising the step 3 amount in the table in section 705-60.

Omit "705-90(4)", substitute "705-90(8)".

Omit "was earned", substitute "accrued".

Omit "705-90(5)", substitute "705-90(7)".

Repeal the paragraph, substitute:

(c)

to the extent that the expenditure reduced the undistributed profits comprising the step 3 amount in the table in section 705-60.

Repeal the heading.

Repeal the section.

Repeal the items, substitute:

Omit "step 5", substitute "step 4".

Omit "ltax rate", substitute "tax rate".

Omit "joined group", substitute "old group".

Repeal the section.

Repeal the section.