Guide to Subdivision 705-B 705-130 What this Subdivision is about

When a consolidated group comes into existence, the tax cost setting amount for the assets of each entity that becomes a subsidiary member is worked out by modifying the rules in Subdivision 705-A, so that the amount reflects the cost to the group of acquiring the entity.

Table of sections

Application and object

705-135 Application and object of this Subdivision

Modified application of Subdivision 705-A

705-140 Subdivision 705-A has effect with modifications
705-145 Order in which tax cost setting amounts are to be worked out where subsidiary members have membership interests in other subsidiary members
705-150 Adjustment to result of step 3 in working out allocable cost amount where pre-formation time roll-over from head company to member of wholly-owned group
705-155 Adjustment in working out step 4 of allocable cost amount for successive distributions through interposed entities
705-160 Adjustment to allocation of allocable cost amount to take account of owned losses of certain entities that become subsidiary members
705-165 Working out pre-CGT factors where subsidiary members have membership interests in other subsidiary members

[This is the end of the Guide.]

Application

(1)

This Subdivision has effect for the head company core purposes set out in subsection 701-1(2) if one or more entities become ^* subsidiary members of a ^* consolidated group at the time (the formation time ) it comes into existence as a consolidated group.

Note: This is the first exception to Subdivision 705-A: see paragraph 705-15(a).

Object

(2)

The object of this Subdivision is to modify the rules in Subdivision 705-A (which basically determine the tax cost setting amount for assets of an entity joining an existing ^* consolidated group) so that they have effect, and take account of different circumstances that apply, when a consolidated group comes into existence.

Note: The main circumstance is where one of the entities has membership interests in another. In such a case, the order in which the rules in Subdivision 705-A are applied will affect the tax cost setting amounts for the assets of the entities.

(1)

Subdivision 705-A has effect in relation to each entity becoming a ^* subsidiary member of the ^* consolidated group at the formation time in the same way as that Subdivision has effect in relation to an entity becoming a subsidiary member of a consolidated group in circumstances covered by that Subdivision.

(2)

However, that effect of Subdivision 705-A is subject to modifications set out in this Subdivision.

Object

(1)

The object of this section is to ensure that where, on becoming ^* subsidiary members, entities hold assets consisting of ^* membership interests in other subsidiary members, the ^* head company's cost of becoming the holder of the assets of all of the entities that become subsidiary members correctly reflects the group's cost of acquiring the entities.

Tax cost setting amounts to be worked out from top down

(2)

If, on becoming ^* subsidiary members, entities hold ^* membership interests in any other entities that become subsidiary members, the ^* tax cost setting amounts for the assets of entities holding membership interests must be worked out before the tax cost setting amounts for the assets of the entities in which the membership interests are held.

Note: The tax cost setting amount in respect of assets of any subsidiary member in which the head company, but no other subsidiary member, holds membership interests can be worked out in any order in relation to the calculations for other subsidiary members.

Tax cost setting amount for higher entity's membership interests to be used in working out lower entity's tax cost setting amount

(3)

The tax cost setting amount worked out for assets of an entity mentioned in subsection (2) consisting of ^* membership interests in another such entity is to be used as the amount for those interests under subsection 705-65(1) (step 1 of allocable cost amount) in working out the tax cost setting amount for assets of that other entity.

Note 1: Subsection 705-65(1) adds together amounts worked out in accordance with section 705-65 representing the cost of the membership interests that each member of the group holds in the entity. If any of those membership interests is held by another subsidiary member, subsection (3) above will replace the amount otherwise applicable with the tax cost setting amount that will have been worked out for the interests in accordance with subsection (2) above.

Note 2: The tax cost setting amount worked out for the membership interests has no relevance other than for the purpose mentioned in subsection (3). This is because, under the single entity principle, intra group membership interests are ignored while entities are members of the group. If an entity ceases to be a member, section 701-15 and Division 711 set the tax cost of membership interests in the entity at that time.

Value shifting etc. provisions not to apply to later CGT events involving membership interests

(4)

However, despite subsection (3), subsection 705-65(4) (which prevents the later operation of value shifting etc. provisions) still applies to the ^* membership interests.

Rights and options to acquire membership interests

(5)

For the purposes of this section, if, on becoming a ^* subsidiary member, an entity holds a right or option (including a contingent right or option), created or issued by another entity that becomes a subsidiary member at the same time, to acquire a ^* membership interest in that other entity, that right or option is treated as if it were a membership interest in that other entity.

Object

(1)

The object of this section is to ensure that, in working out the group's ^* allocable cost amount for certain entities that become ^* subsidiary members of the group at the formation time, an adjustment is made to take account of roll-overs under Subdivision 126-B or section 160ZZO of the Income Tax Assessment Act 1936 before the formation time.

When section applies

(2)

This section applies if:

(a)

before the formation time, there was a roll-over under Subdivision 126-B or section 160ZZO of the Income Tax Assessment Act 1936 in relation to a ^* CGT event (the head company roll-over event ) that happened in relation to an asset (the head company roll-over asset ), where:

(i)

an entity (the head company roll-over recipient ) that becomes a ^* subsidiary member of the group was the recipient company in relation to the roll-over; and

(ii)

the originating company in relation to that roll-over was the entity that becomes the ^* head company of the group; and

(b)

between the roll-over and the formation time, no other CGT event happened in relation to the head company roll-over asset:

(i)

for which there was another roll-over satisfying the requirements of paragraph (a); or

(ii)

for which there was not a roll-over under Subdivision 126-B or section 160ZZO of the Income Tax Assessment Act 1936 ; and

(c)

the head company roll-over asset is not a ^* pre-CGT asset at the formation time; and

(d)

the sum of the ^* cost bases of all of the ^* head company's ^* CGT assets just before the head company roll-over event exceeded or was less than the sum of the cost bases of all of the head company's CGT assets just after the head company roll-over event (the excess or shortfall being the head company roll-over adjustment amount ).

Adjustment to result of step 3 in allocable cost amount for head company roll-over recipient

(3)

For the purpose of working out the group's ^* allocable cost amount for the head company roll-over recipient, the result of step 3 in the table in section 705-60 is reduced (if the head company roll-over adjustment amount is an excess), or increased (if the head company roll-over adjustment amount is a shortfall), by the amount worked out as follows:

where: