Commonwealth Numbered Acts

NEW BUSINESS TAX SYSTEM (CONSOLIDATION AND OTHER MEASURES) ACT 2003 NO. 16, 2003 - SCHEDULE 19

Income Tax Assessment Act 1997

Insert:

(3A)

For the purposes of working out the entity's taxable income (if any) for the non-membership period, determine:

(a) whether the entity can ^* utilise a loss of any ^* sort transferred to the entity in the period; and (b) if the period started at the start of the income year—whether the entity can utilise a loss of any sort: (i) made by the entity, without a transfer, for an earlier income year; or (ii) transferred to the entity in an earlier income year;

as if the time just after the end of the period were the end of the income year and the entity carried on at that time the same business that it carried on just before that time. Paragraph (3)(a) has effect subject to this subsection.

Note: This means that things that happen in relation to the entity at the time it becomes a subsidiary member of the group are taken into account in determining whether the entity can utilise such a loss to affect its taxable income for the non-membership period.

Add:

Utilisation and transfer of non-membership period loss

(8)

However, the provisions of this Act relating to transfer or ^* utilisation of a loss of any ^* sort have effect in relation to a non-membership period loss of that sort for any non-membership period as if the non-membership period loss were the entity's loss for an income year that:

(a) started at the start of the period; and (b) ended at the end of the period.

(9)

Subsection (8) has effect not only for the entity core purposes, but also (despite subsection (2)) for other purposes.

Repeal the section.

Income Tax (Transitional Provisions) Act 1997

Insert:

(1)

This section affects the calculation of the modified market value of the real loss-maker mentioned in subsection 707-315(1) of the Income Tax Assessment Act 1997 for a bundle of losses. This section affects the calculation:

(a) only if section 707-325 of this Act applies for the purposes of working out the available fraction for the bundle; and (b) only for the purposes of working out the available fraction for the bundle to affect the utilisation of tax losses, film losses and net capital losses in the bundle (and not any overall foreign losses, as defined in section 160AFD of the Income Tax Assessment Act 1936 , in the bundle).

Note: This section does not affect the calculation of the real loss-maker's modified market value for other purposes (such as the real loss-maker being a value donor for the purposes of another application of section 707-325 of this Act).

(2)

Disregard for the purposes of subsection 707-325(2) of the Income Tax Assessment Act 1997 an event:

(a) that is described in subsection 707-325(4) of that Act; and (b) that meets the condition in subsection (3) or (4) of this section.

(3)

One condition is that the event was an injection of capital directly into the real loss-maker by the value donor mentioned in section 707-325 of this Act.

(4)

The other condition is that the event was a transaction:

(a) that did not take place at arm's length; and (b) that involved only the real loss-maker and the value donor mentioned in section 707-325 of this Act; and (c) that would have caused subsection 707-325(2) of the Income Tax Assessment Act 1997 to operate in working out the real loss-maker's modified market value (even if no other events described in subsection 707-325(4) of that Act had occurred), apart from this section.

(5)

Subsection (2) of this section does not apply if subsection 707-325(2) of the Income Tax Assessment Act 1997 :

(a) operates for the purposes of working out the value donor's modified market value because of an event that involved an entity other than the value donor and the real loss-maker (whether or not the event also involved either the value donor or the real loss-maker); or (b) would operate for those purposes because of such an event apart from another application of this section.

Insert:

Overview

(1)

Subsection (3) of this section affects the calculation, under section 707-325 of the Income Tax Assessment Act 1997 and section 707-325 of this Act, of the modified market value of the real loss-maker mentioned in subsection 707-315(1) of that Act for a bundle of losses, but only if:

(a) the requirement in subsection (2) of this section is met in relation to each other company that became a member of the group mentioned in subsection 707-315(1) of that Act in connection with the bundle at the time (the formation time ) the group became a consolidated group; and (b) the provisions described in subsection 707-327(4) of this Act operate (because of that subsection) in relation to each loss of such a company that is covered by paragraphs 707-327(1)(b) and (c) of this Act as if the bundle included the loss; and (c) all members of the group at the formation time were companies; and (d) subsection 707-325(2) of that Act does not operate, for the purposes of working out the modified market value of an entity that became a member of the group at the formation time, because of an event that involved an entity that did not become a member of the group then; and (e) the transferee mentioned in subsection 707-325(1) of this Act chooses that this section apply in relation to the real loss-maker.

(2)

Section 707-325 of this Act must apply in relation to the other company (as value donor) so that the available fraction for the bundle is to be worked out as if there were added to the real loss-maker's modified market value an amount worked out by reference to the other company's modified market value at the initial transfer time.

Disregarding events for purposes of anti-inflation rule

(3)

Disregard for the purposes of subsection 707-325(2) of the Income Tax Assessment Act 1997 an event that is described in subsection 707-325(4) of that Act and was either:

(a) an injection of capital into an entity that became a member of the group at the formation time by another such entity; or (b) a transaction that involved only entities that became members of the group at the formation time.

Note: Disregarding such an event could have a direct or indirect effect on the real loss-maker's modified market value for the purposes of working out the available fraction for the bundle in one of these ways:

(a) it could directly affect the real loss-maker's modified market value calculated under section 707-325 of the Income Tax Assessment Act 1997 , if the real loss-maker was involved in the event; (b) it could have an indirect effect by affecting the value donor's modified market value calculated under that section and used under section 707-325 of this Act to add an amount to the real loss-maker's modified market value for those purposes.

Choice

(4)

A choice for the purposes of paragraph (1)(e):

(a) may be made only by the day on which the transferee lodges its income tax return for the first income year for which it utilises (except in accordance with section 707-350) losses transferred to it under Subdivision 707-A of the Income Tax Assessment Act 1997 ; and (b) cannot be amended or revoked.

Scope of this section

(5)

This section affects the modified market value of an entity that became a member of the group at the formation time only for the purposes of calculating the real loss-maker's modified market value for the purposes of working out the available fraction for the bundle.

(6)

This section has effect for working out the available fraction of the bundle only so far as it affects the utilisation of a tax loss, film loss or net capital loss. It does not affect the utilisation of an overall foreign loss (as defined in section 160AFD of the Income Tax Assessment Act 1936 ) that:

(a) is included in the bundle; or (b) was transferred under Subdivision 707-A of the Income Tax Assessment Act 1997 from an entity other than the real loss-maker.

Note: If the bundle includes an overall foreign loss and a loss of another sort:

(a) utilisation of the overall foreign loss is limited by the available fraction for the bundle worked out apart from this section; and (b) utilisation of the loss of the other sort is limited by the available fraction for the bundle as affected by this section, if applicable.

(7)

This section can operate in relation to only one bundle of losses transferred to the transferee under Subdivision 707-A of the Income Tax Assessment Act 1997 .

New Business Tax System (Consolidation) Act (No. 1) 2002

Add:

(10) To avoid doubt, section 701-30 of the Income Tax Assessment Act 1997 does not prevent a company from transferring under Subdivision 170-A or 170-B of that Act (applying as described in subitem (9)) a non-membership period loss described in that section for the non-membership period mentioned in that subitem.

Omit "166-86", substitute "166-85".