Consolidation Reference Manual
You can still refer to the Consolidation reference manual for consolidation information that has not been impacted by changes in the legislation.
C2 Assets
C2-4 Worked examples - cost setting on entry
Entry step A (ACA calculation)
C2-4-240 Reduction for intragroup liabilities on entry (in ACA step 2)
Description
This example shows how an amount added at step 2 of the allocable cost amount (ACA) calculation (which involves adding the joining entity's liabilities) is determined where the liability is owed by the joining entity to a member of the joined group (an intragroup liability).
Commentary
The second step in determining the ACA for a joining entity is to add all of its accounting liabilities at the joining time. → section 705-70, Income Tax Assessment Act 1997 (ITAA 1997)
The amount taken into account for a joining entity's liability that is a debt or other liability owed to the joined group depends on the market value of the corresponding asset of the joined group.
If the market value of the corresponding asset is equal to or more than the group's cost base for the asset, the amount to be added is the group's cost base. If the market value is less than or equal to the group's reduced cost base for the asset, the amount to be added is the group's reduced cost base. If the market value falls between the group's cost base and reduced cost base, the amount to be added is the market value of the asset.
Example
Facts
ACo is acquired by HeadCo (the head company of a consolidated group) on 1 July 2002 for $200. The financial position of ACo on joining the group is:
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- assets at a cost of $300 (market value)
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- liability: $100 loan from BCo (100% subsidiary of HeadCo)
In the books of BCo, the asset (loan to ACo) shows a cost base of only $80. (This could arise where the liability has been assigned - market value is $100, purchased for $80.)
Calculation
The ACA after adding the ACA step 2 result will be $280 - the price paid for membership interests of $200 plus the liability of $80. In this example, the market value of the member's asset constituted by the accounting liability is greater than the asset's cost base. Therefore, the amount to be added will equal the member's cost base of $80.
→
subsection 705-75(2), ITAA 1997
References
Income Tax Assessment Act 1997, sections 705-70 and 705-75 ; as amended by:
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- New Business Tax System (Consolidation) Act (No. 1) 2002 (No. 68 of 2002), Schedule 1
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- New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 (No. 90 of 2002), Schedule 2
Explanatory Memorandum to the New Business Tax System (Consolidation) Bill (No. 1) 2002, paragraph 5.71
History
Revision History
Section C2-4-240 first published (excluding drafts) 2 December 2002.
Further revisions are described below.
| Date | Amendment | Reason |
|---|---|---|
| 14.7.04 | Note on recent changes to consolidation rules, p. 1. | Legislative amendments. |
| 26.6.07 | Note on proposed changes to clarify both the valuation of liabilities and the accounting principles to be used, p. 2. | Reflect announcement on 8 May 2007 by Assistant Treasurer in media release no. 50. |
| 28.2.08 | Change to calculation description. | Clarification. |
Proposed changes to consolidation
Proposed changes to consolidation announced by the Government are not incorporated into the Consolidation reference manual until they become law.
In the interim, information about such changes can be viewed at:
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- http://assistant treasurer.gov.au (Assistant Treasurer's press releases)
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- www.treasury.gov.au (Treasury papers on refinements to the consolidation regime).
Current at 28 February 2008