Income Tax Assessment Act 1997

Part 3-90 inserted by No 68 of 2002, s 3 and Sch 1 item 2, effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

Div 705 inserted by No 68 of 2002, s 3 and Sch 1 item 2, effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

Subdiv 705-A inserted by No 68 of 2002, s 3 and Sch 1 item 2, effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

S 705-50 repealed by No 56 of 2010, s 3 and Sch 5 item 58, applicable in relation to entities that become members of a consolidated group or MEC group on or after 1 July 2009. S 705-50 formerly read:

SECTION 705-50 Reduction in tax cost setting amount for over-depreciated assets  
Object

705-50(1)
The object of this section is to limit deferral of tax on profits that were not subject to tax because of ^* over-depreciation of assets and were distributed to recipients untaxed because of their entitlement to the intercorporate dividend rebate.

Reduction by amount of tax deferral resulting from over-depreciation

705-50(2)
If:

(a) the ^* tax cost setting amount for an asset that is ^* over-depreciated at the joining time would be more than the joining entity ' s ^* terminating value for the asset; and

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

(b) during the period of 5 years ending at the joining time, the joining entity paid one or more unfranked or partly franked dividends to recipients entitled to a rebate of income tax under former section 46 or 46A of the Income Tax Assessment Act 1936 on the dividends; and

(c) there is a tax deferral amount in relation to the dividends under subsection (3);

the tax cost setting amount for the asset is reduced by the lesser of the tax deferral amount and the ^* over-depreciation, but not so that it becomes less than the joining entity ' s terminating value for the asset.

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History

S 705-50(2) amended by No 56 of 2010, s 3 and Sch 5 item 56, by substituting " during the period of 5 years ending at the joining time " for " before the joining time " in para (b), applicable in relation to entities that become members of a consolidated group or MEC group during the period:

(a) starting on 9 May 2007; and

(b) ending on 30 June 2009.

S 705-50(2) amended by No 101 of 2006, s 3 and Sch 4 item 7, by amending a reference to a repealed inoperative provision, effective 1 January 2008.

S 705-50(2) amended by No 101 of 2006, s 3 and Sch 2 item 726, by amending references to repealed inoperative provisions in para (b), effective 14 September 2006. For application and savings provisions see the CCH Australian Income Tax Legislation archive .

S 705-50(2)(aa) inserted by No 90 of 2002, s 3 and Sch 2 item 15, effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

Tax deferral amount

705-50(3)
For the purposes of paragraph (2)(c), there is a tax deferral amount in relation to the dividends if:

(a) to some extent (whose amount is the qualifying profits amount ) the dividends, so far as they were not franked dividends or distributions included in the step 4 amount mentioned in step 4 in the table in section 705-60, were paid out of profits satisfying the following requirements:

(i) the profits were not subject to income tax because of deductions for the asset ' s decline in value;

(ii) the decline in value represented the ^* over-depreciation of the asset;

(iii) the deductions for the decline in value do not form part of a ^* tax loss covered by the step 5 amount mentioned in step 5 in the table in section 705-60; and

(b) to some extent the qualifying profits amount of the dividends was not distributed by the recipients of the dividends before the joining time directly, or indirectly through one or more interposed entities, to a taxpayer who was not entitled to a rebate of income tax under former section 46 or 46A of the Income Tax Assessment Act 1936 on them.

The tax deferral amount is equal to the qualifying profits amount, to the extent that it was not distributed as mentioned in paragraph (b).

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History

S 705-50(3) amended by No 101 of 2006, s 3 and Sch 4 item 7, by amending a reference to a repealed inoperative provision, effective 1 January 2008.

S 705-50(3) amended by No 101 of 2006, s 3 and Sch 2 item 726, by amending references to repealed inoperative provisions in para (b), effective 14 September 2006. For application and savings provisions see the CCH Australian Income Tax Legislation archive .

S 705-50(3)(a) amended by No 90 of 2002, s 3 and Sch 2 item 16, by inserting " or distributions included in the step 4 amount mentioned in step 4 in the table in section 705-60 " after " franked dividends " , effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

705-50(3A)
A way in which the extent to which dividends were paid out of profits that were not subject to income tax may be worked out is by:

(a) assuming that dividends were paid out of profits of income years in order from the most recent to the earliest; and

(b) assuming that, for any income year for which dividends were paid out of profits in accordance with paragraph (a), they were, to the extent they were not ^* franked distributions, paid out of profits of that income year that were not subject to income tax before they were paid out of such profits that were subject to income tax.

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S 705-50(3A) inserted by No 23 of 2005.

Where asset transferred with roll-over relief

705-50(4)
If:

(a) an asset was transferred to the joining entity by another entity; and

(b) a roll-over under Subdivision 126-B applied to the transfer; and

(c) the other entity paid one or more dividends that, if paid by the joining entity, would have satisfied the requirements of paragraphs (2)(b) and (c) in relation to the asset;

the joining entity is taken for the purposes of subsection (2) to have paid the dividends.

Assets that, under transitional provisions, effectively were not subject to subsection (1) when previously brought into a group

705-50(5)
If:

(a) before the joining time, the joining entity ceased to be a ^* subsidiary member of a ^* consolidated group (the original group ), whether or not the current group; and

(b) an asset was continuously held by the joining entity from when it ceased to be a member of the original group until the joining time; and

(c) when the entity ceased to be a subsidiary member of the original group, the ^* head company of that group made a choice under the Income Tax (Transitional Provisions) Act 1997 to increase by an amount (the transitional increase amount ) the head company ' s ^* terminating value for the asset that was to be used in applying step 1 of the table in section 711-20 of this Act; and

(d) the asset is ^* over-depreciated at the joining time;

the ^* tax cost setting amount for the asset, in respect of the joining entity becoming a subsidiary member of the current group, is reduced by the lesser of the transitional increase amount and the ^* over-depreciation.

When an asset is over-depreciated

705-50(6)
An asset is over-depreciated at a particular time if, at that time:

(a) the asset is a ^* depreciating asset to which Division 40 applies; and

(b) the asset ' s ^* market value exceeds its ^* adjustable value; and

(c) the asset ' s ^* cost exceeds its adjustable value.

The over-depreciation of the asset then is the lesser of the 2 excesses (or either of them if they are the same).

Note:

Unlike the position with a reduction in tax cost setting amount under section 705-40, the amount of a reduction under this section is not re-allocated among other assets.

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History

S 705-50(6)(a) amended by No 90 of 2002, s 3 and Sch 2 item 17, by inserting " to which Division 40 applies " after " ^* depreciating asset " , effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).

S 705-50 inserted by No 68 of 2002, s 3 and Sch 1 item 2, effective 24 October 2002 and applicable on and after 1 July 2002 (see sec 700-1 of the Income Tax (Transitional Provisions) Act 1997 ).