Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 701 - Core rules  

Exceptions  

SECTION 701-75   Adjustments to taxable income where identities of parties to arrangement re-emerge on leaving group  

Section applies to certain arrangements

701-75(1)    
This section applies for the head company core purposes and the entity core purposes if the entity ceases to be a ^* subsidiary member of the group and, just before the time (the leaving time ) when it does so, an ^* arrangement is in force under which:

(a) expenditure is to be, or has been, incurred in return for the doing of some thing; and

(b) the persons incurring the expenditure and *deriving the corresponding amount (each of which is a separating entity ) are the entity and either:

(i) another entity that ceases to be a subsidiary member at the same time; or

(ii) the ^* head company.

Note:

The notes to subsection 701-70(1) on the application of that subsection to expenditure under certain kinds of arrangements are equally applicable for the purposes of this subsection.

Object

701-75(2)    
The object of this section is to align the income tax position of the separating entities at the leaving time, because from that time they have separate tax identities as a result of the single entity rule in subsection 701-1(1) ceasing to apply, and this may create an imbalance.

Adjustment for disproportionate deductibility

701-75(3)    

If the total of the deductions that are or will be allowable for expenditure incurred by the separating entity under the arrangement for:

(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;

(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; and

(b) all later income years;

is not equal to the amount worked out under subsection (4), the deductions are adjusted so that they do equal the amount.

Post-leaving time proportion of total arrangement deductions

701-75(4)    
The amount is worked out using the formula:

Post-leaving time services proportion

×

Total arrangement deductions

where:

post-leaving time services proportion
means the proportion of all things to be done under the arrangement in return for the incurring of the expenditure represented by those things that are to be done after the leaving time.

total arrangement deductions
means the total of the deductions that, ignoring this Part, would be allowable for expenditure incurred by the separating entity under the arrangement for all income years.

Adjustment for disproportionate assessability

701-75(5)    

If the total of the amounts that are or will be included in its assessable income in respect of amounts *derived under the arrangement for the leaving adjustment year and all later income years is not equal to the amount worked out under subsection (6), the amounts that are or will be included in its assessable income are adjusted so that they do equal the amount worked out under subsection (6).

Post-leaving time proportion of total arrangement assessable income

701-75(6)    

The amount is worked out using the formula:

Post-leaving time services proportion

×

Total arrangement assessable income

where:

post-leaving time services proportion
has the same meaning as in subsection (4).

total arrangement assessable income
means the total of the amounts that, ignoring this Part, would be included in the separating entity ' s assessable income for amounts *derived by it under the arrangement for all income years.