Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 705 - Tax cost setting amount for assets where entities become subsidiary members of consolidated groups  

Subdivision 705-B - Case of group formation  

Modified application of Subdivision 705-A

SECTION 705-145   Order in which tax cost setting amounts are to be worked out where subsidiary members have membership interests in other subsidiary members  

Object

705-145(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

705-145(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

705-145(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

705-145(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.

Non-membership equity interests

705-145(5)    

For the purposes of this section, if, on becoming a *subsidiary member, an entity holds a *non-membership equity interest in another entity that becomes a subsidiary member at the same time, that non-membership equity interest is treated as if it were a *membership interest in that other entity.