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 705-155   Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests  

Object

705-155(1)    
The object of this section is to ensure that, in working out the group's ^* allocable cost amount for entities that become ^* subsidiary members of the group at the formation time, the reduction under step 4 in the table in section 705-60 (about pre-formation time distributions out of certain profits) is made only for profits that have been effectively distributed to the ^* head company in respect of its direct ^* membership interests in the entities. This ensures consistency with the ordering rule in section 705-145 .

When section applies

705-155(2)    
This section applies to a distribution (the subject distribution ) to the extent that the following conditions are satisfied:

(a) the distribution is made by an entity (the subject entity ) that becomes a ^* subsidiary member of the group at the formation time;

(b) in working out the group's ^* allocable cost amount for the subject entity there would, apart from this section, be a reduction under step 4 in the table in section 705-60 for the distribution.

Step 4 reduction only if subject distribution is made to head company etc.

705-155(3)    
There is no reduction as mentioned in paragraph (2)(b) for the subject distribution unless:

(a) the subject distribution is made to the ^* head company of the group; or

(b) the reduction is in accordance with subsection (5).

Step 4 reduction for effective distribution to head company

705-155(4)    
If:

(a) at the formation time, the ^* head company of the group has a direct ^* membership interest in the subject entity; and

(b) the head company acquired the membership interest directly from another entity, or indirectly as a result of one or more acquisitions from other entities, where:

(i) former section 160ZZO of the Income Tax Assessment Act 1936 applied to each acquisition; or

(ii) there was a roll-over under Subdivision 126-B for each acquisition;

or a combination of these happened; and

(c) while it held the membership interest, the entity, or one of the entities, mentioned in paragraph (b) (the recipient of the further distribution ) received a distribution (the further distribution ) of some of the subject distribution from the subject entity;

the consequences in subsections (5) and (6) apply.

Reduction for further distribution that remains with recipient

705-155(5)    
If:

(a) the following happen:

(i) by the formation time, any of the further distribution (the eligible reduction amount ) had not again been distributed by the recipient of the further distribution;

(ii) the recipient of the further distribution does not become a ^* subsidiary member of the group at the formation time; or

(b) the following happen:

(i) by the formation time, any of the further distribution (the eligible reduction amount ) had been distributed by the recipient of the further distribution to another entity directly, or indirectly though successive distributions by interposed entities;

(ii) that other entity does not become a subsidiary member of the group at the formation time; or

(c) both of the above paragraphs apply;

then, in working out the group's ^* allocable cost amount for the subject entity, the reduction under step 4 in the table in section 705-60 for the subject distribution only takes place to the extent that it equals the sum of all eligible reduction amounts.

Step 1 reduced cost base adjustment to reverse effect of reduction for further distribution

705-155(6)    

Also, if former subsection 160ZK(5) of the Income Tax Assessment Act 1936 or subsection 110-55(7) of this Act applied to the further distribution, then for the purposes of step 1 in the table in section 705-60 in working out the group's ^* allocable cost amount for the subject entity:

(a) the reference in subsection 705-65(3) to a reduction resulting from the application of former subsection 160ZK(5) of the Income Tax Assessment Act 1936 ; and

(b) the reference in subsection 705-65(5) to a reduction that has taken place under subsection 110-55(7) ;

include a reference to the reduction in the ^* reduced cost base of the membership interest in the subject entity resulting from the application of former subsection 160ZK(5) of the Income Tax Assessment Act 1936 , or subsection 110-55(7) of this Act, to the further distribution.