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 705-163   Modified application of section 705-57  

Object

705-163(1)    

The object of this section is to ensure that, in working out ^* tax cost setting amounts for ^* trading stock, ^* depreciating assets, *registered emissions units or ^* revenue assets of entities that become ^* subsidiary members of the group at the formation time, section 705-57 (about loss of pre-CGT status of certain ^* membership interests) only applies if the ^* membership interests held directly by the ^* head company of the group are affected.

Modified application of section 705-57 - basic modification

705-163(2)    
For the purposes of applying section 705-57 in accordance with this Subdivision, a reference in that section to a ^* membership interest that a ^* member of the joined group holds in the joining entity at the joining time is taken to be a reference to a ^* membership interest that the ^* head company of the ^* consolidated group holds directly in an entity becoming a ^* subsidiary member at the formation time.

Modified application of section 705-57 - additional modifications where section 705-145 applies

705-163(3)    
Also, if an entity (the first entity ) that becomes a ^* subsidiary member holds a ^* membership interest (the subject membership interest ) in another entity (the second entity ) that becomes a subsidiary member, section 705-57 (as modified in accordance with subsection (2)) is to be applied in relation to the subject membership interest as follows.

705-163(4)    
First work out whether there would be a reduction under that section in the ^* tax cost setting amount for the subject membership interest that is used as mentioned in subsection 705-145(3) (the subsection 705-145(3) tax cost setting amount ) if:

(a) the subject membership interest, if it is not a revenue etc. asset of the first entity, were taken to be such an asset; and

(b) paragraphs 705-57(2)(c) and (d) and subsection 705-57(7) did not apply to the subject membership interest.

705-163(5)    
Next, if there would be such a reduction (whose amount is the notional section 705-57 reduction amount ):

(a) apply section 705-57 to reduce the ^* tax cost setting amount for any revenue etc. asset of the second entity; and

(b) if the second entity holds a ^* membership interest in another entity that becomes a ^* subsidiary member - apply section 705-57 in relation to that interest in accordance with subsection (3) of this section;

and for those purposes:

(c) the subject membership interest is taken to be a membership interest that the ^* head company of the group holds directly in the second entity at the formation time; and

(d) the requirements of paragraphs 705-57(2)(a) and (b) are taken to be satisfied in relation to the subject membership interest; and

(e) the subject membership interest is taken to have a ^* cost base and ^* reduced cost base equal to the subsection 705-145(3) tax cost setting amount; and

(f) the subject membership interest is taken to have a loss of pre-CGT status adjustment amount equal to the notional section 705-57 reduction amount.

Note:

If the head company actually held any membership interests in the second entity, or if other entities becoming subsidiary members held membership interests in the second entity to which this subsection also applied, those membership interests would also be taken into account in working out the reduction under paragraph (a) and in applying paragraph (b).

Section 705-57 not to apply where membership interests effectively acquired on normal market basis

705-163(6)    
If:

(a) apart from this subsection, subsection 705-57(6) would apply in accordance with this Subdivision to the revenue etc. assets of an entity (the subject entity ) that becomes a ^* subsidiary member of the group at the formation time; and

(b) at the formation time, the ^* head company of the group holds all of the ^* membership interests in the subject entity; and

(c) subsection 705-57(6) would apply because a circumstance covered by subsection 705-57(4) (about loss of pre-CGT status because Division 149 etc. applied) existed; and

(d) the application of Division 149 of this Act, or the provision of the Income Tax Assessment Act 1936 , as mentioned in paragraph 705-57(4)(b) of this Act happened because the entity that became the ^* head company of the group (the potential head entity ) ^* acquired all of the ^* membership interests in the other entity mentioned in that paragraph directly or indirectly from another entity (the vendor ); and

(e) at the time of the acquisition, the potential head entity did not control (for value shifting purposes) the vendor, and vice-versa, and another entity did not control (for value shifting purposes) the potential head entity and the vendor; and

(f) the acquisition, or each of the acquisitions, mentioned in subsection 705-57(4) was a ^* same asset roll-over or was one to which any of former sections 160ZZN to 160ZZOC , 160ZZPA and 160ZZPJ of the Income Tax Assessment Act 1936 applied;

then subsection 705-57(6) does not apply as mentioned in paragraph (a) of this subsection.