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-D - Where multiple entities are linked by membership interests  

Modified application of Subdivision 705-A

SECTION 705-225   Order in which tax cost setting amounts are to be worked out where linked entities have membership interests in other linked entities  

Object

705-225(1)    
The object of this section is to ensure that where, on becoming ^* subsidiary members, linked entities hold assets consisting of ^* membership interests in other linked entities, the ^* head company ' s cost of becoming the holder of the assets of all of the linked entities correctly reflects the group ' s cost of acquiring the linked entities.

Tax cost setting amounts to be worked out from top down

705-225(2)    
The ^* tax cost setting amounts for the assets of linked entities holding ^* membership interests must be worked out before the tax cost setting amounts for the assets of the linked entities in which the membership interests are held.

Note:

The tax cost setting amount in respect of assets of any linked entity in which members of the group, but no linked entity, hold membership interests can be worked out in any order in relation to the calculations for other linked entities.

Tax cost setting amount for higher linked entity ' s membership interests to be used in working out lower linked entity ' s tax cost setting amount

705-225(3)    
The ^* tax cost setting amount worked out for assets of a linked 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 linked 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 linked entity. If any of those membership interests is held by another linked entity, subsection (3) of this section 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) of this section.

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) of this subsection. 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

705-225(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

705-225(5)    

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