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-A - Basic case: a single entity joining an existing consolidated group  

Tax cost setting amount for assets that joining entity brings into joined group

SECTION 705-27   Reduction in tax cost setting amount that exceeds market value of certain retained cost base assets  

705-27(1)    
If:

(a) a *retained cost base asset of the joining entity is a right to receive a specified amount of such Australian currency, covered by paragraph 705-25(5)(b) ; and

(b) the *market value of the asset is less than the *tax cost setting amount of the asset; and

(c) the head company makes a *capital gain under *CGT event L3 (disregarding this subsection) as a result of the joining entity becoming a *subsidiary member of the group;

reduce the tax cost setting amount of the asset by the amount of the gain (but not below zero).

Note:

Reducing the tax cost setting amount of the asset will also reduce the amount of the capital gain (see paragraph 104-510(1)(b) ). The amount of the capital gain might be reduced to nil.

705-27(2)    
If:

(a) the requirements in subsection 701-58(1) (intra-group assets) are satisfied in relation to the asset; and

(b) the joining entity has been entitled to a deduction for an income year ending on or before the joining time because of the *market value of the asset being less than the specified amount mentioned in paragraph (1)(a); and

(c) the accounting liability that corresponds to the asset has not been reduced under subsection 705-75(2) ;

reduce the amount of the reduction under subsection (1) by the amount of the deduction (but not below zero).

705-27(3)    
If the *tax cost setting amount of 2 or more of the joining entity's assets could be reduced in accordance with subsections (1) and (2):

(a) subsections (1) and (2) apply sequentially to each of those assets; and

(b) the *head company may choose the sequence of assets to which subsections (1) and (2) apply; and

(c) if the head company does not make such a choice - subsections (1) and (2) apply sequentially to each of those assets according to the time at which they were created, from earliest to latest.

Note:

Once the amount of the capital gain is reduced to nil as a result of the application of subsections (1) and (2), no further reductions of tax cost setting amount can be made under those subsections.

705-27(4)    
A choice the *head company can make under paragraph (3)(b) must be made:

(a) by the day the head company lodges its *income tax return for the income year in which the *CGT event happened; or

(b) within a further time allowed by the Commissioner.

705-27(5)    
The way the *head company prepares its *income tax return is sufficient evidence of the making of the choice.