Income Tax Assessment Act 1997

Reduction in tax cost setting amount for revenue assets  
705-40(1)
Limit on tax cost setting amount

The ^* tax cost setting amount for a reset cost base asset to which subsection (2) applies (a revenue asset ) must not exceed the greater of:

(a) the asset ' s ^* market value; and

(b) the joining entity ' s ^* terminating value for the asset.

705-40(2)
Subsection applies to revenue assets

This subsection applies to a reset cost base asset if, assuming the ^* head company were to ^* dispose of it after the joining time, any gain or loss on the disposal would be taken into account in determining the taxable income or ^* tax loss of the head company, but any ^* capital gain or ^* capital loss on the disposal would be disregarded.

Note:

For example, trading stock and depreciating assets.

705-40(3)
Allocation of excess

If there is an excess under subsection (1), it is allocated among the other reset cost base assets (whether or not revenue assets) other than excluded assets, so as to increase their ^* tax cost setting amounts, in accordance with the following principles:

(a) the allocation is to be in proportion to the ^* market values of the assets;

(b) the amount allocated to a revenue asset must not cause its tax cost setting amount to breach the limit imposed by subsection (1);

(c) any of the excess that cannot be so allocated is to be reallocated, to the maximum extent possible, among the remaining reset cost base assets (other than excluded assets) by applying this subsection a further one or more times.

Note: If any of the excess cannot be allocated, it is instead treated as a capital loss of the head company.