Income Tax Assessment Act 1997
CHAPTER 3
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SPECIALIST LIABILITY RULES
PART 3-90
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CONSOLIDATED GROUPS
Division 705
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Tax cost setting amount for assets where entities become subsidiary members of consolidated groups
Subdivision 705-A
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Basic case: a single entity joining an existing consolidated group
How to work out the allocable cost amount
SECTION 705-60 705-60 What is the joined group ' s allocable cost amount for the joining entity?
Work out the joined group ' s allocable cost amount for the joining entity in this way:
View history note
Hide history noteSECTION 705-60 705-60 What is the joined group ' s allocable cost amount for the joining entity?
Work out the joined group ' s allocable cost amount for the joining entity in this way:
| Working out the joined group ' s allocable cost amount for the joining entity | ||
| Step | What the step requires | Purpose of the step |
| 1 | Start with the step 1 amount worked out under section 705-65, which is about the cost of * membership interests in the joining entity held by * members of the joined group | To ensure that the allocable cost amount includes the cost of * acquiring the membership interests |
| 2 | Add to the result of step 1 the step 2 amount worked out under section 705-70, which is about the value of the joining entity ' s liabilities | To ensure that the joining entity ' s liabilities at the joining time, which are part of the joined group ' s cost of acquiring the joining entity, are reflected in the allocable cost amount |
| 3 | Add to the result of step 2 the step 3 amount worked out under:
(a) section 705-90, which is about undistributed, taxed profits accruing to the joined group before the joining time; or (b) if the joining entity is a trust (and not a * corporate tax entity) - section 713-25, which is about undistributed, realised profits accruing to the joined group before the joining time that could be distributed tax free |
To increase the allocable cost amount:
(a) to reflect the undistributed, taxed profits and so prevent double taxation; or (b) if the joining entity is a trust - to reflect the undistributed, realised profits that could be distributed tax free |
| 3A | For each step 3A amount (if any) under section 705-93 (which is about pre-joining time roll-overs):
(a) if the step 3A amount is a *deferred roll-over loss - add to the result of step 3 (as affected by any previous application of this step) the step 3A amount; or (b) if the step 3A amount is a *deferred roll-over gain - subtract from the result of step 3 (as affected by any previous application of this step) the step 3A amount |
To adjust for certain roll-overs before the joining time affecting deferred gains and losses |
| 4 | Subtract from the result of step 3A the step 4 amount worked out under section 705-95, which is about pre-joining time distributions out of certain profits | To prevent the allocable cost amount reflecting return of part of the amount paid to * acquire the * membership interests in the joining entity |
| 5 | Subtract from the result of step 4 the step 5 amount worked out under section 705-100, which is about certain losses accruing to the joined group before the joining time | To prevent:
(a) a double benefit arising from the losses; and (b) losses that cannot be transferred to the * head company, or are cancelled by the head company, under Subdivision 707-A being reinstated in an unrealised form or reducing unrealised gains. |
| 5A | Subtract from the result of step 5 the step 5A amount worked out under section 705-102 , which is about certain *FRT disallowed amounts accruing to the joined group before the joining time | To prevent a double benefit arising from the FRT disallowed amounts |
| 6 | Subtract from the result of step 5A the step 6 amount worked out under section 705-110 , which is about losses that the joining entity transferred to the * head company under Subdivision 707-A | To stop the joined group getting benefits both through higher * tax cost setting amounts for the joining entity ' s assets and through losses transferred to the head company |
| 6A | Subtract from the result of step 6 the step 6A amount worked out under section 705-112 , which is about *FRT disallowed amounts that the joining entity transferred to the *head company under section 820-590 | To stop the joined group getting benefits both through higher *tax cost setting amounts for the joining entity ' s assets and through FRT disallowed amounts transferred to the head company |
| 7 | Subtract from the result of step 6A the step 7 amount worked out under section 705-115 , which is about certain deductions to which the * head company is entitled | To stop the joined group getting benefits both through the * tax cost of the joining entity ' s assets being set and through certain tax deductions of the joining entity being inherited by the head company |
| 8 | If the remaining amount is positive, it is the joined group ' s allocable cost amount. Otherwise the joined group ' s allocable cost amount is nil. |
Note:
The head company may be taken to have made a capital gain, depending on the amount remaining after applying step 3A: see CGT event L2.
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