New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)

Schedule 1   Consolidation: amendments of various cost base provisions

Part 3   Changes to tax cost setting amount in Subdivision 705-B and 705-D cases to take account of steps 3 and 5 of allocable cost amount

Income Tax Assessment Act 1997

9   Section 705-160

Repeal the section, substitute:

705-160 Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members

Object

(1) The object of this section is to prevent a distortion under section 705-35 in the allocation of *allocable cost amount to an entity that becomes a *subsidiary member of the group where that entity has direct or indirect *membership interests in another entity that has certain profits or tax losses when it becomes a subsidiary member.

Adjustment to allocation of allocable cost amount where direct interest in entity with profits/losses

(2) If:

(a) an entity becomes a *subsidiary member of the group at the formation time; and

(b) the entity has *membership interests in a second entity that becomes a subsidiary member of the group at that time; and

(c) in working out the group's *allocable cost amount for the second entity:

(i) an amount is required to be added (the second entity's profit/loss adjustment amount ) under step 3 in the table in section 705-60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the second entity's profit/loss adjustment amount ) under step 5 in the table in section 705-60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705-35 the *tax cost setting amount for the assets of the first entity, the *market value of the first entity's membership interests in the second entity is reduced (in a subparagraph (c)(i) case) or increased (in a subparagraph (c)(ii) case) by the first entity's interest in the second entity's profit/loss adjustment amount (see subsection (3)).

First entity's interest in second entity's profit/loss adjustment amount

(3) The first entity's interest in the second entity's profit/loss adjustment amount is worked out using the formula:

Adjustment to allocation of allocable cost amount for indirect interest in entity with profits/losses

(4) If:

(a) an entity becomes a *subsidiary member of the group at the formation time; and

(b) the entity has *membership interests in a second entity that becomes a subsidiary member of the group at that time; and

(c) the second entity has, directly or indirectly through one or more interposed entities that become subsidiary members of the group at the formation time, membership interests in a third entity that becomes a subsidiary member of the group at that time; and

(d) in working out the group's *allocable cost amount for the third entity:

(i) an amount is required to be added (the third entity's profit/loss adjustment amount ) under step 3 in the table in section 705-60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the third entity's profit/loss adjustment amount ) under step 5 in the table in section 705-60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705-35 the *tax cost setting amount for the assets of the first entity, the *market value of the first entity's membership interests in the second entity is reduced (in a subparagraph (d)(i) case) or increased (in a subparagraph (d)(ii) case) by the first entity's interest in the third entity's profit/loss adjustment amount (see subsection (5)).

First entity's interest in third entity's profit/loss adjustment amount

(5) The first entity's interest in the third entity's profit/loss adjustment amount is worked out using the formula:

where:

market value of first entity's membership interests in third entity held through second entity means the *market value of all *membership interests in the third entity that the first entity holds indirectly through the second entity (including through that entity and one or more other entities that become *subsidiary members of the group and are interposed between the second entity and the third entity).