Tax Laws Amendment (2004 Measures No. 6) Act 2005 (23 of 2005)

Schedule 1   Consolidation

Part 10   Entry and exit history rules and choices

Income Tax Assessment Act 1997

26   After Subdivision 715-H

Insert:

Subdivision 715-J - Entry history rule and choices

Table of sections

Head company's choice overriding entry history rule

715-660 Head company's choice overriding entry history rule

Choices head company can make ignoring entry history rule to override inconsistencies

715-665 Head company's choice to override inconsistency

Choices with ongoing effect

715-670 Ongoing effect of choices made by entities before joining group

715-675 Head company adopting choice with ongoing effect

Head company's choice overriding entry history rule

715-660 Head company's choice overriding entry history rule

Application

(1) This section has effect if an entity becomes a *subsidiary member of a *consolidated group at a time (the joining time ) and either:

(a) the question whether the entity had made a choice (however described) under a provision (the choice provision ) listed in the table was relevant to working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to an income year starting before the joining time; or

(b) before the joining time, the entity made a choice that:

(i) is described in paragraph (a); and

(ii) would, if the entity had not become a subsidiary member of a consolidated group, have started to have effect for working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to the first income year starting after the joining time.

Note: Declarations, elections and selections made under the choice provision by the entity are all examples of choices under that provision (even though the provision does not call them choices), because the entity has chosen to make them.

Objects

(2) The main objects of this section are:

(a) to override section 701-5 (Entry history rule) in relation to a choice (however described) by the entity under the choice provision or the absence of such a choice; and

(b) to extend, in some cases, the time for the *head company of the *consolidated group to make a choice (however described) under the choice provision after the joining time; and

(c) to modify, in some cases, the time at which such a choice by the head company starts to have effect.

Overriding the entry history rule

(3) For the head company core purposes set out in section 701-1 (Single entity rule), ignore a choice (however described) made by the entity under the choice provision or the absence of such a choice.

Extension of time for head company to make choice

(4) If:

(a) because of:

(i) the fact that the entity became a *subsidiary member of the *consolidated group; and

(ii) section 701-1 (Single entity rule);

the question whether the *head company of the group has made a choice (however described) under the choice provision becomes relevant for the head company core purposes set out in that section; and

(b) there is a limit (outside this section) on the period within which the head company may make such a choice;

the head company has until the later of these times to make such a choice:

(c) the last time the head company may make the choice (apart from this subsection);

(d) the end of 90 days after the Commissioner is given notice under Division 703 that the entity has become a *member of the group or, if the Commissioner allows a later time for the purposes of this paragraph, that later time.

When head company's choice starts to have effect

(5) If the *head company of the *consolidated group makes a choice (however described) under the choice provision as a result of becoming able to make the choice because the entity became a *subsidiary member of the group at the joining time, the choice starts to have effect:

(a) at the joining time; or

(b) if the choice relates (explicitly or implicitly) to one or more whole income years - for the income year in which the joining time occurs.

Note: Subsection (5) has effect whether or not subsection (4) contributed to the head company becoming able to make the choice.

Relationship with other provisions

(6) Section 701-5 (Entry history rule) and the choice provision have effect subject to this section.

Choices head company can make ignoring entry history rule to override inconsistencies

715-665 Head company's choice to override inconsistency

Application

(1) This section has effect if:

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

(b) for each of the following entities, the question whether the entity had made a choice (however described) under a provision (the choice provision ) listed in the table was relevant to working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to an income year starting before the joining time:

(i) the joining entity;

(ii) another entity that was a *member of the group at the joining time; and

(c) there was an inconsistency because, just before the joining time, such a choice had effect for one of the entities but not for the other.

Note 1: The other entity mentioned in subparagraph (1)(b)(ii) may have become a member of the group either before or at the joining time. That other entity may be either another subsidiary member of the group or the head company of the group.

Note 2: An election by an entity under section 148 of the Income Tax Assessment Act 1936 is an example of a choice under that provision (even though that section does not call the election a choice) because the entity has chosen to make the election.

Object

(2) The main objects of this section are:

(a) to override the inconsistency; and

(b) to displace section 701-5 (Entry history rule), so far as it relates to the inconsistency; and

(c) to allow the *head company of the *consolidated group to make a choice (however described) under the choice provision.

Overriding the inconsistency

(3) Neither of these things relating to an entity that becomes a *member of the *consolidated group at the joining time has effect for the head company core purposes set out in section 701-1 (Single entity rule):

(a) a choice (however described) by the entity having effect under the choice provision before that time;

(b) the absence of such a choice.

Note: This affects all entities that become members of the consolidated group at the joining time, including the head company if the joining time is the time at which the group comes into existence.

(4) However, if the choice provision is section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non-residents):

(a) subsection (3) of this section does not apply in relation to reinsurance under contracts made before the joining time (but does apply in relation to reinsurance under contracts made at or after that time); and

(b) that section applies for the head company core purposes in relation to reinsurance under a contract made before the joining time by an entity (the contracting party ) that became a *member of the *consolidated group at or before the joining time:

(i) as if the *head company of the consolidated group had made an election under that section, if the contracting party had made such an election that was relevant to working out the party's liability (if any) for income tax, or the party's *tax loss (if any), for an income year in connection with the contract; or

(ii) as if the head company had not made such an election, if the contracting party had not made such an election that was relevant to working out the party's liability (if any) for income tax, or the party's tax loss (if any), for an income year in connection with the contract.

Choice replacing inconsistency

(5) If:

(a) the question whether the *head company of the *consolidated group has made a choice (however described) under the choice provision is relevant for the head company core purposes set out in section 701-1 (Single entity rule); and

(b) there is a limit (outside this section) on the period within which the head company may make such a choice;

the head company has until the later of these times to make such a choice:

(c) the last time the head company may make the choice (apart from this subsection);

(d) the end of 90 days after the Commissioner is given notice under Division 703 that the joining entity has become a *member of the group or, if the Commissioner allows a later time for the purposes of this paragraph, that later time.

Note: If the joining time is when the consolidated group is formed, the Commissioner should be given notice under Division 703 that the joining entity has become a member of the group when the approved form of the choice to form the group is given to the Commissioner.

When head company's choice starts to have effect

(6) If the *head company of the *consolidated group makes a choice (however described) under the choice provision as a result of becoming able to make the choice because the joining entity became a *member of the group, the choice starts to have effect:

(a) at the joining time; or

(b) if the choice relates (explicitly or implicitly) to one or more whole income years - for the income year in which the joining time occurs.

(7) However, if:

(a) the *head company of the *consolidated group makes a choice as described in subsection (6); and

(b) the choice is an election under section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non-residents);

the election has effect only for the purposes of that section applying in relation to reinsurance under contracts made after the joining time and in an income year for which the election applies under that section.

Note: Subsection (4) explains how section 148 of the Income Tax Assessment Act 1936 applies in relation to reinsurance under contracts made before the joining time.

Relationship with other provisions

(8) Section 701-5 (Entry history rule) and the choice provision have effect subject to this section.

Choices with ongoing effect

715-670 Ongoing effect of choices made by entities before joining group

(1) This section has effect if the question whether the *head company of a *consolidated group has made a choice (however described) under a provision listed in the table is relevant for the head company core purposes set out in section 701-1 (Single entity rule) because of something happening in relation to a thing:

(a) that is an asset, right, liability or obligation of the head company; and

(b) that the head company started to have, at the time (the joining time ) an entity (the joining entity ) became a *subsidiary member of the group, because of that section and the fact that (ignoring that section) the entity had the thing at the joining time.

(2) The *head company is taken to have made such a choice if the joining entity had one in effect before the joining time.

(3) The *head company is taken not to have made the choice if the joining entity did not have one in effect before the joining time.

715-675 Head company adopting choice with ongoing effect

(1) This section has effect, despite section 715-670, if:

(a) an entity that becomes a *member of a *consolidated group had a choice (however described) in effect under a provision (the choice provision ) listed in that section before becoming a member of the group; and

(b) the time at which the entity becomes a member of the group is the first time at which an entity that had a choice (however described) in effect under the choice provision before becoming a member of the group became a member of the group; and

(c) the *head company of the group chooses in writing, before:

(i) the end of 90 days after the Commissioner is given notice under Division 703 that the entity has become a member of the group; or

(ii) a later time allowed by the Commissioner;

to be treated as if the head company had made a choice under the choice provision.

(2) The *head company is taken to have made a choice under the choice provision for these purposes:

(a) the head company core purposes set out in section 701-1 (Single entity rule);

(b) the purposes of the application of section 715-670 and paragraph (1)(a) in relation to another *consolidated group of which the company later becomes a *subsidiary member.

Subdivision 715-K - Exit history rule and choices

Table of sections

Choices leaving entity can make ignoring exit history rule

715-700 Choices leaving entity can make ignoring exit history rule

Choices leaving entity can make ignoring exit history rule to overcome inconsistencies

715-705 Choices leaving entity can make ignoring exit history rule to overcome inconsistencies

Choices leaving entity can make ignoring exit history rule

715-700 Choices leaving entity can make ignoring exit history rule

Application

(1) This section has effect if:

(a) an entity ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time ); and

(b) the question whether the *head company of the group had made a choice (however described) under a provision (the choice provision ) listed in the table in subsection 715-660(1) was relevant to working out that company's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to an income year starting before the leaving time.

Note: Declarations, elections and selections made under the choice provision at the option of a company are all examples of choices under that provision (even though it does not call them choices) because the company has chosen to make them.

Objects

(2) The main objects of this section are:

(a) to override section 701-40 (Exit history rule) and let the entity make a choice (however described) under the choice provision with effect after the leaving time; and

(b) to extend, in some cases, the time for the entity to make such a choice after the leaving time; and

(c) to modify, in some cases, the rules about when such a choice by the entity starts to have effect.

Overriding the exit history rule

(3) For the entity core purposes set out in section 701-1 (Single entity rule) relating to income years ending after the leaving time, ignore a choice (however described) made by the *head company of the *consolidated group under the choice provision or the absence of such a choice.

Fresh choice by the entity

(4) The entity may make a choice (however described) under the provision if the question whether the entity has made such a choice is relevant to working out the entity's liability (if any) for income tax, or loss (if any) of a particular *sort, calculated by reference to an income year ending after the leaving time.

Extension of time for fresh choice by the entity

(5) If there is a time limit (apart from this subsection) on the entity making such a choice, the entity has until the later of these times to make the choice:

(a) the last time it may make the choice under the provision (apart from this section);

(b) the end of 90 days after the leaving time or, if the Commissioner allows a later time for the purposes of this paragraph, that later time.

Start of effect of choice

(6) If the entity makes a choice because of this section, the choice starts to have effect:

(a) at the leaving time; or

(b) if the choice relates (explicitly or implicitly) to one or more whole income years - for the income year in which the leaving time occurs.

Relationship with other provisions

(7) Section 701-40 (Exit history rule) and the choice provision have effect subject to this section.

Choices leaving entity can make ignoring exit history rule to overcome inconsistencies

715-705 Choices leaving entity can make ignoring exit history rule to overcome inconsistencies

Application

(1) This section has effect if an entity ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time ) and there is an inconsistency because either:

(a) both of these conditions are met:

(i) a choice (however described) under a provision (the choice provision ) listed in the table in subsection 715-665(1) by the entity had effect just before the entity became a *member of the group;

(ii) there was not such a choice by the *head company of the group having effect just before the leaving time; or

(b) both of these conditions are met:

(i) there was not a choice (however described) under the choice provision by the entity having effect just before the entity became a member of the group;

(ii) such a choice by the head company had effect just before the leaving time.

Note: An election by the entity or head company under the choice provision is an example of a choice under that provision (even though the provision does not call the election a choice) because the entity or company has chosen to make the election.

Object

(2) The main objects of this section are:

(a) to displace section 701-40 (Exit history rule), so far as it relates to the inconsistency; and

(b) to allow the entity to make a choice (however described) under the choice provision with effect after the leaving time.

Displacing the exit history rule

(3) For the entity core purposes set out in section 701-1 (Single entity rule) relating to income years ending after the leaving time, ignore a choice (however described) made by the *head company of the *consolidated group under the choice provision or the absence of such a choice.

(4) However, if the choice provision is section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non-residents):

(a) subsection (3) of this section does not apply in relation to reinsurance under contracts made before the leaving time (but does apply in relation to reinsurance under contracts made at or after that time); and

(b) that section applies, for the entity core purposes relating to income years ending after the leaving time, in relation to reinsurance under a contract made before the leaving time:

(i) as if the entity had made an election under that section, if the *head company of the *consolidated group made, or was treated as having made, such an election that was relevant to working out that company's liability (if any) for income tax, or that company's *tax loss (if any), for an income year in connection with the contract; or

(ii) as if the entity had not made such an election, if the head company had not made, and was not treated as having made, such an election that was relevant to working out that company's liability (if any) for income tax, or that company's tax loss (if any), for an income year in connection with the contract.

Note: In some cases, subsection 715-665(4) treats the head company of a consolidated group as having made an election under section 148 of the Income Tax Assessment Act 1936 in relation to reinsurance under contracts made before an entity becomes a member of the group.

Fresh choice by the entity

(5) The entity may make a choice (however described) under the choice provision if the question whether the entity has made such a choice is relevant to working out the entity's liability (if any) for income tax, or loss (if any) of a particular *sort, calculated by reference to an income year ending after the leaving time.

Extension of time for fresh choice by the entity

(6) If there is a time limit (apart from this subsection) on the entity making such a choice, the entity has until the later of these times to make the choice:

(a) the last time it may make the choice under the choice provision (apart from this section);

(b) the end of 90 days after the leaving time or, if the Commissioner allows a later time for the purposes of this paragraph, that later time.

Start of effect of choice

(7) If the entity makes a choice because of this section, the choice starts to have effect:

(a) at the leaving time; or

(b) if the choice relates (explicitly or implicitly) to one or more whole income years - for the income year in which the leaving time occurs.

(8) However, if:

(a) the entity makes a choice because of this section; and

(b) the choice is an election under section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non-residents);

the election has effect only for the purposes of that section applying in relation to reinsurance under contracts made at or after the leaving time and in an income year for which the election applies under that section.

Note: Subsection (4) explains how section 148 of the Income Tax Assessment Act 1936 applies in relation to reinsurance under contracts made before the joining time.

Relationship with other provisions

(9) Section 701-40 (Exit history rule) and the choice provision have effect subject to this section.