Tax Laws Amendment (2005 Measures No. 5) Act 2005 (162 of 2005)
Schedule 3 Consolidation
Part 1 Bad debts
Division 1 MEC groups
Income Tax Assessment Act 1997
1 After Subdivision 719-H
Insert:
Subdivision 719-I - Bad debts
Guide to Subdivision 719-I
719-450 What this Subdivision is about
The head company of a MEC group is taken to meet the conditions in section 165-123 (about maintaining the same ownership in an ownership test period to be able to deduct a bad debt) if and only if the top company for the group at the start of the period meets those conditions for the period.
Table of sections
Maintaining the same ownership to be able to deduct bad debt
719-455 Special test for deducting a bad debt because a company maintains the same owners
719-460 Assumptions about nothing happening to affect direct and indirect ownership of the test company
719-465 Assumptions about the test company failing to meet the conditions in section 165-123
Maintaining the same ownership to be able to deduct bad debt
719-455 Special test for deducting a bad debt because a company maintains the same owners
(1) This section has effect for the purposes of working out whether the *head company of a *MEC group:
(a) can deduct a debt it writes off as bad; or
(b) could have deducted a debt as described in subsection 709-215(2).
Note: Whether the head company of the MEC group could have deducted a debt as described in subsection 709-215(2) is relevant under Subdivision 709-D to:
(a) the question whether the head company can deduct the debt it writes off as bad, or the swap loss it makes in extinguishing the debt as part of a debt/equity swap, after the debt was owed to an entity while the entity was not a member of the MEC group; and
(b) the question whether an entity that was owed the debt after it was owed to the head company can deduct the amount of the debt the entity writes off as bad or the swap loss the entity makes in extinguishing the debt as part of a debt/equity swap.
(2) The *head company is taken to meet the conditions in section 165-123 (about the company maintaining the same owners) for the *ownership test period if and only if the company (the test company ) that was the *top company for the *MEC group at the start of the same period would have met those conditions for that period on the assumptions in the following sections (if applicable):
(a) section 719-460 (which is about assuming that nothing happened in relation to certain things that would affect whether the test company would meet those conditions);
(b) section 719-465 (which is about assuming that the test company would have failed to meet those conditions in certain circumstances).
Note 1: Even though subsection (2) of this section raises the issue whether the test company meets the conditions in section 165-123, that is determined by reference to:
(a) the ownership test period for the head company of the MEC group; and
(b) the debt owed to the head company.
Note 2: If this section is applying for the purposes of working out whether the head company could have deducted a debt as described in subsection 709-215(2), section 709-215 affects what is the ownership test period for the purposes of section 165-123 as it applies for those purposes.
Head company's failure to meet conditions in section 165-123
(3) The *head company is taken to fail to meet a condition in section 165-123 only at:
(a) the first time the test company would have failed to meet the condition on the relevant assumptions mentioned in subsection (2); or
(b) the *test time described in section 166-40 for the test company, if:
(i) Division 166 is relevant to working out whether the test company met the conditions in section 165-123 on the relevant assumption mentioned in paragraph (2)(a); and
(ii) the test company is not assumed under section 719-465 to fail to meet the condition before the test time.
Note 1: If the head company is taken to fail to meet a condition in section 165-123, the head company will not be able to deduct the debt unless that company meets the condition in section 165-126 by satisfying the same business test. That test applies to the head company (and not the test company).
Note 2: Section 719-285 may affect whether the head company satisfies the same business test if there has been a change in the identity of the head company of the group during the ownership test period.
Same business test for head company under Division 166
(4) If section 166-40 directly affects whether the *head company can deduct the debt, the subsection of that section that requires the *same business test be applied to a particular *business operates as if it required that test to be applied to the business the head company carried on just before the time described in subsection (3) of this section.
Note: Section 166-40 has an indirect effect on whether the head company can deduct the debt so far as that section affects whether the test company meets the conditions in section 165-123 and therefore whether the head company is taken to meet those conditions.
719-460 Assumptions about nothing happening to affect direct and indirect ownership of the test company
(1) This section sets out an assumption that must be made whenever there is a change in the identity of the *top company for the *MEC group during the *ownership test period.
(2) Assume that after the change nothing happens in relation to *membership interests or voting power in the following entities that would affect whether the test company would meet the conditions in section 165-123:
(a) the company that was the *top company for the *MEC group before the change;
(b) an entity (if any) that at the time of the change was interposed between:
(i) the company that was the top company for the MEC group before the change; and
(ii) the company that became the top company for the MEC group as part of the change.
719-465 Assumptions about the test company failing to meet the conditions in section 165-123
(1) Assume that the test company fails to meet the conditions in section 165-123 at the time an event described in subsection (2), (3) or (4) happens after the start of the *ownership test period in relation to:
(a) the *MEC group; or
(b) the *potential MEC group whose membership was the same as the membership of the MEC group.
Note: If the test company is assumed to fail to meet the conditions in section 165-123, the head company of the MEC group is taken (under section 719-455) to have failed to meet those conditions.
(2) One event is the *potential MEC group ceasing to exist.
(3) Another event is something happening that meets these conditions:
(a) the thing happens at a time in relation to *membership interests in one or more of these entities:
(i) a company that was just before that time a *member of the *MEC group and an *eligible tier-1 company of the *top company for the MEC group;
(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time;
(b) the thing does not cause the *potential MEC group to cease to exist but does cause a change in the identity of the top company for the potential MEC group.
(4) Another event is the *MEC group ceasing to exist because there ceases to be a *provisional head company of the group.
Other causes of failure to meet conditions in section 165-123
(5) To avoid doubt, this section does not limit the circumstances in which the test company would have failed to meet the conditions in section 165-123.