Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 711 - Tax cost setting amount for membership interests where entities cease to be subsidiary members of consolidated groups  

Tax cost setting amount for membership interests etc.  

SECTION 711-55   Tax cost setting amount for membership interests where multiple exit  

711-55(1)    
If 2 or more entities cease to be ^* subsidiary members of the old group at the same time because of an event happening in relation to one of them, the ^* tax cost setting amount for each ^* membership interest mentioned in paragraphs 711-10(a) and (b) is worked out in accordance with this section.

Object

711-55(2)    
The object of this section is to ensure that the ^* tax cost setting amount for ^* membership interests that each entity holds in another entity reflects a proportion of the other entity's cost for its net assets.

Tax cost setting amounts to be worked out for certain membership interests in all of the entities

711-55(3)    
A ^* tax cost setting amount must be worked out for each ^* membership interest (the subject interest ) that one of the entities holds in another of the entities just before the leaving time, and this must be done:

(a) by applying section 711-15 to the subject interest as if:

(i) a reference in that section, or any provision of this Division that relates to it, to any membership interest that ^* members of the old group hold in the leaving entity were a reference to the subject interest; and

(ii) a reference in that section, or any provision of this Division that relates to it, to liabilities owed by members of the old group included a reference to liabilities owed by any of the entities that cease to be ^* subsidiary members of the old group at the leaving time; and

(b) by working out the tax cost setting amount for membership interests in entities that are held by other entities before working out the tax cost setting amount for membership interests in those other entities.

Tax cost setting amount for membership interests acquired by head company

711-55(4)    
Then work out the ^* tax cost setting amount mentioned in paragraph 711-10(a) for the ^* membership interests held by the ^* head company in the same way as under section 711-15 .

Note:

In doing so, tax cost setting amounts worked out under subsection (3) of this section for membership interests held by the leaving entity in other entities will be taken into account in working out the allocable cost amount for the leaving entity. Those tax cost setting amounts will in turn have been affected by any other tax cost setting amounts worked out under subsection (3) for membership interests in other entities.

Tax cost setting amount for membership interests acquired by leaving entity

711-55(5)    
The ^* tax cost setting amount mentioned in paragraph 711-10(b) for ^* membership interests of which the leaving entity becomes the holder will be one of the tax cost setting amounts worked out under subsection (3) of this section.

Example:

Companies A, B, C, D and E are all subsidiary members that leave the old group at the same time. Just before the leaving time, company A owned shares in company B and company C, and company B owned shares in companies D and E.

First, work out company A's tax cost setting amount for membership interests in company C and company B's tax cost setting amount for membership interests in companies D and E by applying section 711-15 in accordance with paragraph (3)(a) above.

Next, work out company A's tax cost setting amount for membership interests in company B under that section as so applied, taking into account the tax cost setting amount just worked out for company B's assets consisting of shares in companies D and E.

Finally, work out the head company's tax cost setting amount for membership interests in company A under section 711-15 in accordance with subsection (4) above, taking into account the tax cost setting amounts worked out for companies B and C.