Income Tax (Transitional Provisions) Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 707 - Losses for head companies when entities become members, etc  

Subdivision 707-C - Amount of transferred losses that can be utilised  

SECTION 707-325   Increasing the available fraction for a bundle of losses by increasing the real loss-maker ' s modified market value  
Conditions for increasing real loss-maker ' s modified market value

707-325(1)    
This section affects the working out of the available fraction for a bundle of losses under subsection 707-320(1) of the Income Tax Assessment Act 1997 if:

(a) the transferee mentioned in that subsection chooses under subsection (5) of this section to work out the available fraction using a percentage of the modified market value of a company (the value donor ) other than the real loss-maker mentioned in subsection 707-315(1) of that Act for the bundle; and

(b) both the real loss-maker and the value donor became members of the group mentioned in subsection 707-315(1) of that Act in connection with the bundle at the time (which is the initial transfer time mentioned in that subsection in connection with the bundle) the group became a consolidated group; and

(c) the initial transfer time is before 1 July 2004; and

(ca) neither the real loss-maker nor the value donor has been, at any time before the initial transfer time, a transitional foreign loss maker prevented by subsection 701D-10(1) from being a subsidiary member of a consolidated group; and

(d) the bundle includes a loss that is not :

(i) an overall foreign loss (as defined in former section 160AFD of the Income Tax Assessment Act 1936 ); or

(ii) a loss whose utilisation is affected by section 707-350 (about utilisation of certain losses originally made for an income year ending on or before 21 September 1999); and

(e) the value donor would have been able to transfer the loss to the transferee under Subdivision 707-A of the Income Tax Assessment Act 1997 at the initial transfer time had the value donor:

(i) made the loss for the income year for which the real loss-maker made it; and

(ii) not utilised it; and

(ea) neither of these sections applies in relation to the value donor as joining entity at the time the group became a consolidated group:

(i) section 713-535 (Losses of entities whose membership interests are virtual PST assets of life insurance company);

(ii) section 713-540 (Losses of entities whose membership interests are segregated exempt assets of life insurance company); and

(f) the requirement in subsection (2) is met.

707-325(2)    
It must have been possible for the real loss-maker to have transferred the loss to the value donor under Subdivision 170-A or 170-B of the Income Tax Assessment Act 1997 for an income year consisting of the period described in section 707-328 had the conditions in that section existed.

Adding to the modified market value of the real loss-maker

707-325(3)    

Work out the available fraction for the bundle of losses as if there were added to the modified market value of the real loss-maker at the initial transfer time the amount worked out using the formula:

Value donor ' s modified market value at initial transfer time

×

Percentage chosen by transferee

×

Total of real loss-maker ' s Division 170 losses in bundle Total of real loss-maker ' s non-foreign losses in bundle

Note:

The amount worked out using the formula will be nil if the value donor ' s modified market value at the initial transfer time is nil. Even if the amount is nil, section 707-327 may treat losses transferred by the value donor to the transferee as if they were included in the bundle of losses transferred by the real loss-maker to the transferee.

707-325(4)    
In subsection (3):

total of real loss-maker ' s Division 170 losses in bundle
is the total of the amount of each loss:

(a) that is covered by paragraphs (1)(d) and (e); and

(b) in relation to which the requirements in subsection (2) are met.

total of real loss-maker ' s non-foreign losses in bundle
is the total of the amount of each loss that is described in paragraph (1)(d).

Choice to work out available fraction using this section

707-325(5)    

The transferee may choose to use a fixed percentage (greater than 0% and not more than 100%) of the value donor ' s modified market value to work out the available fraction for the bundle. The transferee may do so only by the later of:

(a) the day on which it lodges its income tax return for the first income year for which it utilises (except in accordance with section 707-350 ) losses transferred to it under Subdivision 707-A of the Income Tax Assessment Act 1997 ; and

(b) the end of 31 December 2005.

Note:

For the purposes of paragraph (5)(a), ignore losses to which section 713-535 (Losses of entities whose membership interests are virtual PST assets of life insurance companies) of the Income Tax Assessment Act 1997 applies. See section 707-355 of this Act.

707-325(6)    

The choice cannot be amended, or revoked, after 31 December 2005.

If this section applies more than once for the same value donor

707-325(7)    
If subsection (3) applies 2 or more times in relation to the same value donor but different real loss-makers, the transferee cannot choose for those applications percentages of the value donor ' s modified market value at the initial transfer time that result in the total of the amounts worked out under those applications exceeding that value.

Increase in real loss-maker ' s value reduces value donor ' s value

707-325(8)    
Work out the available fraction for a bundle of losses transferred under Subdivision 707-A of the Income Tax Assessment Act 1997 from the value donor at the initial transfer time as if the value donor ' s modified market value at the time were reduced by the amount worked out under subsection (3).

This section does not affect utilisation of overall foreign losses

707-325(9)    

This section has effect for working out the available fraction of a bundle of losses only so far as it affects the utilisation of a tax loss, film loss or net capital loss. It does not affect the utilisation of an overall foreign loss (as defined in former section 160AFD of the Income Tax Assessment Act 1936 ) included in a bundle of losses:

(a) transferred from the real loss-maker under Subdivision 707-A of the Income Tax Assessment Act 1997 ; or

(b) transferred from the value donor under that Subdivision.

Note:

If a bundle of losses includes an overall foreign loss and a loss of another sort:

(a) utilisation of the overall foreign loss is limited by the available fraction for the bundle worked out apart from this section; and

(b) utilisation of the loss of the other sort is limited by the available fraction for the bundle as affected by this section, if applicable.