Taxation Laws Amendment Act (No. 1) 2004 (101 of 2004)

Schedule 5   Consolidation: transitional foreign loss makers

Income Tax (Transitional Provisions) Act 1997

1   After Division 701C

Insert:

Division 701D - Transitional foreign loss makers

Table of Subdivisions

701D-A Object of this Division

701D-B Membership rules allowing transitional foreign loss makers to remain outside consolidated group

Subdivision 701D-A - Object of this Division

Table of sections

701D-1 Object of this Division

701D-1 Object of this Division

(1) The object of this Division is to allow an entity that is a potential subsidiary member of a consolidated group to utilise an overall foreign loss during a transitional period, rather than have the head company utilise the loss subject to the restrictions in Subdivision 707-C of the Income Tax Assessment Act 1997.

(2) Therefore, this Division allows the head company to prevent the entity from being a subsidiary member of the group, for a transitional period.

[The next section is section 701D-10.]

Subdivision 701D-B - Rules allowing transitional foreign loss makers to remain outside consolidated group

Table of sections

701D-10 Transitional foreign loss maker not member of group if certain conditions satisfied

701D-15 Choice to apply transitional rules to entity

701D-10 Transitional foreign loss maker not member of group if certain conditions satisfied

(1) The Income Tax Assessment Act 1997 and this Act have effect as if an entity (the transitional foreign loss maker ) is not a subsidiary member of a consolidated group at a particular time (the transitional time ) if:

(a) the group came into existence at a particular time (the formation time ) before 1 July 2004; and

(b) apart from this section, the transitional foreign loss maker would be a subsidiary member of the group at the transitional time; and

(c) the transitional time is not later than 3 years after the formation time; and

(d) the head company of the group has made a choice under section 701D-15 to apply this section to the transitional foreign loss maker; and

(e) the continuous ownership condition in subsection (2) is satisfied; and

(f) the foreign loss condition in subsection (3) is satisfied; and

(g) the no-subsidiary condition in subsection (4) is satisfied.

Continuous ownership condition

(2) The continuous ownership condition is satisfied if the transitional foreign loss maker was a wholly-owned subsidiary of the entity that became the head company of the group throughout the period:

(a) beginning at the start of 1 July 2002; and

(b) ending at the transitional time.

Foreign loss condition

(3) The foreign loss condition is satisfied if:

(a) the transitional foreign loss maker incurred an overall foreign loss (as defined in section 160AFD of the Income Tax Assessment Act 1936) in respect of the 2001-02 income year or an earlier income year; and

(b) the amount of the overall foreign loss has not been fully taken into account under one or more applications of section 160AFD of the Income Tax Assessment Act 1936 to the transitional foreign loss maker in relation to an income year or income years ending before the transitional time; and

(c) assuming that the transitional foreign loss maker had become a subsidiary member of a consolidated group at the formation time, as a result all or part of the overall foreign loss would have been transferred at that time to the head company of the group under Division 707 of the Income Tax Assessment Act 1997.

No-subsidiary condition

(4) The no-subsidiary condition is satisfied if, at the transitional time:

(a) the transitional foreign loss maker does not hold any membership interests in any other entity; or

(b) both of the following conditions are satisfied:

(i) the transitional foreign loss maker holds one or more membership interests in one or more other entities;

(ii) assuming that the head company of the group (rather than the transitional foreign loss maker) held that interest or those interests, none of those other entities would be a subsidiary member of the group.

Transitional foreign loss maker stays in consolidatable group

(5) To avoid doubt, subsection (1) does not prevent the transitional foreign loss maker from being a member of a consolidatable group at the transitional time for the purposes of:

(a) paragraph 126-50(6)(b) of the Income Tax Assessment Act 1997; and

(b) paragraphs 170-5(2A)(b) and 170-105(2A)(b) of that Act; and

(c) subparagraph 820-599(2)(c)(iii) of that Act.

701D-15 Choice to apply transitional rules to entity

(1) The head company of a consolidated group may make a choice in the approved form to apply section 701D-10 to another entity.

(2) However, the head company cannot make that choice if subsection 701D-10(1) previously prevented the entity from being a subsidiary member of a consolidated group.

(3) The choice must be made by the later of:

(a) the end of the period described in subsection 703-50(3) of the Income Tax Assessment Act 1997 for giving the Commissioner the choice under section 703-50 of that Act that the group is taken to be consolidated; and

(b) 30 days after the Taxation Laws Amendment Act (No. 1) 2004 received the Royal Assent.

(4) The choice cannot be revoked.