(b) has not *revived.

(2) If a *loss denial pool of the *head company is created under section 715-60 at the formation time, each *170-D deferred loss of that kind that the head company has at that time is added to the loss denial pool at that time.

(3) Otherwise, a loss denial pool of the *head company is created at the formation time if:

(a) the formation time is not a *changeover time for the head company; and

(b) the head company's *final RUNL just before the formation time (as reduced by any reductions under section 715-50 or 715-55) was greater than nil; and

(c) the head company does not satisfy the *same business test for:

(i) the period (the same business test period ) consisting of the head company's *trial year; and

(ii) the time (the test time ) just before the *changeover time.

Note: Paragraph (3)(b) has the effect that if the head company has 165-CC tagged assets that are affected by section 715-50 or 715-55 (because they are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(4) When it is created because of subsection (3), the pool consists of each *170-D deferred loss covered by subsection (2), and its loss denial balance is equal to the *final RUNL referred to in paragraph (3)(b).

Note: The pool is distinct from any other loss denial pool of the head company, for example, one created at the formation time under section 715-360.

715-360 Deferred losses brought in by subsidiary member

(1) This section applies if, just before the time (the membership time ) when a company (the deferred loss company ) becomes a *subsidiary member of a *consolidated group, it had a *170-D deferred loss that:

(a) it made on a *CGT asset that is a *165-CC tagged asset of the company at the membership time because of paragraph 165-115A(1A)(b) (which covers CGT assets on which it has 170-D deferred losses); and

(b) as at the membership time has not *revived.

(2) If a *loss denial pool of the *head company is created under subsection 715-70(2) because of the deferred loss company becoming a *subsidiary member of the group, each *170-D deferred loss of that kind that the deferred loss company had just before the membership time is added to the loss denial pool at that time.

(3) Otherwise, a loss denial pool of the *head company is created at the membership time if:

(a) the membership time is not a *changeover time for the head company; and

(b) the deferred loss company's *final RUNL just before the membership time (as reduced by any reductions under section 715-50 or 715-55) was greater than nil; and

(c) the deferred loss company does not satisfy the *same business test for:

(i) the period (the same business test period ) consisting of the deferred loss company's *trial year; and

(ii) the time (the test time ) just before the *changeover time.

Note 1: The 170-D deferred losses become those of the head company at the formation time because of section 701-5 (Entry history rule).

Note 2: Paragraph (3)(b) has the effect that if the deferred loss company has other 165-CC tagged assets affected by section 715-50 or 715-55 (because the membership time is when the group comes into existence, and the other 165-CC tagged assets are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(4) When it is created because of subsection (3), the pool consists of each 170-D deferred loss covered by subsection (2), and its loss denial balance is equal to the *final RUNL referred to in paragraph (3)(b).

Note: The pool is distinct from any other loss denial pool of the head company, for example, one created under this section because another entity becomes a subsidiary member of the group at the membership time.

715-365 How loss denial balance is applied when 170-D deferred loss revives

(1) If a *170-D deferred loss on a *CGT asset is in a *loss denial pool of an entity when the loss *revives, the *capital loss or deduction that section 170-275 would, apart from this section, treat the entity as having made or become entitled to at that time in respect of the asset is reduced by the lesser of:

(a) the amount of the capital loss or deduction; and

(b) the pool's *loss denial balance (as reduced by any previous reductions under section 715-130, subsection 715-160(1) or this subsection);

and the loss denial balance is reduced by the same amount.

(2) Subsection (1) applies to *170-D deferred losses in the order in which they *revive. If 2 or more revive at the same time, it applies to them in whichever order the entity determines.

(3) Subsection (1) reduces a *loss denial balance before section 715-130 does, unless the *realisation event happens after the leaving time referred to in that section.

[The next Subdivision is Subdivision 715-G.]

Subdivision 715-G - How value shifting rules apply to a consolidated group

Table of sections

715-410 Extension of single entity rule and entry history rule

715-450 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715-H

715-410 Extension of singleentity rule and entry history rule

(1) Subsection 701-1(1) (Single entity rule) and section 701-5 (Entry history rule) also have effect for all the purposes of Part 3-95 (Value shifting).

Note: One consequence of this for the operation of Division 727 (about indirect value shifting affecting interests in companies and trusts, and arising from non-arm's length dealings) is that economic benefits provided by or to a subsidiary member of a consolidated group are treated as provided by or to the head company of the group. As a result:

· the head company is the only group member that can be a losing entity or gaining entity for an indirect value shift; and

· economic benefits provided by one group member to another are treated as provided by the head company to itself, and so have no relevance to Division 727.

Another consequence is that the head company is treated as owning all interests owned by group members in a losing entity or gaining entity that is not a group member.

(2) This section is not intended to limit the effect that subsection 701-1(1) and section 701-5 have apart from this section.

[The next section is section 715-450.]

715-450 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715-H

If section 715-610 reduces a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest in an entity:

(a) the loss is not subject to reduction under Division 723 (Direct value shifting by creating right over non-depreciating asset) or 727 (Indirect value shifting); and

(b) the interest's *adjustable value is not, and is taken never to have been, reduced under Division 725 because of a *direct value shift during the ownership period referred to in subsection 715-610(2); and

(c) the interest's *adjustable value is not, and is taken never to have been, reduced under Division 727 because of an *indirect value shift during that period.

Note: Section 715-610 is about cancelling a loss on a realisation event for a direct or indirect interest in a subsidiary member of a consolidated group.

Subdivision 715-H - Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a consolidated group

Table of sections

715-610 Cancellation of loss

715-615 Exception for interests in entity leaving consolidated group

715-620 Exception if loss attributable to certain matters

715-610 Cancellation of loss

(1) This section reduces to nil a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest (the realised interest ) in an entity (the first entity ) when it is owned by another entity (the owner ), if the conditions in subsections (2) and (4) are met.

(2) The first condition is that, at some time during the period (the ownership period ) when the owner owned the realised interest:

(a) the first entity was a *subsidiary member of a *consolidated group, and the owner was not a *member of the group; or

(b) the realised interest was an *external indirect equity or loan interest in a subsidiary member of a consolidated group; or

(c) the realised interest was an *equity or loan interest in an entity that, at that time:

(i) owned an equity or loan interest in a subsidiary member of a consolidated group; and

(ii) was not a member of the group; or

(d) the realised interest was an *equity or loan interest in an entity that owned at that time an external indirect equity or loan interest in a subsidiary member of a consolidated group.

(3) An *equity or loan interest in an entity (the test entity ) is an external indirect equity or loan interest in a *subsidiary member of a *consolidated group if, and only if, neither the owner of the interest nor the test entity is a member of the group and:

(a) the test entity owns an equity or loan interest in the subsidiary member; or

(b) the test entity owns an equity or loan interest that is an external indirect equity or loan interest in the subsidiary member because of one or more other applications of this subsection.

(4) The second condition is that, at the same or a different time during the ownership period:

(a) the owner was, or *controlled (for value shifting purposes), the *head company of a *consolidated group because of which the first condition is satisfied; or

(b) the owner was an *associate of an entity that, at the same or a different time during the ownership period, was, or controlled (for value shifting purposes), the head company of such a consolidated group.

715-615 Exception for interests in entity leaving consolidated group

Membership interests in leaving entity

(1) If:

(a) the realised interest is a *membership interest; and

(b) during the ownership period the first entity ceased to be a *subsidiary member of a *consolidated group;

the first condition in section 715-610 cannot be satisfied, because of that consolidated group, at a time when the first entity was a member of the group, unless the interest needed to be disregarded under section 703-35 (about employee shares) in order for the first entity to be a member of the group at that time.

Liabilities owed by leaving entity

(2) If the realised interest:

(a) consists of a liability owed by the first entity to the owner; and

(b) became an asset of the owner because subsection 701-1(1) (the single entity rule) ceased to apply to the first entity when it ceased to be a *subsidiary member of a *consolidated group;

the first condition in section 715-610 cannot be satisfied, because of that consolidated group, at a time when the first entity was a member of the group.

715-620 Exception if loss attributable to certain matters

(1) The loss is not reduced if all of it can be shown to be attributable to things other than these:

(a) something that would be reflected in what would, apart from this Part, be an overall loss under section 165-115R or 165-115S, of a *member of a *consolidated group (an excluded group ) because of which the first condition in section 715-610 is satisfied, at an *alteration time for that member;

(b) an *indirect value shift for which, apart from this Part, a member of an excluded group would be the *losing entity or the *gaining entity.

(2) If only part of the loss can be shown to be attributable to things other than the ones listed in subsection (1), the loss is reduced to the amount of that part.

Part 2   New Subdivision 719-T inserted in the Income Tax Assessment Act 1997

2   After Subdivision 719-K

Insert:

Subdivision 719-T - Interactions between this Part and other areas of the income tax law: special rules for MEC groups

Table of sections

How Subdivision 165-CC applies to MEC groups

719-700 Changeover times under section 165-115C or 165-115D

719-705 Additional changeover times for head company of MEC group

How Subdivision 165-CD applies to MEC groups

719-720 Alteration times under section 165-115L or 165-115M

719-725 Additional alteration times for head company of MEC group

719-730 Some alteration times only affect interests in top company

719-735 Some alteration times affect only pooled interests

How indirect value shifting rules apply to a MEC group

719-755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift

Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group

719-775 Cancellation of loss

719-780 Exception for pooled interests in eligible tier-1 companies

719-785 Exception for interests in top company

719-790 Exception for interests in entity leaving MEC group

719-795 Exception if loss attributable to certain matters

How Subdivision 165-CC applies to MEC groups

719-700 Changeover times under section 165-115C or 165-115D

(1) This section has effect for the purposes of determining whether a time (the test time ) is a *changeover time under section 165-115C (about changes in ownership) or 165-115D (about changes in control) in respect of the *head company of a *MEC group.

Modified meaning of reference time

(2) The reference time is:

(a) if no *changeover time has occurred in respect of the head company since the group came into existence and before the test time - when the group came into existence; or

(b) otherwise - the time just after the last such changeover time.

(3) Subsection (2) of this section has effect despite subsection 165-115A(2A).

Assumptions to make

(4) Assume that, while the *MEC group exists:

(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and

(b) those membership interests remain the same; and

(c) the top company directly controls the voting power in the head company.

719-705 Additional changeover times for head company of MEC group

(1) The time when a *potential MEC group ceases to exist is a changeover time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group's membership was the same as the membership of the MEC group.

Note: The changeover times in subsections (1), (2) and (3) are based on the events described in subsections 719-280(2), (3) and (4), each of which causes the test company referred to in section 719-280 to be assumed to fail the continuity of ownership test in section 165-12.

(2) If something:

(a) 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 a *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; and

(b) does not cause the *potential MEC group whose membership is the same as the membership of the MEC group to cease to exist, but does cause a change in the identity of the top company for the potential MEC group;

that time is a changeover time in respect of the *head company of the *MEC group.

(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is a changeover time in respect of the *head company of the *MEC group.

[The next section is section 719-720.]

How Subdivision 165-CD applies to MEC groups

719-720 Alteration times under section 165-115L or 165-115M

(1) This section has effect for the purposes of determining whether a time (the test time ) is an *alteration time under section 165-115L (about alterations in ownership) or 165-115M (about alterations in control) in respect of the *head company of a *MEC group.

Modified meaning of reference time

(2) The reference time is:

(a) if no *alteration time has occurred in respect of the head company since the group came into existence and before the test time - when the group came into existence; or

(b) otherwise - the time just after the last such alteration time.

(3) In applying subsection (2), disregard an *alteration time arising under subsection 719-725(4).

(4) Subsection (2) of this section has effect despite subsections 165-115L(2) and 165-115M(2).

Assumptions to make

(5) Assume that, while the *MEC group exists:

(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and

(b) those membership interests remain the same; and

(c) the top company directly controls the voting power in the head company.

719-725 Additional alteration times for head company of MEC group

Additional alteration times based on section 719-280

(1) The time when a *potential MEC group ceases to exist is an alteration time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group's membership was the same as the membership of the MEC group.

Note: The alteration times in subsections (1), (2) and (3) are based on the events described in subsections 719-280(2), (3) and (4), each of which causes the test company referred to in section 719-280 to be assumed to fail the continuity of ownership test in section 165-12.

(2) If something:

(a) 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 a *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; and

(b) does not cause the *potential MEC group whose membership is the same as the membership of the MEC group to cease to exist, but does cause a change in the identity of the top company for the potential MEC group;

that time is an alteration time in respect of the *head company of the *MEC group.

(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is an alteration time in respect of the *head company of the *MEC group.

Additional alteration times based on Subdivision 719-K

(4) If Subdivision 719-K (MEC group cost setting rules: pooling cases) applies, the time just before the trigger time referred to in paragraph 719-555(1)(a) is an alteration time in respect of the *head company of the *MEC group.

719-730 Some alteration times only affect interests in top company

(1) This section applies if an *alteration time (except one arising under subsection 719-725(4)) happens for the *head company of a *MEC group.

(2) Sections 165-115ZA and 165-115ZB apply, in relation to the alteration time, to an interest or debt that is, or is part of, a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, only if the interest or debt is:

(a) an *equity or loan interest in the *top company for the MEC group; or

(b) an *indirect equity or loan interest in the top company.

Note: Sections 165-115ZA and 165-115ZB are about the consequences that an alteration time for a loss company has for relevant equity interests and relevant debt interests in the company.

(3) In determining what is a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, make the assumptions in subsection 719-720(5).

719-735 Some alteration times affect only pooled interests

(1) Sections 165-115ZA and 165-115ZB do not apply in relation to an *alteration time that happens for the *head company of a *MEC group because of subsection 719-725(4) (trigger time for MEC group cost setting rules: pooling cases).

(2) Instead, Subdivision 719-K applies to the *MEC group, in relation to the trigger time, on the basis that:

(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719-570(1) and (2) is reduced by the amount of the *head company's overall loss under section 165-115R or 165-115S at that alteration time; but

(b) paragraph (a) of this subsection only affects the application of those formulas because of subsection 719-570(3) (to work out the *reduced cost base of a *membership interest).

[The next section is section 719-755.]

How indirect value shifting rules apply to a MEC group

719-755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift

(1) This section has effect for the purposes of working out the consequences (if any) of an *indirect value shift if the *losing entity or *gaining entity is the *head company of a *MEC group. (Subsection (3) has effect in addition to section 727-455.)

(2) An *equity or loan interest can be an *affected interest in the *head company only if it is:

(a) an *equity or loan interest in the *top company for the MEC group; or

(b) an *indirect equity or loan interest in the top company.

(3) Subdivision 719-K (MEC group cost setting rules: pooling cases) applies to the *MEC group, in relation to the first time referred to in that Subdivision as a trigger time that happens at or after the *IVS time, on the basis that:

(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719-570(1) and (2) is:

(i) if the *head company is the *losing entity - reduced; or

(ii) if the head company is the gaining entity - increased;

by the amount of the indirect value shift; and

(b) paragraph (a) of this subsection also affects the application of those formulas because of subsection 719-570(3) (to work out the *reduced cost base of a *membership interest).

[The next section is section 719-775.]

Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group

719-775 Cancellation of loss

(1) This section reduces to nil a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest (the realised interest ) in an entity (the first entity ) when it is owned by another entity (the owner ), if the conditions in subsections (2) and (4) are met.

(2) The first condition is that, at some time during the period (the ownership period ) when the owner owned the realised interest:

(a) the first entity was a *subsidiary member of a *MEC group (except an *eligible tier-1 company), and the owner was not a *member of the group; or

(b) the realised interest was an *external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); or

(c) the realised interest was an *equity or loan interest in an entity that, at that time:

(i) owned an equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); and

(ii) was not a member of the group; or

(d) the realised interest was an equity or loan interest in an entity that owned at that time an external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); or

(e) the realised interest was an equity or loan interest, or an *indirect equity or loan interest, in an eligible tier-1 company that was a member of a MEC group at that time.

(3) An *equity or loan interest in an entity (the test entity ) is an external indirect equity or loan interest in a *subsidiary member of a *MEC group if, and only if, neither the owner of the interest nor the test entity is a member of the group and:

(a) the test entity owns an equity or loan interest in the subsidiary member; or

(b) the test entity owns an equity or loan interest that is an external indirect equity or loan interest in the subsidiary member because of one or more other applications of this subsection.

(4) The second condition is that, at the same or a different time during the ownership period:

(a) the owner was, or *controlled (for value shifting purposes), the *head company of a *MEC group because of which the first condition is satisfied; or

(b) the owner was an *associate of an entity that, at the same or a different time during the ownership period, was, or controlled (for value shifting purposes), the head company of such a MEC group.

719-780 Exception for pooled interests in eligible tier-1 companies

The first condition in section 719-775 cannot be satisfied, because of a *MEC group, at a time when the realised interest was a *pooled interest in an *eligible tier-1 company that is a member of the group.

719-785 Exception for interests in top company

The first condition in section 719-775 cannot be satisfied, because of a *MEC group, at a time when:

(a) the first entity was the *top company for the MEC group; or

(b) the realised interest was an *indirect equity or loan interest in the top company for the MEC group.

719-790 Exception for interests in entity leaving MEC group

Membership interests in leaving entity

(1) If:

(a) the realised interest is a *membership interest; and

(b) during the ownership period the first entity ceased to be a *subsidiary member of a *MEC group;

the first condition in section 719-775 cannot be satisfied, because of that MEC group, at a time when the first entity was a member of the group, unless the interest needed to be disregarded under section 719-30 (about employee shares) in order for the first entity to be a member of the group at that time.

Liabilities owed by leaving entity

(2) If the realised interest:

(a) consists of a liability owed by the first entity to the owner; and

(b) became an asset of the owner because subsection 701-1(1) (the single entity rule) ceased to apply to the first entity when it ceased to be a *subsidiary member of a *MEC group;

the first condition in section 719-775 cannot be satisfied, because of that MECgroup, at a time when the first entity was a member of the group.

719-795 Exception if loss attributable to certain matters

(1) The loss is not reduced if all of it can be shown to be attributable to things other than these:

(a) something that would be reflected in what would, apart from this Part, be an overall loss under section 165-115R or 165-115S, of a *member of a *MEC group (an excluded group ) because of which the first condition in section 719-775 is satisfied, at an *alteration time for that member;

(b) an *indirect value shift for which, apart from this Part, a member of an excluded group would be the *losing entity or the *gaining entity.

(2) If only part of the loss can be shown to be attributable to things other than the ones listed in subsection (1), the loss is reduced to the amount of that part.

[The next Subdivision is Subdivision 719-X.]

Part 3   Consequential amendment of the Income Tax Assessment Act 1997

3   Subsection 165-115BB(2) (definition of residual unrealised net loss )

Repeal the definition, substitute:

previous capital losses, deductions or trading stock losses means the total of the following:

(a) capital losses that the company made, deductions to which the company became entitled, or trading stock losses that the company made, as a result of events earlier than the relevant event in respect of assets that the company owned at the *changeover time;

(b) each reduction that section 715-105 (as applying to the company as the *head company of a *consolidated group or *MEC group) makes in respect of such an asset because an entity ceased before the time of the relevant event to be a *subsidiary member of the group (but counting only the greater or greatest such reduction if 2 or more are made for the same asset);

or nil if there are none.

4   Before subsection 165-115ZB(1)

Insert:

(1A) This section has effect for the purposes of:

(a) section 165-115ZA; and

(b) sections 715-255 and 715-270 (about effect of alteration time for head company on membership interests of leaving entity just before leaving time).

5   Subsection 165-115ZB(1)

Omit "For the purposes of section 165-115ZA, an", substitute "An".

6   Subsection 165-115ZB(1)

Omit "referred to in that section".

7   After subsection 705-65(3)

Insert:

(3AA) If, on the assumption that:

(a) the *members of the joined group had, just before the joining time, *disposed of their *membership interest in the joining entity; and

(b) the consideration received by the members for the disposal were equal to the *market value of the membership interest at that time;

they would have made a *capital loss that section 727-615 would have reduced (because of an indirect value shift), then the *reduced cost base of the membership interest that is to be used in subsection (1) of this section is reduced by the amount of that reduction.

8   Before subsection 705-65(4)

Insert:

Certain provisions not to apply after joining time

9   Subsection 705-65(4)

After "subsection (3)", insert ", (3AA)".

10   Heading to subsection 705-75(3)

Repeal the heading, substitute:

Application of subsections 705-65(2), (3), (3AA) and (3A)

11   Subsection 705-75(3)

After "(3)", insert ", (3AA)".

12   Section 713-50 (link note)

Repeal the link note.

13   Section 719-570 (link note)

Repeal the link note, substitute:

[The next Subdivision is Subdivision 719-T.]

Part 4   Dictionary amendments

Income Tax Assessment Act 1997

14   Subsection 995-1(1) (after paragraph (a) of the definition of adjustable value )

Insert:

(ba) of an asset, for the purposes of determining the consequences of a choice under any of sections 715-100, 715-105, 715-125, 715-130 and 715-185, has the meaning given by section 715-145; and

15   Subsection 995-1(1)

Insert:

165-CC tagged asset has the meaning given by section 715-30.

16   Subsection 995-1(1)

Insert:

170-D deferredloss has the meaning given by section 715-310.

17   Subsection 995-1(1)

Insert:

adjusted unrealised loss at an *alteration time for a company has the meaning given by section 165-115U.

18   Subsection 995-1(1)

Insert:

alteration time :

(a) for a company has the meaning given by sections 165-115L, 165-115M, 165-115N, 165-115P, 165-115Q, 715-245, 715-250 and 719-725; and

(b) for a trust, has the meaning given by section 715-270.

19   Subsection 995-1(1)

Insert:

changeover time for a company has the meaning given by sections 165-115C, 165-115D and 719-705.

20   Subsection 995-1(1)

Insert:

external indirect equity or loan interest in a *subsidiary member of a *consolidated group or *MEC group has the meaning given by section 715-610 or 719-775.

21   Subsection 995-1(1)

Insert:

final RUNL has the meaning given by section 715-35.

22   Subsection 995-1(1)

Insert:

loss denial balance of a *loss denial pool of an entity has the meaning given by sections 715-60, 715-70, 715-110, 715-135, 715-355 and 715-360.

23   Subsection 995-1(1)

Insert:

loss denial pool of an entity has the meaning given by sections 715-60, 715-70, 715-110, 715-135, 715-355 and 715-360.

24   Subsection 995-1(1)

Insert:

residual unrealised net loss for a *changeover time has the meaning given by section 165-115BB.

25   Subsection 995-1(1)

Insert:

revive : a *170-D deferred loss revives as mentioned in section 715-310.

26   Subsection 995-1(1) (definition of same business test period )

Omit "and 707-135", substitute ", 707-135, 715-50, 715-55, 715-60, 715-70, 715-95, 715-355 and 715-360".

27   Subsection 995-1(1) (definition of test time )

Before "has the meaning", insert "for the purposes of applying the *same business test".

28   Subsection 995-1(1) (definition of test time )

Omit "165-115A, 165-115C, 165-115D, 165-115K, 165-115L, 165-115M,".

29   Subsection 995-1(1) (definition of test time )

Omit "and 707-135", substitute ", 707-135, 715-50, 715-55, 715-60, 715-70, 715-95, 715-355 and 715-360".

Schedule 8   Consolidation: various provisions about CFCs, FIFs and FLPs

Income Tax Assessment Act 1997

1   Subdivision 717-D (heading)

Repeal the heading, substitute:

Subdivision 717-D - Transfer of certain surpluses under CFC, FIF and FLP provisions: entry rules

2   After section 717-225

Insert:

717-227 Deferred attribution credits

(1) This section operates for the purposes of Part X of the Income Tax Assessment Act 1936 if:

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

(b) assuming the joining company had not done so, an attribution credit would have arisen under subsection 371(8) of that Act at a later time for an attribution account entity in relation to the joining company for the purposes of that Part.

Credit in relation to the head company

(2) The attribution credit arises instead at the later time for the attribution account entity in relation to the *head company of the group.

3   Subsection 717-230(4)

Repeal the subsection, substitute:

(4) That Part operates in relation to the *head company of the *consolidated group, in relation to the *FIF in respect of the notional accounting period of that FIF that included thejoining time, as if any interest in the FIF of which the head company became the holder because subsection 701-1(1) (the single entity rule) applies at the joining time had been acquired by the head company at that time.

(5) Paragraph 538(2)(d) of that Act operates in relation to the *head company of the *consolidated group, in relation to the *FIF in respect of the notional accounting period of that FIF that included the joining time, as if the amount or value of the consideration paid or given by the head company in respect of any acquisition mentioned in subsection (4) of this section was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the joining company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

4   Subdivision 717-E (heading)

Repeal the heading, substitute:

Subdivision 717-E - Transfer of certain surpluses under CFC, FIF and FLP provisions: exit rules

5   Group heading before section 717-245

Repeal the heading, substitute:

Transfers

6   Group heading before section 717-255

Repeal the heading.

7   After section 717-260

Insert:

717-262 Deferred attribution credits

(1) This section operates for the purposes of Part X of the Income Tax Assessment Act 1936 if:

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

(b) disregarding this section, an attribution credit (the original credit ) will arise under subsection 371(8) of that Act at a later time for an attribution account entity in relation to the *head company of the group (including because of the operation of section 717-227) for the purposes of that Part; and

(c) at the leaving time the leaving company's attribution account percentage in relation to the attribution account entity for the purposes of that Part is more than nil.

Credit in relation to the leaving company

(2) An attribution credit arises at the later time for the attribution account entity in relation to the leaving company. The credit is the amount worked out under subsection (3).

Amount of credit

(3) The amount of the credit is worked out using the formula:

Reduction in credit in relation to the head company

(4) The attribution credit that arises at the later time for the attribution account entity in relation to the *head company is reduced by the amount of the attribution credit that arises under subsection (2) in relation to the leaving company.

8   Subsection 717-265(5)

Repeal the subsection, substitute:

(5) That Part operates in relation to the leaving company, in relation to the *FIF in respect of the notional accounting period of that FIF that included the leaving time, as if any interest in the FIF of which the leaving company became the holder because subsection 701-1(1) (the single entity rule) ceased to apply at the leaving time had been acquired by the leaving company at that time.

(6) Paragraph 538(2)(d) of that Act operates in relation to the leaving company, in relation to the *FIF in respect of the notional accounting period of that FIF that included the leaving time, as if the amount or value of the consideration paid or given by the leaving company in respect of any acquisition mentioned in subsection (5) of this section was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the transferor company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

9   At the end of Division 717

Add:

Subdivision 717-F - Elections etc. relating to CFCs, FIFs and FLPs: entry rules

Guide to Subdivision 717-F

717-270 What this Subdivision is about

This Subdivision deals with the effect upon certain elections etc. relating to CFCs, FIFs and FLPs when an entity becomes a subsidiary member of a consolidated group.

Table of sections

Application and object

717-275 Application

717-280 Object of this Subdivision

Elections etc.

717-285 Pre-joining-time irrevocable elections etc. by joining entity not inherited by head company

717-290 Pre-joining-time actions of joining entity do not prevent head company from electing to apply the calculation method

[This is the end of the Guide.]

Application and object

717-275 Application

This Subdivision operates for the purposes of Part X and Part X1 ofthe Income Tax Assessment Act 1936 if an entity (the joining entity ) becomes a *subsidiary member of a *consolidated group at a time (the joining time ).

717-280 Object of this Subdivision

The object of this Subdivision is to provide:

(a) that the *head company of the *consolidated group does not inherit the joining entity's irrevocable declarations, elections, choices or selections; and

(b) that pre-joining-time actions of the joining entity do not prevent the head company from electing to apply the calculation method to determine whether foreign investment fund income accrued from a FIF.

Elections etc.

717-285 Pre-joining-time irrevocable elections etc. by joining entity not inherited by head company

If at the joining time an irrevocable declaration, election, choice or selection made by the joining entity under Part X or XI of the Income Tax Assessment Act 1936 is in force, then, for the head company core purposes, the *head company of the group is not taken to have made the declaration, election, choice or selection.

Note 1: The entry history rule in section 701-5 would otherwise have had the effect that the head company is taken to have made the declaration etc.

Note 2: Declarations etc. actually made by the head company would apply to interests in CFCs, FIFs or FLPs of which the head company becomes the holder under the single entity rule as a result of the joining entity becoming a subsidiary member.

717-290 Pre-joining-time actions of joining entity do not prevent head company from electing to apply the calculation method

Any entitlement of the *head company of the group to make an election under subsection 535(3) of the Income Tax Assessment Act 1936 for the head company core purposes is not affected by anything done by the joining entity before the joining time.

Note: The entry history rule in section 701-5 would otherwise have had the effect that actions of the joining entity would be treated as those of the head company. Depending on the nature of the actions, this could have prevented the head company from making the election mentioned above.

Subdivision 717-G - Elections etc. relating to CFCs, FIFs and FLPs: exit rules

Guide to Subdivision 717-G

717-295 What this Subdivision is about

This Subdivision deals with the effect upon certain elections etc. relating to CFCs, FIFs and FLPs when an entity ceases to be a subsidiary member of a consolidated group.

Table of sections

Application and object

717-300 Application

717-305 Object of this Subdivision

Elections etc.

717-310 Pre-leaving-time irrevocable declarations, elections, choices and selections by head company not inherited by leaving entity

717-315 Pre-leaving-time actions of head company do not prevent leaving entity from electing to apply the calculation method

[This is the end of the Guide.]

Application and object

717-300 Application

This Subdivision operates for the purposes of Part X and Part X1 of the Income Tax Assessment Act 1936 if an entity (the leaving entity ) ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time ).

717-305 Object of this Subdivision

The object of this Subdivision is to provide:

(a) that the leaving entity does not inherit the *head company's irrevocable declarations, elections, choices or selections; and

(b) that pre-leaving-time actions of the head company do not prevent the leaving entity from electing to apply the calculation method to determine whether foreign investment fund income accrued from a FIF.

Elections etc.

717-310 Pre-leaving-time irrevocable declarations, elections, choices and selections by head company not inherited by leaving entity

If at the leaving time an irrevocable declaration, election, choice or selection made by the *head company of the group under Part X or XI of the Income Tax Assessment Act 1936 is in force, then, for the entity core purposes, so far as they relate to the leaving entity after the leaving time, the leaving entity is not taken to have made the election.

Note: The exit history rule in section 701-40 would otherwise have had the effect that the leaving entity is taken to have made the declaration etc.

717-315 Pre-leaving-time actions of head company do not prevent leaving entity from electing to apply the calculation method

Any entitlement of the leaving entity to make an election under subsection 535(3) of the Income Tax Assessment Act 1936 for the entity core purposes, so far as they relate to the leaving entity after the leaving time, is not affected by anything done by the *head company before that time.

Note: The exit history rule in section 701-40 would otherwise have had the effect that actions of the head company would be treated as those of the leaving entity. Depending on the nature of the actions, this could have prevented the leaving entity from making the election mentioned above.

Schedule 9   Consolidation: foreign dividend accounts

Part 1   Basic amendments

Income Tax Assessment Act 1997

1   At the end of Division 717

Add:

Subdivision 717-J - Foreign dividend accounts

Guide to Subdivision 717-J

717-500 What this Subdivision is about

Only the head company of a consolidated group has an operating foreign dividend account, so only the head company can make an FDA declaration to relieve from withholding tax a dividend paid by a member of the group to a foreign resident. The balance of the account reflects what has happened to all members of the group.

Table of sections

Object

717-505 Object of this Subdivision

Treatment of foreign dividend accounts around joining time

717-510 No FDA surplus for joining company

Single entity rule for foreign dividend accounts

717-515 Single entity rule for FDA credits and FDA debits

FDA declaration for dividend paid by subsidiary member

717-520 Head company may make FDA declaration

717-525 Multiple FDA declarations for dividends paid on same day

717-530 Extended operation of sections 717-520 and 717-525

[This is the end of the Guide.]

Object

717-505 Object of this Subdivision

(1) The object of this Subdivision is to affect the operation of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 so that each *consolidated group operates a single *foreign dividend account, by ensuring that:

(a) an *FDA credit and an *FDA debit arise so that:

(i) the balance of the foreign dividend account of the *head company of the group reflects the balance of the foreign dividend account of a company that becomes a *subsidiary member of the group; and

(ii) the balance of the foreign dividend account of the subsidiary member of the group is nil; and

(b) the head company is the only *member of the group that can have an *FDA surplus; and

(c) the head company can make an *FDA declaration relating to a dividend (within the meaning of that Subdivision) or *non-share dividend paid by any member of the group.

(2) In this Act:

FDA credit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA debit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA declaration has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA surplus has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

foreign dividend account has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

Treatment of foreign dividend accounts around joining time

717-510 No FDA surplus for joining company

(1) This section operates for the purposes of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 if a company (the joining company ) becomes a *subsidiary member of a *consolidated group at a time (the joining time ) just after another time (the balance time ).

(2) If the joining company has an *FDA surplus at the balance time:

(a) an *FDA debit equal to the FDA surplus arises for the joining company at the balance time; and

(b) an *FDA credit equal to the FDA surplus arises for the *head company of the group at the joining time.

(3) If the joining company's total *FDA debits arising before the balance time exceed its total *FDA credits arising before the balance time:

(a) an FDA credit equal to the excess arises for the joining company at the balance time; and

(b) an FDA debit equal to the excess arises for the *head company of the group at the joining time.

(4) For the purposes of subsections (2) and (3) of this section, work out whether, when, and how much (if any) of, an *FDA debit arises for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 in relation to the income year that actually includes the balance time as if that income year:

(a) started at:

(i) the start of that income year; or

(ii) if the joining company ceased to be a *subsidiary member of a *consolidated group after the start of that income year but before the balance time - the time the joining company last ceased to be a subsidiary member of a consolidated group before the balance time; and

(b) ended just before the balance time.

Note: This ensures that the FDA debit (if any) for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 arises just before the balance time, so that it is taken into account for the purposes of subsections (2) and (3) of this section.

Single entity rule for foreign dividend accounts

717-515 Single entity rule for FDA credits and FDA debits

If a company is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes of sections 128TA and 128TB of the Income Tax Assessment Act 1936 to be parts of the *head company of the group, rather than separate entities, during that period.

Note 1: This has the effect that:

(a) FDA credits and FDA debits arise under sections 128TA and 128TB (respectively) of the Income Tax Assessment Act 1936 for the head company of a consolidated group but not for a subsidiary member of the group; and

(b) the shareholdings of all members of a consolidated group are aggregated to work out whether dividends paid to a member are non-portfolio dividends for the purposes of those sections.

Note 2: Section 717-10 may also affect FDA credits and FDA debits for the head company of a consolidated group. It treats the head company as having paid and been personally liable for foreign tax on foreign income included in its assessable income if a subsidiary member of the group actually paid and was personally liable for the tax.

FDA declaration for dividend paid by subsidiary member

717-520 Head company may make FDA declaration

(1) This section operates if:

(a) on a day, a company that is a *subsidiary member of a *consolidated group pays dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) to shareholders (within the meaning of that Act) in respect of *shares in the company; and

(b) on the day, there is an *FDA surplus for the *head company of the consolidated group.

(2) The *head company may make an *FDA declaration specifying an *FDA declaration percentage under subsection 128TC(1) of the Income Tax Assessment Act 1936 as if the head company were paying the dividends.

Note: If the head company makes an FDA declaration:

(a) an FDA debit equal to the sum of the FDA declaration amounts worked out for the dividends by reference to the FDA declaration percentage will arise for the head company just after the start of the day under section 128TB of the Income Tax Assessment Act 1936; and

(b) foreign resident shareholders in the subsidiary member will be relieved from withholding tax on amounts of the dividends not exceeding the FDA declaration amounts.

(3) In this Act:

FDA declaration percentage has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

(4) However, subsection 128TC(2) of the Income Tax Assessment Act 1936 operates in relation to the *FDA declaration percentage on the basis that:

(a) the company mentioned in that subsection is the *subsidiary member; and

(b) the dividends were paid to shareholders in respect of *shares in the subsidiary member.

(5) To avoid doubt, subsection 128TC(5) of the Income Tax Assessment Act 1936 operates in relation to the *head company's *FDA declaration by reference to amounts worked out on the basis described in subsection (4) of this section.

(6) To avoid doubt, sections 128TD and 128TE of the Income Tax Assessment Act 1936 apply to the *head company in relation to an *FDA declaration made because of subsection (2) of this section, even though the shareholders and dividends mentioned in those sections applying in relation to the declaration are shareholders in, and dividends paid by, the *subsidiary member.

717-525 Multiple FDA declarations for dividends paid on same day

(1) This section operates if the *head company of a *consolidated group makes 2 or more *FDA declarations relating to dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) paid by *members of the group on a single day.

Note: It does not matter whether all those FDA declarations are made under section 128TC of the Income Tax Assessment Act 1936 as affected by section 717-520 of this Act or whether one of the declarations relates to dividends actually paid by the head company.

FDA declaration percentage in each FDA declaration

(2) The *FDA declaration percentage for each *FDA declaration must be such that the sum of the amounts worked out under subsection 128TC(2) of the Income Tax Assessment Act 1936 in relation to the FDA declarations is not greater than the *head company's *FDA surplus at the beginning of the day.

(3) If (apart from this subsection) that sum is greater than the *head company's *FDA surplus at the beginning of the day, each of the *FDA declarations is valid but is taken always to have effect as if the *FDA declaration percentage specified in the declaration were the percentage worked out using the formula:

(4) Subsection 128TC(5) of the Income Tax Assessment Act 1936 does not operate in relation to any of the *FDA declarations.

Penalty for statement reflecting wrong percentage

(5) Subsection 128TE(1) of the Income Tax Assessment Act 1936 operates as if it referred to subsection (3) of this section instead of subsection 128TC(5) of that Act.

(6) To avoid doubt, subsection (3) of this section does not prevent subsection 128TE(1) of the Income Tax Assessment Act 1936 from making the *head company liable to pay additional tax by way of penalty.

717-530 Extended operation of sections 717-520 and 717-525

Section 128AAA (the applied section ) of the Income Tax Assessment Act 1936 applies to sections 717-520 and 717-525 of this Act in the same way as the applied section applies to Division 11A of Part III of that Act.

Note: Section 128AAA of the Income Tax Assessment Act 1936 applies Division 11A of Part III of that Act to non-share dividends in the same way as that Division applies to dividends.

[The next Division is Division 719.]

2   At the end of Division 719

Add:

Subdivision 719-X - International tax rules

Table of sections

Foreign dividend accounts

719-900 General rules about foreign dividend accounts

719-905 Transfer of balance of foreign dividend accounts on change in identity of provisional head company

Foreign dividend accounts

719-900 General rules about foreign dividend accounts

(1) This section modifies the effect that Subdivision 717-J has in relation to a *MEC group because of section 719-2.

Note: Except as provided by this section, section 719-2 gives Subdivision 717-J effect in relation to a MEC group in a way corresponding to the way in which that Subdivision has effect in relation to a consolidated group.

(2) Subdivision 717-J has effect in relation to the *provisional head company of the *MEC group in a way corresponding to the way in which that Subdivision has effect in relation to the *head company of a *consolidated group.

(3) Subdivision 717-J has effect as if:

(a) the company that is the *provisional head company of the *MEC group at a time were not a *subsidiary member of the group at the time; and

(b) each company that is a *member of the MEC group at the time and is not the provisional head company at the time were a subsidiary member of the group at the time.

719-905 Transfer of balance of foreign dividend accounts on change in identity of provisional head company

(1) This section operates if:

(a) a *cessation event happens to the *provisional head company (the old company ) of a *MEC group; and

(b) another company (the new company ) is appointed as the provisional head company of the group under subsection 719-60(3).

Note: The appointment of the new company as the provisional head company of a MEC group under subsection 719-60(3) is taken to have come into force immediately after the cessation event.

(2) If there was an *FDA surplus for the old company at the time of the *cessation event:

(a) an *FDA debit equal to the FDA surplus arises for the old company at the time of the cessation event; and

(b) an *FDA credit equal to the FDA surplus arises for the new company when it is appointed.

(3) If the old company's total *FDA debits arising before the time of the *cessation event exceeded its total *FDA credits arising before that time:

(a) an FDA credit equal to the excess arises for the old company at the time of the cessation event; and

(b) an FDA debit equal to the excess arises for the new company when it is appointed.

[The next Division is Division 721.]

Part 2   Related amendments

Income Tax Assessment Act 1936

3   Paragraph 128TA(1)(b)

Omit "dividend; or", substitute "dividend.".

4   Paragraph 128TA(1)(c)

Repeal the paragraph.

5   Paragraph 128TA(2)(b)

Omit "23AK; or", substitute "23AK.".

6   Paragraph 128TA(2)(c)

Repeal the paragraph.

7   Subparagraph 128TB(1)(c)(ii)

Omit "or (c)".

8   Paragraph 128TB(3)(c)

Repeal the paragraph, substitute:

(c) in a paragraph (1)(c) case - the amount of the expenditure; or

9   Subsection 128TC(2) (definition of total non-resident dividends )

Omit "or companies that are related (within the meaning of subsection 51AE(16))".

10   Subsection 128TC(2) (definition of maximum non-resident dividend percentage )

Omit "or to a company that is related (within the meaning of subsection 51AE(16))".

11   Subsection 128TC(2) (definition of total calculation value for dividend purposes of other shares )

Omit "or to a company that is related (within the meaning of subsection 51AE(16))".

12   Application of amendments

(1) The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply in relation to a dividend or non-share dividend paid after 30 June 2003 by a company, except a company to which subitem (2) applies.

(2) This subitem and subitem (3) apply to a company if:

(a) the company becomes a member of a consolidated group or MEC group on the day (the consolidation day ) the group comes into existence; and

(b) the consolidation day either is before 1 July 2003 or is both:

(i) the first day of the first income year starting after 30 June 2003 of the group's head company (for a consolidated group) or provisional head company (for a MEC group) on the consolidation day; and

(ii) before 1 July 2004; and

(c) the company was not a member of a consolidated group or MEC group before the consolidation day.

(3) The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply in relation to a dividend or non-share dividend paid by a company on or after the consolidation day.

(4) A term used in subitem (2) and defined in the Income Tax Assessment Act 1997 has the same meaning in that subitem as it has in that Act.

Income Tax Assessment Act 1997

13   At the end of subsection 703-75(3)

Add:

; and (d) for the purposes of determining the respective balances of the *FDA accounts of the original company and the interposed company at and after the completion time.

14   Section 717-265 (link note)

Repeal the link note.

15   Subsection 995-1(1)

Insert:

FDA credit has the meaning given by section 717-505.

16   Subsection 995-1(1)

Insert:

FDA debit has the meaning given by section 717-505.

17   Subsection 995-1(1)

Insert:

FDA declaration has the meaning given by section 717-505.

18   Subsection 995-1(1)

Insert:

FDA declaration percentage has the meaning given by section 717-520.

19   Subsection 995-1(1)

Insert:

FDA surplus has the meaning given by section 717-505.

20   Subsection 995-1(1)

Insert:

foreign dividend account has the meaning given by section 717-505.

21   Application of amendments of subsection 995-1(1)

The amendments of subsection 995-1(1) of the Income Tax Assessment Act 1997 made by this Part apply on and after 1 July 2002.

Schedule 10   Consolidation: offshore banking units

Income Tax Assessment Act 1936

1   Section 121C (at the end of the definition of OBU )

Add:

Note: In this Division, the head company of a consolidated group or MEC group may be treated for certain purposes as an OBU at a time when a subsidiary member of the group is an OBU (see Subdivision 717-O of the Income Tax Assessment Act 1997).

Income Tax Assessment Act 1997

2   At the end of Division 717

Add:

Subdivision 717-O - Offshore banking units

Guide to Subdivision 717-O

717-700 What this Subdivision is about

The head company of a consolidated group is treated for certain purposes as an offshore banking unit at a time when a subsidiary member of the group is an offshore banking unit.

Table of sections

717-705 Object of this Subdivision

717-710 Head company treated as OBU

[This is the end of the Guide.]

717-705 Object of this Subdivision

The object of this Subdivision is to ensure that certain rules in the Income Tax Assessment Act 1936 relating to offshore banking units interact properly with the consolidation regime in this Part.

717-710 Head company treated as OBU

(1) Division 9A of Part III of the Income Tax Assessment Act 1936 applies to the *head company of a *consolidated group as if the head company were an OBU (within the meaning of that Division) at a time when a *subsidiary member of the group is an OBU (within the meaning of that Division).

(2) Subsection (1) operates for the head company core purposes mentioned in subsection 701-1(2).

Schedule 11   Consolidation: application of rules to MEC groups

Income Tax Assessment Act 1997

1   Before Subdivision 719-B

Insert:

Subdivision 719-A - Modified application of Part 3-90 to MEC groups

719-2 Modified application of Part 3-90 to MEC groups

(1) This Part (other than Division 703 and this Division) has effect in relation to a *MEC group in the same way in which it has effect in relation to a *consolidated group.

Note: A provision in this Part (other than in Division 703 or in this Division) mentioning 2 separate consolidated groups will, under subsection (1), have an additional operation when the groups are both MEC groups or when one is a MEC group and the other is a consolidated group.

(2) However, that effect is subject to the modifications set out in this Division.

(3) For the purposes of subsection (1), a reference in this Part (other than in Division 703 or this Division) to a provision in Division 703 applies as if it referred instead to that provision or the corresponding provision in Subdivision 719-B (as appropriate).

2   Subsection 995-1(1) (at the end of the definition of consolidated group )

Add:

Note 1: Part 3-90 contains rules relating to the tax treatment of consolidated groups. Division 719 (of that Part) applies those rules to MEC groups with modifications (see section 719-2).

Note 2: Provisions in the Income Tax Assessment Act 1936 and in the Income Tax Assessment Act 1997 (other than in Part 3-90) referring only to consolidated groups do not apply to MEC groups.

3   Subsection 995-1(1) (at the end of the definition of MEC group )

Add:

Note 1: Part 3-90 contains rules relating to the tax treatment of consolidated groups. Division 719 (of that Part) applies those rules to MEC groups with modifications (see section 719-2).

Note 2: Provisions in the Income Tax Assessment Act 1936 and in the Income Tax Assessment Act 1997 (other than in Part 3-90) referring only to consolidated groups do not apply to MEC groups.

Income Tax (Transitional Provisions) Act 1997

4   Before Subdivision 719-C

Insert:

Subdivision 719-A - Modified application of Part 3-90 to MEC groups

719-2 Modified application of Part 3-90 to MEC groups

(1) This Part (other than Division 703 and this Division) has effect in relation to a MEC group in the same way in which it has effect in relation to a consolidated group.

(2) However, that effect is subject to the modifications set out in this Division.

Subdivision 719-B - MEC groups and their members

719-5 Debt interests that are not membership interests

Section 703-30 of this Act has effect in relation to a MEC group in the same way in which it has effect in relation to a consolidated group.

Schedule 12   Consolidation: MEC group cost setting rules

Income Tax Assessment Act 1997

1   Section 719-155

Repeal the section, substitute:

719-155 Object of this Subdivision

The object of this Subdivision is to modify the tax cost setting rules in Divisions 701 and 705 so that they take account of the special characteristics of *MEC groups.

2   Before subsection 719-160(1)

Insert:

(1A) This section applies if an entity (the MEC joining entity ) becomes a *subsidiary member of a *MEC group at a time (the MEC joining time ).

3   Section 719-165

Repeal the section, substitute:

719-165 Trading stock value not set for assets of eligible tier-1 companies

(1) This section applies if an entity (the MEC joining entity ) becomes a *subsidiary member of a *MEC group at a time (the MEC joining time ).

(2) Subsection 701-35(4) (setting value of trading stock at tax-neutral amount) does not apply to the assets of the MEC joining entity if it is an *eligible tier-1 company at the MEC joining time.

4   At the end of Subdivision 719-C

Add:

719-170 Modified effect of subsections 705-175(1) and 705-185(1)

(1) This section applies if all of the *members of a *MEC group (the acquired group ) become members of another MEC group, or of a *consolidated group, at a particular time (the acquisition time ) as a result of the *acquisition of *membership interests in:

(a) the *head company of the acquired group; and

(b) other entities that were *eligible tier-1 companies of the acquired group just before the acquisition time.

(2) Subsections 705-175(1) and 705-185(1) have effect as if a *membership interest in an entity mentioned in paragraph (1)(b) of this section were a membership interest in the *head company of the acquired group.

Note 1: If the acquiring group is a MEC group, and the head company of the acquired group becomes an eligible tier-1 company of the acquiring group, the assets of the members of the acquired group do not have their tax cost reset at the acquisition time. This is because:

(a) section 719-160 treats an entity becoming an eligible tier-1 company of the acquiring group as if it were a part of the head company of that group; and

(b) section 705-185 treats the subsidiary members of the acquired group as part of the head company of the acquired group.

Note 2: If:

(a) the acquiring group is a MEC group, but the head company of the acquired group does not become an eligible tier-1 company of the acquiring group; or

(b) the acquiring group is a consolidated group and the acquired group is a MEC group;

the assets of the members of the acquired group have their tax cost reset at the acquisition time (section 719-160 does not preclude tax cost resetting in these cases). For the purposes of resetting the tax cost of those assets, section 705-185 treats the subsidiary members of the acquired group as part of the head company of the acquired group.

Schedule 13   Consolidation: MEC groups and losses

Part 1   Basic amendments

Income Tax Assessment Act 1997

1   Before section 719-300

Insert:

Guide to Subdivision 719-F

719-250 What this Subdivision is about

This Subdivision modifies the rules about transferring and utilising losses so the rules operate appropriately in relation to MEC groups, taking account of the special characteristics of those groups. The modifications mainly affect:

(a) rules about maintaining the same ownership to be able to utilise a loss; and

(b) rules for working out how much of a loss can be utilised by reference to bundles of losses and their available fractions.

Table of sections

Maintaining the same ownership to be able to utilise loss

719-255 Special rules

719-260 Special test for utilising a loss because a company maintains the same owners

719-265 What is the test company?

719-270 Assumptions about the test company having made the loss for an income year

719-275 Assumptions about nothing happening to affect direct and indirect ownership of the test company

719-280 Assumptions about the test company failing to meet the conditions in section 165-12

Same business test and change of head company

719-285 Same business test and change of head company

Bundles of losses and their available fractions

719-300 Application

719-305 Subdivision 707-C affects utilisation of losses made by ongoing head company while it was head company

719-310 Adjustment of available fractions for bundles of losses previously transferred to ongoing head company

719-315 Further adjustment of available fractions for all bundles

719-320 Limit on utilising losses other than the prior group losses

719-325 Cancellation of all losses in a bundle

[This is the end of the Guide.]

Maintaining the same ownership to be able to utilise loss

719-255 Special rules

(1) This section and section 719-260 have effect for the purposes of working out whether a loss can be *utilised for an income year (the claim year ) by a company (the focal company ) that made the loss if:

(a) section 165-12 is relevant to the question whether the focal company can utilise the loss; and

(b) the focal company is the *head company of a *MEC group at any time in its *ownership test period for the loss (as affected by section 707-205, if relevant).

Note: If the focal company made the loss because of a transfer under Subdivision 707-A, section 707-205 has the effect that the ownership test period starts for the focal company at the time of the transfer.

Section 707-210 does not have effect

(2) Section 707-210 does not have effect for the purposes of working out whether the focal company can *utilise the loss for the claim year.

Note: Section 707-210 is about whether a company can utilise a loss it made because the loss was transferred to it under Subdivision 707-A because the transferor met the conditions in section 165-12.

719-260 Special test for utilising a loss because a company maintains the same owners

Meeting the conditions in section 165-12

(1) The focal company is taken to meet the conditions in section 165-12 for the claim year and the loss if and only if the company (the test company ) identified in relation to the focal company in accordance with section 719-265 would have met those conditions for that year on the relevant assumptions in:

(a) section 719-270 (which is about assuming the test company made the loss for a particular income year); and

(b) section 719-275 (which is about assuming that nothing happened in relation to certain things that would affect whether the test company would meet those conditions); and

(c) section 719-280 (which is about assuming that the test company would have failed to meet those conditions in certain circumstances).

Focal company's failure to meet conditions in section 165-12

(2) The focal company is taken to fail to meet a condition in section 165-12 only at:

(a) the first time the test company would have failed to meet the condition on the relevant assumptions mentioned in subsection (1); or

(b) the *test time described in subsection 166-5(5) for the test company, if:

(i) Division 166 is relevant to working out whether the test company could have *utilised the loss for the claim year on the relevant assumptions mentioned in paragraphs (1)(a) and (b); and

(ii) the test company is not assumed under section 719-280 to fail to meet the condition before the test time.

Note: If the focal company is taken to fail to meet a condition in section 165-12, the focal company will not be able to utilise the loss for the claim year unless the focal company meets the conditions in section 165-13 by satisfying the same business test. That test applies to the focal company (and not the test company).

Same business test for focal company under Division 166

(3) If subsection 166-5(4) affects whether the focal company can *utilise the loss for the claim year because the focal company is a *listed public company or a *100% subsidiary of one for the year, subsection 166-5(5) operates as if it required the *same business test to be applied to the *business the focal company carried on just before the time described in subsection (2) of this section.

Same business test for focal company to transfer loss

(4) If subsection 707-125(4) is relevant to working out whether the focal company can transfer the loss to a company under Subdivision 707-A, that subsection:

(a) has effect as if subsection 707-125(5) described the focal company's income year containing the time at which the focal company is taken under subsection (2) of this section to fail to meet a condition in section 165-12; and

(b) has effect despite subsection (3) of this section.

Note: For working out whether certain losses can be transferred under Subdivision 707-A, subsection 707-125(4) modifies the operation of subsection 166-5(5) by extending the same business test period to include the income year described in subsection 707-125(5).

719-265 What is the test company?

(1) To identify for the purposes of section 719-260 the company that is the test company for the focal company for the loss:

(a) first, identify the test company for the focal company by applying whichever one of subsections (2), (3), (4) and (6) is relevant; and

(b) then, if the condition in column 1 of an item of the table is met, apply this section again to identify the test company as if the company described in column 2 of the item were the focal company, taking account only of things that happened before the event described in column 3 of the item.

Note: More than 2 applications of this section may be needed to identify the test company for the focal company.

COT transfer of loss to focal company

(2) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss because of a *COT transfer to the focal company.

Loss transferred because same business test satisfied

(3) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss because the loss was transferred under Subdivision 707-A to the focal company from a company because it satisfied the *same business test for:

(a) the *same business test period; and

(b) the *test time specified in Division 165 or 166 or section 707-125.

Loss not transferred from a company

(4) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss apart from a transfer of the loss under Subdivision 707-A from a company.

Relationship between subsections (2), (3) and (4)

(5) Subsection (2) or (3), and not subsection (4), is relevant for identifying the test company for the focal company if the focal company made the loss apart from a transfer under Subdivision 707-A, and later transferred the loss to itself under that Subdivision.

Change of head company

(6) If, under section 719-90, the focal company is taken to have made the loss because:

(a) a company (the first head company ) other than the focal company made the loss apart from that section and either:

(i) was the *head company of a *MEC group at any time during the income year for which it made the loss; or

(ii) became the head company of a MEC group after that income year (without having been a *subsidiary member of the group before becoming the head company); and

(b) the focal company was later the head company of the MEC group;

the test company for the focal company is the company that is the test company for the first head company.

Note: Section 719-90 applies if there is a change in the head company of a MEC group, treating the later head company as if what had happened to the earlier head company had happened to the later head company.

(7) Subsections (2), (3) and (4) and section 719-90 have effect subject to subsection (6) of this section.

719-270 Assumptions about the test company having made the loss for an income year

If test company was top company for focal company's MEC group

(1) If the test company was the *top company for a *MEC group and the focal company is or was the *head company of that MEC group, assume that the test company made the loss for an income year starting at the relevant time shown in the table.

Note: Subsection (1) applies even if the test company is still the top company for the MEC group at the end of the claim year.

If test company is focal company or first head company

(2) If the test company is:

(a) the focal company; or

(b) the first head company identified in subsection 719-265(6) by reference to the focal company;

assume that the test company made the loss for an income year starting at the relevant time shown in the table.

(3) If the test company is the first head company, disregard section 719-90 for the purposes of working out the relevant time using the table in subsection (2) of this section.

Note: This ensures that section 719-90 does not make the items in the table inapplicable by treating the test company as if another company had made the loss instead of the test company.

If subsections (1) and (2) do not apply

(4) If neither subsection (1) nor subsection (2) applies, assume that the test company made the loss for an income year starting at the relevant time shown in the table.

Note: Subsection (4) applies if the focal company made the loss because of a COT transfer of the loss to the focal company from another company.

(5) Disregard section 719-90 for the purposes of items 1 and 2 of the table in subsection (4) of this section if the test company was identified using subsection 719-265(6).

Note: This ensures that section 719-90 does not make those items inapplicable by treating the test company as if another company had made the loss instead of the test company.

Other events do not override assumption

(6) If the test company transferred the loss to itself or another company under Subdivision 707-A, assume that the transfer did not affect, for income years ending after the transfer:

(a) the fact that the test company made the loss; or

(b) the income year for which the test company is assumed (under subsection (1), (2) or (4)) to have made the loss.

719-275 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 an event described in subsection (2) occurs:

(a) after the time assumed under section 719-270 to be the start of the income year for which the test company made the loss; and

(b) before the end of the claim year;

(whether or not the test company or the focal company is one of the companies mentioned in the description of the event).

(2) Assume that, after an event described in an item of the table, nothing happens in relation to *membership interests or voting power in an entity described in the item that would affect whether the test company would meet the conditions in section 165-12 for the claim year and the loss.

(3) For the purposes of this section, a company is taken to make a loss:

(a) at the start of the income year for which the company makes the loss, if it makes the loss apart from a transfer under Subdivision 707-A (even if the company later transfers the loss to itself under that Subdivision); or

(b) at the time the loss is transferred to the company under that Subdivision, if the company makes the loss because of that transfer.

(4) Disregard section 719-90 for the purposes of making an assumption on the basis of item 1 of the table in subsection (2) of this section if (apart from that section):

(a) the *COT transfer mentioned in that item was from the *head company of the *MEC group to itself; and

(b) for an income year starting after the transfer, another company was the head company of the group.

719-280 Assumptions about the test company failing to meet the conditions in section 165-12

(1) Assume that the test company fails to meet the conditions in section 165-12 at the time an event described in subsection (2), (3) or (4) happens after the start of the *ownership test period for the focal company in relation to:

(a) the *MEC group whose *head company was the focal company; or

(b) the *potential MEC group whose membership was the same as the membership of that MEC group.

Note: If the test company is assumed to fail to meet the conditions in section 165-12 for the claim year and the loss, the focal company is taken (under section 719-260) 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 165-12

(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 165-12 on the relevant assumptions set out in sections 719-270 and 719-275.

Same business test and change of head company

719-285 Same business test and change of head company

In working out whether the *same business test is satisfied by a company that, after the *test time, became the *head company of a *MEC group that existed before that time, disregard what happened in relation to the company before it became a *member of the group. Section 719-90 has effect subject to this section.

Note 1: The same business test is to be applied on the basis that the company's business at the test time was the business that section 719-90 treats the company as having carried on at that time, except to the extent that section 719-90 attributes to the company its actual history before it became a member of the MEC group.

Note 2: Section 719-90 applies if there is a change in the head company of a MEC group, treating the later head company as if what had happened to the earlier head company had happened to the later head company.

[The next section is section 719-300.]

Bundles of losses and their available fractions

Part 2   Related amendments

Income Tax Assessment Act 1997

2   Subsection 707-210(1)

Repeal the subsection, substitute:

(1) This section has effect for the purposes of working out whether a company (the latest transferee ) can *utilise for an income year a loss it made because of a *COT transfer from a company (the latest transferor ).

(1A) A transfer of a loss under Subdivision 707-A from a company to a company is a COT transfer of the loss if the transfer occurs because:

(a) the transferor meets the conditions in section 165-12; and

(b) the conditions in one or more of paragraphs 165-15(1)(a), (b) and (c) do not exist in relation to the transferor.

3   Paragraph 707-210(3)(b)

Repeal the paragraph, substitute:

(b) one or more of those earlier transfers was not a *COT transfer;

4   Subsection 995-1(1)

Insert:

COT transfer of a loss has the meaning given by section 707-210.

5   Application of amendment of subsection 995-1(1)

The amendment of subsection 995-1(1) of the Income Tax Assessment Act 1997 made by this Schedule applies on and after 1 July 2002.

Schedule 14   Consolidation: liability rules

Income Tax Assessment Act 1997

1   At the end of Subdivision 709-A

Add:

Payment of group liability by former subsidiary member

709-95 Payment of group liability by former subsidiary member

(1) This section operates if:

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

(b) at or after the leaving time, the former subsidiary:

(i) *pays a PAYG instalment for which it was jointly and severally liable under subsection 721-15(1) because it was a subsidiary member of the old group; or

(ii) *pays income tax for which it was jointly and severally liable under that subsection because it was a subsidiary member of the old group; and

(c) apart from this section, a *franking credit would arise under section 205-15 in the *franking account of the former subsidiary at a time (the crediting time ) because of that payment.

(2) The credit:

(a) does not arise at the crediting time in the *franking account of the former subsidiary; and

(b) instead, arises at the crediting time in the franking account of the entity that was the *head company of the old group at the leaving time.

709-100 Refund of income tax to former subsidiary member

(1) This section operates if:

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

(b) at or after the leaving time, the former subsidiary *receives a refund of income tax for which it was jointly and severally liable under subsection 721-15(1) because it was a subsidiary member of the old group; and

(c) apart from this section, a *franking debit would arise under section 205-30 in the *franking account of the former subsidiary at a time (the debiting time ) because of that payment.

(2) The debit:

(a) does not arise at the debiting time in the *franking account of the former subsidiary; and

(b) instead, arises at the debiting time in the franking account of the entity that was the *head company of the old group at the leaving time.

2   Subsection 721-10(2) (at the end of the table)

Add:

3   After subsection 721-15(5)

Insert:

(5A) Despite subsection (5), if the group liability is *general interestcharge for a day, the joint and several liability of a particular contributing member under subsection (1) becomes due and payable by the member at the end of the day on which the Commissioner gives the member written notice of the liability under subsection (5).

4   After section 721-15

Insert:

721-17 Notice of joint and several liability for general interest charge

(1) This section operates if:

(a) the group liability is *general interest charge for a day in relation to another liability (the primary liability ); and

(b) the Commissioner gives a particular contributing member written notice under subsection 721-15(5) of the group liability; and

(c) general interest charge arises for a subsequent day in relation to the primary liability; and

(d) the general interest charge for the subsequent day has not been paid or otherwise discharged in full by the time it became due and payable.

(2) The Commissioner is taken to have given the contributing member written notice under subsection 721-15(5) of the *general interest charge for the subsequent day. The notice is taken to have been given on that day.

5   After subsection 721-30(5)

Insert:

(5A) Despite subsection (5), if the group liability is *general interest charge for a day, the liability of a TSA contributing member under subsection (2) becomes due and payable by the member at the end of the day on which the Commissioner gives the member written notice of the liability under subsection (5).

6   After section 721-30

Insert:

721-32 Notice of general interest charge liability under TSA

(1) This section operates if:

(a) the group liability is *general interest charge for a day in relation to another liability (the primary liability ); and

(b) the Commissioner gives a particular TSA contributing member written notice under subsection 721-30(5) of its liability under subsection 721-30(2) in relation to the general interest charge for that day; and

(c) general interest charge arises for a subsequent day in relation to the primary liability; and

(d) the TSA contributing member is liable under subsection 721-30(2) for an amount in relation to the general interest charge for the subsequent day.

(2) The Commissioner is taken to have given the TSA contributing member written notice under subsection 721-30(5) of the amount in relation to the *general interest charge for the subsequent day. The notice is taken to have been given on that day.

7   After section 721-35

Insert:

721-40 TSA liability and group liability are linked

(1) The liability of a TSA contributing member under subsection 721-30(2) (the TSA liability ) is separate and distinct for all purposes from the group liability to which it relates (the linked group liability ). For example, the Commissioner may take proceedings to recover the unpaid amount of the TSA liability, proceedings to recover the unpaid amount of the linked group liability, or both.

Note: The TSA contributing member will not be jointly and severally liable for the linked group liability under section 721-15 (see subsection 721-15(3)). However, the head company of the group remains liable for the linked group liability.

Payment or discharge of TSA liability

(2) If an amount is paid or applied at a particular time towards discharging the TSA liability, the linked group liability is discharged at that time to the extent of the same amount.

Payment or discharge of linked group liability

(3) If:

(a) an amount is paid or applied at a particular time towards discharging the linked group liability; and

(b) as a result, the amount unpaid on the TSA liability at that time (apart from this section) exceeds the amount unpaid on the linked group liability at that time;

the TSA liability is discharged at that time to the extent of the excess.

(4) Subsections (2) and (3) operate in relation to a liability under a judgment (the judgment liability ):

(a) if the judgment liability is for the entire amount unpaid on the TSA liability - as if the judgment liability were the TSA liability; and

(b) if the judgment liability is for the entire amount unpaid on the linked group liability - as if the judgment liability were the linked group liability.

(5) This section does not discharge a liability to a greater extent than the amount of the liability.

Taxation Administration Act 1953

8   Subsection 250-10(1) in Schedule 1 (note)

Omit "Note", substitute "Note 1".

9   At the end of subsection 250-10(1) in Schedule 1 (after the note)

Add:

Note 2: Members and former members of consolidated groups and MEC groups may be jointly and severally liable to pay certain tax-related liabilities related to the group's activities (see Division 721 of the Income Tax Assessment Act 1997).

10   Subsection 250-10(2) (after table item 37)

Insert:

11   Subsection 250-10(2) in Schedule 1 (note)

Omit "Note", substitute "Note 1".

12   At the end of subsection 250-10(2) in Schedule 1 (after the note)

Add:

Note 2: Members and former members of consolidated groups and MEC groups may be jointly and severally liable to pay certain tax-related liabilities related to the group's activities (see Division 721 of the Income Tax Assessment Act 1997).

Schedule 15   Consolidation: general application provision

Income Tax (Transitional Provisions) Act 1997

1   Subsection 700-1(1)

Repeal the subsection, substitute:

(1) Part 3-90 of the Income Tax Assessment Act 1997, as inserted by the New Business Tax System (Consolidation) Act (No. 1) 2002 and amended by:

(a) the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002; and

(b) the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002; and

(c) the New Business Tax System (Consolidation and Other Measures) Act 2003;

applies on and after 1 July 2002.

Schedule 16   Consolidation: transitional foreign-held membership structures

Part 1   Amendment of the Income Tax Assessment Act 1997

1   Subsection 703-15(2) (cell at table item 2, column 4)

Omit "requirement in subsection 703-45(1)", substitute "set of requirements in section 703-45, section 701C-10 of the Income Tax (Transitional Provisions) Act 1997 or section 701C-15 of that Act".

2   Section 703-45

Repeal the section, substitute:

703-45 Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group

(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703-15(2), a set of requirements that must be met for an entity (the test entity ) to be a *subsidiary member of a *consolidated group or a *consolidatable group at a particular time (the test time ).

(2) At the test time, each of the interposed entities must either:

(a) be a *subsidiary member of the group; or

(b) hold *membership interests in:

(i) the test entity; or

(ii) a subsidiary member of the group interposed between the *head company of the group and the test entity;

only as a nominee of one or more entities each of which is a *member of the group.

3   Paragraph 705-15(d)

Repeal the paragraph.

Part 2   Amendment of the Income Tax (Transitional Provisions) Act 1997

4   Division 701B (heading)

Repeal the heading, substitute:

Division 701B - Modified application of provisions of Income Tax Assessment Act 1997 relating to CGT event L1

5   After Division 701B

Insert:

Division 701C - Modified application etc. of provisions of Income Tax Assessment Act 1997: transitional foreign-held membership structures

Table of Subdivisions

701C-A Overview

701C-B Membership rules allowing foreign holding

701C-C Modifications of tax cost setting rules

Subdivision 701C-A - Overview

Table of sections

701C-1 Overview

701C-1 Overview

This Division:

(a) sets out, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, rules that allow certain entities to be subsidiary members of consolidatable groups or consolidated groups where other entities are interposed between them and the head company of the group (see Subdivision 701C-B); and

(b) modifies certain rules in Part 3-90 of the Income Tax Assessment Act 1997 relating to setting the tax cost of assets to take account of those membership rules (see Subdivision 701C-C).

[The next section is 701C-10.]

Subdivision 701C-B - Membership rules allowing foreign holding

Table of sections

701C-10 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a company

701C-15 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a trust or partnership

701C-20 Transitional foreign-held subsidiaries and transitional foreign-held indirect subsidiaries

701C-10 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a company

(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, a set of requirements that must be met for an entity (the test entity ) to be a subsidiary member of a consolidated group or a consolidatable group at a particular time (the test time ).

Test entity must be company

(2) At the test time, the test entity must be a company.

At least one interposed entity must be a non-resident company or non-resident trust

(3) At the test time, at least one of the interposed entities must be:

(a) a company (a non-resident company ) that is a foreign resident; or

(b) a trust (a non-resident trust ) that does not meet the requirements in any item of the table in section 703-25 of the Income Tax Assessment Act 1997.

The interposed entities must all be of a particular kind

(4) At the test time, each of the interposed entities must be:

(a) a subsidiary member of the group; or

(b) a non-resident company; or

(c) a non-resident trust; or

(d) an entity that holds membership interests in an entity interposed between it and the test entity, or in the test entity, only as a nominee of one or more entities each of which is a member of the group, a non-resident company or a non-resident trust; or

(e) a partnership, each of the partners in which is a non-resident company or a non-resident trust.

Test entity must be a subsidiary member on assumption that non-resident companies and non-resident trusts were subsidiary members

(5) At the test time, it must be the case that the test entity would be a subsidiary member of the group if each interposed entity that is a non-resident company or non-resident trust were a subsidiary member of the group.

Additional requirement for consolidatable groups

(6) If the group is a consolidatable group, the test time must be before 1 July 2004.

Additional requirement for consolidated groups at formation

(7) If the group is a consolidated group and the test time is the time at which the group comes into existence as a consolidated group, the test time must be before 1 July 2004.

Additional requirement for consolidated groups after formation

(8) If:

(a) the group is a consolidated group; and

(b) the test time is after the group comes into existence; and

(c) at the test time, one or more of the membership interests in the test entity are held by:

(i) a non-resident company; or

(ii) a non-resident trust; or

(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non-resident company or a non-resident trust; or

(iv) a partnership, each of the partners in which is a non-resident company or a non-resident trust;

then:

(d) from the time the group came into existence as a consolidated group until the test time, the test entity must have been a subsidiary member of the group; and

(e) at the time the group came into existence as a consolidated group, one or more of the membership interests in the test entity must have been held by an entity of a kind mentioned in subparagraph (c)(i), (ii), (iii) or (iv).

701C-15 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a trust or partnership

(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, a set of requirements that must be met for an entity (the test entity ) to be a subsidiary member of a consolidated group or a consolidatable group at a particular time (the test time ).

Test entity must be a trust or partnership

(2) At the test time, the test entity must be a trust or partnership.

At least one interposed entity must be a company that is a subsidiary member because of section 701C-10

(3) At the test time, one or more of the interposed entities must be companies that are subsidiary members of the group because the set of requirements in section 701C-10 are met.

Test entity must be a subsidiary member on assumption that head company beneficially owned all membership interests beneficially owned by subsection (3) companies

(4) At the test time, it must be the case that the test entity would be a subsidiary member of the group if the head company beneficially owned all the membership interests beneficially owned by each company described in subsection (3).

701C-20 Transitional foreign-held subsidiaries and transitional foreign-held indirect subsidiaries

If:

(a) an entity is a subsidiary member of a consolidated group in a case where the set of requirements described in section 701C-10 are met; and

(b) one or more of the membership interests in the entity are held by:

(i) a non-resident company; or

(ii) a non-resident trust; or

(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non-resident company or a non-resident trust; or

(iv) a partnership, each of the partners in which is a non-resident company or a non-resident trust;

then:

(c) the entity is a transitional foreign-held subsidiary of the group; and

(d) if:

(i) the transitional foreign-held subsidiary; or

(ii) an entity that is a transitional foreign-held indirect subsidiary of the group because of another application of this paragraph;

holds one or more membership interests in another entity that:

(iii) is a subsidiary member of the group; and

(iv) is not a transitional foreign-held subsidiary of the group;

that other member is a transitional foreign-held indirect subsidiary of the group.

Note: In order to be a subsidiary member of the group as required by subparagraph (d)(iii), the transitional foreign-held indirect subsidiary would need to have satisfied the set of requirements in either section 701C-10 or 701C-15

Subdivision 701C-C - Modifications of tax cost setting rules

Table of sections

Application and object

701C-25 Application and object of this Subdivision

Basic modification

701C-30 Transitional foreign-held subsidiary to be treated as part of head company

Other modifications

701C-35 Trading stock value not set for assets of transitional foreign-held subsidiaries

701C-40 Cost setting rules for exit cases - modification of core rules

701C-50 Cost setting rules for exit cases - reference to modification of core rule

Application and object

701C-25 Application and object of this Subdivision

Application

(1) This Subdivision applies if an entity (the transitional foreign-held joining entity ) that is a transitional foreign-held subsidiary or a transitional foreign-held indirect subsidiary becomes a subsidiary member of a consolidated group at the time (the formation time ) the group comes into existence.

Object

(2) The object of this Subdivision is to ensure that, on becoming a subsidiary member at the formation time, the tax cost of the assets of any transitional foreign-held subsidiary is not set and that the tax cost setting amount for assets of any transitional foreign-held indirect subsidiary that becomes a subsidiary member at that time takes account of this.

Basic modification

701C-30 Transitional foreign-held subsidiary to be treated as part of head company

The following provisions:

(a) section 701-10 of the Income Tax Assessment Act 1997 (about setting the tax cost of assets that an entity brings into the group);

(b) Subdivision 705-A of that Act, in its application in accordance with Subdivision 705-B of that Act;

apply, for the purposes of setting the tax cost of an asset of the transitional foreign-held entity at the formation time, as if each subsidiary member of the group that is a transitional foreign-held subsidiary at the formation time were a part of the head company of the group, rather than a separate entity.

Note 1: This section means that references in those provisions to matters internal to the group operate as if transitional foreign-held subsidiaries in the group were parts of the head company of the group. For example:

(a) provisions operating if the head company holds (whether directly or indirectly) membership interests in another entity operate even if a transitional foreign-held subsidiary actually holds those interests; and

(b) provisions operating if the head company owns or controls another entity operate even if one or more transitional foreign-held subsidiaries actually own or control that other entity; and

(c) provisions operating if an entity is interposed between the head company and another entity operate even if the first entity is actually interposed between a transitional foreign-held subsidiary and the other entity.

Note 2: If the transitional foreign-held entity is a transitional foreign-held subsidiary, this section means the assets of the entity do not have their tax cost reset at the formation time. This is because Subdivision 705-A of the Income Tax Assessment Act 1997, in its application in accordance with Subdivision 705-B of that Act, resets the tax cost of assets of subsidiary members of a group, but not assets of the head company.

Other modifications

701C-35 Trading stock value not set for assets of transitional foreign-held subsidiaries

Subsection 701-35(4) of the Income Tax Assessment Act 1997 (setting value of trading stock at tax-neutral amount) does not apply to the assets of the transitional foreign-held entity if it is a transitional foreign-held subsidiary.

701C-40 Cost setting rules for exit cases - modification of core rules

Section 701-15 of the Income Tax Assessment Act 1997 applies as if the following subsection were added at the end of the section:

Application to transitional foreign-held subsidiaries

(4) If an entity that ceases to be a subsidiary member is a transitional foreign-held subsidiary when it does so:

(a) this section applies to each membership interest in the transitional foreign-held subsidiary that is held by an entity (an eligible non-resident ) of a kind mentioned in subparagraph 701C-20(b)(i), (ii), (iii) or (iv) of the Income Tax (Transitional Provisions) Act 1997 in the same way as it applies to a membership interest in the transitional foreign-held subsidiary that is held by the head company; and

(b) for that purpose, the definition of head company core purposes in subsection 701-1(2) of the Income Tax Assessment Act 1997 applies to theeligible non-resident in the same way as it applies to the head company.

701C-50 Cost setting rules for exit cases - reference to modification of core rule

Section 711-5 of the Income Tax Assessment Act 1997 applies as if the following note were added at the end of the section:

Note: If the leaving entity is a transitional foreign-held subsidiary (within the meaning of section 701C-20 of the Income Tax (Transitional Provisions) Act 1997), this Division will, in accordance with subsection 701-15(4) of this Act (see section 701C-40 of the first-mentioned Act), apply to membership interests that an eligible non-resident mentioned in that subsection holds in the entity in the same way as it applies to membership interests that the head company holds in the entity.

Schedule 17   Consolidation: transitional cost setting rule relating to roll-overs

Income Tax (Transitional Provisions) Act 1997

1   Section 701-35

Omit "Part 3-90 of the Income Tax Assessment 1997 applies", substitute "the provisions mentioned in subsection (2) apply".

2   At the end of section 701-35

Add:

(2) The provisions are:

(a) Division 705 of the Income Tax Assessment Act 1997; and

(b) provisions of this Act modifying the effect of that Division.

(3) Subsection (1) does not apply if:

(a) the asset mentioned in subsection (1) is a membership interest in an entity (the test entity ); and

(b) when the CGT event happened:

(i) the originating company in relation to the roll-over, or the transferor in relation to the roll-over relief, was a foreign resident; and

(ii) the recipient company, or the transferee in relation to the roll-over relief, was an Australian resident; and

(c) when the transitional group came into existence, the test entity was a subsidiary member of the group, other than as a transitional foreign-held subsidiary of the group.

3   After section 719-160

Insert:

719-163 Modified effect of section 701-35

(1) This section applies if the transitional group mentioned in section 701-35 of this Act is a MEC group.

(2) That section has effect as if paragraph 701-35(3)(c) were repealed and the following paragraph were substituted:

(c) when the transitional group came into existence, the test entity was a subsidiary member of the group, other than as:

(i) a transitional foreign-held subsidiary of the group (see section 701C-20); or

(ii) an eligible tier-1 company of the group.

Schedule 18   Consolidation: extra transitional provision for foreign tax credits

New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002

1   At the end of Schedule 10

Add:

11 Transitional provision for section 160AF

(1) This item applies if:

(a) because of item 5, 6 or 7, old section 160AFE applies to a taxpayer as if a period were an income year (the notional income year ); and

(b) the taxpayer has an initial excess credit (within the meaning of old section 160AFE) in relation to the notional income year; and

(c) the taxpayer transfers all or part (the extent of the transfer being the transfer amount ) of that initial excess credit under old section 160AFE for utilisation by another company in the notional income year.

(2) Section 160AF of the Income Tax Assessment Act 1936 applies to the taxpayer for the year of income in which the notional income year ends as if the amount of foreign tax paid by the taxpayer mentioned in paragraph 160AF(1)(b) of that Act were reduced by the transfer amount.

(3) This item operates separately in relation to each class of foreign income identified in subsection 160AF(7) of the Income Tax Assessment Act 1936, as if the taxpayer's foreign income of that class for a year of income were the whole of the taxpayer's foreign income for that year.

Schedule 19   Consolidation: amendment of losses rules

Income Tax Assessment Act 1997

1   After subsection 701-30(3)

Insert:

(3A) For the purposes of working out the entity's taxable income (if any) for the non-membership period, determine:

(a) whether the entity can *utilise a loss of any *sort transferred to the entity in the period; and

(b) if the period started at the start of the income year - whether the entity can utilise a loss of any sort:

(i) made by the entity, without a transfer, for an earlier income year; or

(ii) transferred to the entity in an earlier income year;

as if the time just after the end of the period were the end of the income year and the entity carried on at that time the same business that it carried on just before that time. Paragraph (3)(a) has effect subject to this subsection.

Note: This means that things that happen in relation to the entity at the time it becomes a subsidiary member of the group are taken into account in determining whether the entity can utilise such a loss to affect its taxable income for the non-membership period.

2   At the end of section 701-30

Add:

Utilisation and transfer of non-membership period loss

(8) However, the provisions of this Act relating to transfer or *utilisation of a loss of any *sort have effect in relation to a non-membership period loss of that sort for any non-membership period as if the non-membership period loss were the entity's loss for an income year that:

(a) started at the start of the period; and

(b) ended at the end of the period.

(9) Subsection (8) has effect not only for the entity core purposes, but also (despite subsection (2)) for other purposes.

3   Section 707-405

Repeal the section.

Income Tax (Transitional Provisions) Act 1997

4   After section 707-325

Insert:

707-326 Events involving only value donor and real loss-maker not covered by rule against inflation of modified market value

(1) This section affects the calculation of the modified market value of the real loss-maker mentioned in subsection 707-315(1) of the Income Tax Assessment Act 1997 for a bundle of losses. This section affects the calculation:

(a) only if section 707-325 of this Act applies for the purposes of working out the available fraction for the bundle; and

(b) only for the purposes of working out the available fraction for the bundle to affect the utilisation of tax losses, film losses and net capital losses in the bundle (and not any overall foreign losses, as defined in section 160AFD of the Income Tax Assessment Act 1936, in the bundle).

Note: This section does not affect the calculation of the real loss-maker's modified market value for other purposes (such as the real loss-maker being a value donor for the purposes of another application of section 707-325 of this Act).

(2) Disregard for the purposes of subsection 707-325(2) of the Income Tax Assessment Act 1997 an event:

(a) that is described in subsection 707-325(4) of that Act; and

(b) that meets the condition in subsection (3) or (4) of this section.

(3) One condition is that the event was an injection of capital directly into the real loss-maker by the value donor mentioned in section 707-325 of this Act.

(4) The other condition is that the event was a transaction:

(a) that did not take place at arm's length; and

(b) that involved only the real loss-maker and the value donor mentioned in section 707-325 of this Act; and

(c) that would have caused subsection 707-325(2) of the Income Tax Assessment Act 1997 to operate in working out the real loss-maker's modified market value (even if no other events described in subsection 707-325(4) of that Act had occurred), apart from this section.

(5) Subsection (2) of this section does not apply if subsection 707-325(2) of the Income Tax Assessment Act 1997:

(a) operates for the purposes of working out the value donor's modified market value because of an event that involved an entity other than the value donor and the real loss-maker (whether or not the event also involved either the value donor or the real loss-maker); or

(b) would operate for those purposes because of such an event apart from another application of this section.

5   After section 707-328

Insert:

707-328A Some events involving only group members not covered by rule against inflation of modified market value

Overview

(1) Subsection (3) of this section affects the calculation, under section 707-325 of the Income Tax Assessment Act 1997 and section 707-325 of this Act, of the modified market value of the real loss-maker mentioned in subsection 707-315(1) of that Act for a bundle of losses, but only if:

(a) the requirement in subsection (2) of this section is met in relation to each other company that became a member of the group mentioned in subsection 707-315(1) of that Act in connection with the bundle at the time (the formation time ) the group became a consolidated group; and

(b) the provisions described in subsection 707-327(4) of this Act operate (because of that subsection) in relation to each loss of such a company that is covered by paragraphs 707-327(1)(b) and (c) of this Act as if the bundle included the loss; and

(c) all members of the group at the formation time were companies; and

(d) subsection 707-325(2) of that Act does not operate, for the purposes of working out the modified market value of an entity that became a member of the group at the formation time, because of an event that involved an entity that did not become a member of the group then; and

(e) the transferee mentioned in subsection 707-325(1) of this Act chooses that this section apply in relation to the real loss-maker.

(2) Section 707-325 of this Act must apply in relation to the other company (as value donor) so that the available fraction for the bundle is to be worked out as if there were added to the real loss-maker's modified market value an amount worked out by reference to the other company's modified market value at the initial transfer time.

Disregarding events for purposes of anti-inflation rule

(3) Disregard for the purposes of subsection 707-325(2) of the Income Tax Assessment Act 1997 an event that is described in subsection 707-325(4) of that Act and was either:

(a) an injection of capital into an entity that became a member of the group at the formation time by another such entity; or

(b) a transaction that involved only entities that became members of the group at the formation time.

Note: Disregarding such an event could have a direct or indirect effect on the real loss-maker's modified market value for the purposes of working out the available fraction for the bundle in one of these ways:

(a) it could directly affect the real loss-maker's modified market value calculated under section 707-325 of the Income Tax Assessment Act 1997, if the real loss-maker was involved in the event;

(b) it could have an indirect effect by affecting the value donor's modified market value calculated under that section and used under section 707-325 of this Act to add an amount to the real loss-maker's modified market value for those purposes.

Choice

(4) A choice for the purposes of paragraph (1)(e):

(a) may be made only by the day on which the transferee 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) cannot be amended or revoked.

Scope of this section

(5) This section affects the modified market value of an entity that became a member of the group at the formation time only for the purposes of calculating the real loss-maker's modified market value for the purposes of working out the available fraction for the bundle.

(6) This section has effect for working out the available fraction of the bundle 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 section 160AFD of the Income Tax Assessment Act 1936) that:

(a) is included in the bundle; or

(b) was transferred under Subdivision 707-A of the Income Tax Assessment Act 1997 from an entity other than the real loss-maker.

Note: If the bundle 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.

(7) This section can operate in relation to only one bundle of losses transferred to the transferee under Subdivision 707-A of the Income Tax Assessment Act 1997.

New Business Tax System (Consolidation) Act (No. 1) 2002

6   At the end of item 39 of Schedule 3

Add:

(10) To avoid doubt, section 701-30 of the Income Tax Assessment Act 1997 does not prevent a company from transferring under Subdivision 170-A or 170-B of that Act (applying as described in subitem (9)) a non-membership period loss described in that section for the non-membership period mentioned in that subitem.

7   Item 34 of Schedule 5

Omit "166-86", substitute "166-85".

Schedule 20   Consolidation: transfers of losses involving financial corporations

Financial Corporations (Transfer of Assets and Liabilities) Act 1993

1   Subsection 20(1A)

After "provisions in", insert "Part 1 of".

2   At the end of subsection 20(1A)

Add "and the provisions in Part 2 of that Schedule were added at the end of Subdivision 170-B of that Act".

3   At the end of section 26C

Add:

(2) Subsection (1) operates on the basis described in subsection (3) if:

(a) the head company of a consolidated group or MEC group incurred a tax loss because of Subdivision 707-A of the Income Tax Assessment Act 1997; and

(b) the company (the real loss-maker ) that incurred the tax loss apart from that Subdivision is a member of the group in the deduction year; and

(c) disregarding section 701-1 (the single entity rule) of that Act, this Act applies to one or more transfers by the real loss-maker to the receiving corporation.

Note: In certain cases, Subdivision 707-A of the Income Tax Assessment Act 1997 treats the head company of a consolidated group or MEC as incurring a tax loss actually incurred by an entity that becomes a member of the group.

(3) Subsection (1) operates as if:

(a) the head company were the transferring corporation in relation to each transfer described in paragraph (1)(a) and this Act applied to each of those transfers; and

(b) the head company incurred the tax loss for the income year for which the real loss-maker incurred it (apart from Subdivision 707-A of the Income Tax Assessment Act 1997); and

(c) each reference in that subsection to Subdivision 165-A of that Act were a reference to that Subdivision as its operation is affected by Subdivision 707-B of that Act, and by Subdivision 719-F of that Act (if relevant).

Note 1: Subdivision 707-B of the Income Tax Assessment Act 1997 affects the operation of Subdivision 165-A of that Act in relation to the deduction of a tax loss incurred by the head company of a consolidated group or MEC group because of Subdivision 707-A of that Act.

Note 2: Subdivision 719-F of the Income Tax Assessment Act 1997 affects the operation of Subdivision 165-A of that Act in relation to the deduction of a tax loss incurred by the head company of a MEC group because of Subdivision 707-A of that Act.

(4) An expression used in this section and in the Income Tax Assessment Act 1997 has the same meaning in this section as it has in that Act. This subsection does not apply to the expressions deduction year , loss year , this Act and transfer .

4   At the end of section 170-5 in Schedule 1

Add:

(5) Special rules extend the scope of this Subdivision to let the head company of a consolidated group or MEC group transfer in some cases a tax loss the company incurred because of Subdivision 707-A. The rules do this by modifying the basis on which other provisions of this Subdivision operate.

5   At the end of Subdivision 170-A in Schedule 1

Add:

Special rules for transfer from head company of consolidated group or MEC group

170-75 Transfer of a tax loss incurred by the head company because of Subdivision 707-A

(1) The other sections of this Subdivision operate in relation tothe actual or proposed transfer of a *tax loss on the basis described in this section if:

(a) the *head company of a *consolidated group or *MEC group incurred the tax loss because of Subdivision 707-A; and

(b) the company (the real loss-maker ) that incurred the tax loss apart from Subdivision 707-A is a *member of the group at the end of the income year for which it is proposed to transfer the loss under this Subdivision.

(2) The other sections of this Subdivision, except section 170-28, operate as if:

(a) the *head company were a transferring corporation within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993; and

(b) the head company had incurred the *tax loss for the income year for which the real loss-maker incurred the tax loss (apart from Subdivision 707-A).

Note: This has the effect that (because of subsection 170-10(1)) those sections operate as if the head company were the loss company and the loss year were the income year for which the real loss-maker incurred the loss.

(3) Section 170-28 operates as if:

(a) the real loss-maker were the *loss company; and

(b) section 701-1 (the single entity rule) could not affect whether the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 would have applied to the transfer described in section 170-28.

6   Schedule 2 (after the heading)

Insert:

Part 1 - Replacement of sections 170-110 to 170-145

7   At the end of Schedule 2

Add:

Part 2 - Addition of provisions at the end of Subdivision 170-B

Special rules for transfer from head company of consolidated group or MEC group

170-175 Transfer of a net capital loss made by the head company because of Subdivision 707-A

(1) The other sections of this Subdivision operate in relation to the actual or proposed transfer of a *net capital loss on the basis described in this section if:

(a) the *head company of a *consolidated group or *MEC group made the net capital loss because of Subdivision 707-A; and

(b) the company (the real loss-maker ) that made the net capital loss apart from Subdivision 707-A is a *member of the group at the end of the income year for which it is proposed to transfer the loss under this Subdivision.

(2) The other sections of this Subdivision, except section 170-128, operate as if:

(a) the *head company were a transferring corporation within the meaning of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993; and

(b) the head company had made the *net capital loss for the income year for which the real loss-maker made the net capital loss (apart from Subdivision 707-A).

Note: This has the effect that (because of subsection 170-110(1)) those sections operate as if the head company were the loss company and the capital loss year were the income year for which the real loss-maker made the loss.

(3) Section 170-128 operates as if:

(a) the real loss-maker were the *loss company; and

(b) section 701-1 (the single entity rule) could not affect whether the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 would have applied to the transfer described in section 170-28.

(4) Subsection 170-135(2) operates as if the reference in it to Subdivision 165-CA were a reference to that Subdivision as it operates given the effect of Subdivision 707-B, and Subdivision 719-F if relevant, on the operation of Subdivision 165-A.

Note: Subdivision 165-CA determines whether a net capital loss can be applied by reference to whether Subdivision 165-A would permit the deduction of a tax loss for the same income year as the net capital loss. Subdivisions 707-B and 719-F affect the operation of Subdivision 165-A in relation to losses made by a company because of Subdivision 707-A.

8   Application

(1) The amendments of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 made by this Schedule apply to assessments for the income year including 1 July 2002 and later income years.

(2) In this item:

income year has the same meaning as in the Income Tax Assessment Act 1997.

Schedule 21   Consolidation: CGT events relating to various cost base provisions

Income Tax Assessment Act 1997

1   Section 100-15 (note)

Omit "CGT event K7 or CGT event L1", substitute "some CGT events, for example CGT event K7 or any of the CGT events created by Subdivision 104-L".

2   Section 104-5 (after table row relating to event number L1)

Insert:

3   After section 104-500

Insert:

104-505 Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2

(1) CGT event L2 happens if:

(a) an entity becomes a *subsidiary member of a *consolidated group; and

(b) in working out the group's *allocable cost amount for the entity, the amount remaining after applying step 3A of the table in section 705-60 (after any application of section 705-150) is negative.

(2) The time of the event is just after the entity becomes a *subsidiary member of the group.

(3) For the head company core purposes mentioned in subsection 701-1(2), the *head company makes a capital gain equal to the amount remaining.

104-510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3

(1) CGT event L3 happens if:

(a) an entity becomes a *subsidiary member of a *consolidated group; and

(a) the sum of:

(i) the *tax cost setting amounts for all of the *retained cost base assets that become those of the *head company of the group because subsection 701-1(1) (the single entity rule) applies;

exceeds:

(ii) the group's *allocable cost amount for the entity.

(2) The time of the event is just after the entity becomes a *subsidiary member of the group.

(3) For the head company core purposes mentioned in subsection 701-1(2), the *head company makes a capital gain equal to the excess.

104-515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4

(1) CGT event L4 happens if:

(a) an entity becomes a *subsidiary member of a *consolidated group; and

(b) in working out the *tax cost setting amount for assets of the entity in accordance with section 705-35 (including in its application in accordance with Subdivisions 705-B to 705-D), there is an amount that results after applying paragraphs 705-35(1)(b) and (c) (including in their application in accordance with those Subdivisions); and

Note: Section 705-35 is about the tax cost setting amount for reset cost base assets.

(c) it is not possible to allocate, in accordance with the latter paragraph, the amount that results because there are no reset cost base assets of the kind mentioned in that paragraph.

(2) The time of the event is just after the entity becomes a *subsidiary member of the group.

(3) For the head company core purposes mentioned in subsection 701-1(2), the *head company makes a capital loss equal to the amount that results.

104-520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5

(1) CGT event L5 happens if:

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

(b) in working out the group's *allocable cost amount for the entity, the amount remaining after applying step 4 of the table in section 711-20 is negative.

(2) The time of the event is when the entity ceases to be a *subsidiary member of the group.

(3) For the head company core purposes mentioned in subsection 701-1(2), the *head company makes a capital gain equal to the amount remaining.

4   Section 110-10 (after table row relating to event number L1)

Insert:

5   Subsection 705-25(4) (at the end of the note)

Add ": see CGT event L3".

6   Subsection 705-35 (at the end of note 2)

Add ": see CGT event L4".

7   Subsection 711-20(1) (at the end of the note)

Add ": see CGT event L5".

Schedule 22   Consolidation: thin capitalisation

Income Tax Assessment Act 1997

1   Subparagraph 820-599(2)(c)(iv)

Repeal the subparagraph, substitute:

(iv) was not a member of a *consolidated group; and

(v) was not a member of a *MEC group; and

Schedule 23   Consolidation: research and development

Income Tax Assessment Act 1936

1   At the end of subsection 73B(23)

Add:

Note: This subsection does not apply to an asset whose tax cost is set under Division 701 of the Income Tax Assessment Act 1997: see section 73BAG of this Act.

2   At the end of subsection 73B(24B)

Add:

Note: This subsection does not apply to an asset whose tax cost is set under Division 701 of the Income Tax Assessment Act 1997: see section 73BAG of this Act.

3   After section 73BAF

Insert:

73BAG Balancing adjustments for certain assets of consolidated groups

(1) Subsections 73(23) and (24B) do not apply to an asset held by the head company of a consolidated group or MEC group where the tax cost of the asset is set under Division 701 of the Income Tax Assessment Act 1997. Instead, any balancing adjustment for the asset is worked out under section 73BF of this Act or section 40-292 of the Income Tax Assessment Act 1997.

(2) In working out the amount of a balancing adjustment under section 73BF of this Act or section 40-292 of the Income Tax Assessment Act 1997 for the asset, the asset's adjustable value (see section 40-85 of that Act) is reduced by so much of a reduction amount (see section 73BAF of this Act) for the asset that has not been applied in reducing a notional Division 40 deduction for the head company.

4   Paragraph 73BF(1)(b)

Repeal the paragraph, substitute:

(b) one or more deductions have been allowed or are allowable to the eligible company under section 73BA or 73BH for the asset for a year or years of income, or would have been so allowed or allowable if:

(i) the company had not chosen a tax offset under section 73I; or

(ii) section 73BAF had not been enacted; and

5   Subsection 73BF(1) (note)

Omit "Note", substitute "Note 1".

6   At the end of subsection 73BF(1)

Add:

Note 2: An asset whose tax cost is set under Division 701 of the Income Tax Assessment Act 1997 may have its adjustable value reduced in applying this section: see section 73BAG of this Act.

7   Subsection 73BF(2)

After "1.25", insert "(or would have been so worked out had section 73BAF not been enacted)".

8   After subsection 73BF(3)

Insert:

(3A) Subsection (3B) has effect if:

(a) the head company of a consolidated group or MEC group can deduct an amount under subsection (1) for a section 73BA depreciating asset for a year of income; and

(b) the head company's aggregate research and development amount for the year of income exceeds $20,000; and

(c) the asset was used exclusively for research and development activities since its tax cost was set under Division 701 of the Income Tax Assessment Act 1997.

(3B) The numerator in the formula in subsection (3) is increased by any expenditure on the asset that the head company can deduct under section 73B after the asset's tax cost was set.

9   Subsection 73BF(7)

Insert:

aggregate research and development amount has the same meaning as in section 73B.

Income Tax Assessment Act 1997

10   Paragraph 40-292(1)(b)

Repeal the paragraph, substitute:

(b) for any income year in which you held the asset, you also deducted an amount for it under section 73BA or 73BH of the Income Tax Assessment Act 1936, or could have done so if:

(i) you had not chosen a tax offset under section 73I of that Act; or

(ii) section 73BAF of that Act had not been enacted.

11   Paragraph 40-292(3)(b)

After "1.25", insert "(or would have been so worked out had section 73BAF of the Income Tax Assessment Act 1936 not been enacted)".

12   At the end of section 40-292

Add:

Note: An asset whose tax cost is set under Division 701 of this Act may have its adjustable value reduced in applying this section: see section 73BAG of the Income Tax Assessment Act 1936.

13   Subsection 701-55(2)

After "Subdivision 328-D", insert ", and sections 73BA and 73BF of the Income Tax Assessment Act 1936,".

Taxation Administration Act 1953

14   Paragraph 286-80(2)(b) in Schedule 1

After "you give the details", insert "(up to a maximum of 5 penalty units)".

Schedule 24   Consolidation: pay as you go (PAYG) instalments

Part 1   Amendment of the Taxation Administration Act 1953

1   Subsection 45-120(2A) in Schedule 1

Repeal the subsection, substitute:

(2A) The instalment income of a *life insurance company for a period also includes any part of its *statutory income that:

(a) is reasonably attributable to that period; and

(b) is included in the *complying superannuation class of its taxable income for the income year that is or includes that period.

2   After section 45-155 in Schedule 1

Insert:

45-160 Head company of a consolidated group stops being annual payer

(1) You stop being an *annual payer at the start of an *instalment quarter if Subdivision 45-Q starts applying to you as the *head company of a *consolidated group during that quarter.

(2) You must pay an instalment for that *instalment quarter and later instalment quarters in accordance with Subdivision 45-B.

(3) You may again become an *annual payer if:

(a) you again satisfy the conditions in section 45-140; and

(b) you again choose under that section to pay instalments annually.

Note: You cannot choose to be an annual payer while you are the head company of a consolidated group to which Subdivision 45-Q applies: see section 45-720.

3   At the end of section 45-330 in Schedule 1

Add:

Special rule for a life insurance company that is, or has been, the head company of a consolidated group

(4) A company's adjusted taxable income for the *base year is worked out under subsection (3) with the modification set out in subsection (5) if the company:

(a) is a *life insurance company for the base year; and

(b) has *tax losses transferred to it under Subdivision 707-A of the Income Tax Assessment Act 1997.

(5) Subsection (3) applies to the company as if step 4 of the method statement in that subsection were replaced by the following step:

Step 4. Reduce the step 3 result by the lesser of the following amounts:

(a) the amount of any *tax loss, to the extent that the company can carry it forward to the next income year;

(b) the amount of the deductions for tax losses used in making the *base assessment.

Note: Subsections (3), (4) and (5) also apply to the head company of a consolidated group, or the head company of a MEC group, that is treated as a life insurance company: see section 713-505 of the Income Tax Assessment Act 1997.

4   Section 45-700 in Schedule 1 (notes)

Repeal the notes, substitute:

Note 1: Subdivision 45-R contains special rules that apply to members of a consolidated group before they are treated as a single entity for the purposes of this Part. It also contains special rules that affect the operation of this Subdivision (see sections 45-880 and 45-885).

Note 2: Subdivision 45-S extends the operation of this Subdivision so that it can apply to members of a MEC group. It contains modifications of this Subdivision for the purposes of that extended operation.

5   Section 45-705 in Schedule 1

Repeal the section, substitute:

45-705 Application of Subdivision to head company

Period during which Subdivision applies to head company

(1) Subject to sections 45-880 and 45-885, this Subdivision applies to a company as the *head company of a *consolidated group during the period:

(a) starting at the start of the *instalment quarter of the company determined under subsection (2), (3) or (4); and

(b) ending:

(i) at the end of the instalment quarter of the company determined under paragraph (5)(a) or (b); or

(ii) just before the instalment quarter of the company determined under paragraph (5)(c) or (d).

When the period begins - initial head company instalment rate

(2) This Subdivision starts to apply to a company as the *head company of a *consolidated group at the start of an *instalment quarter under this subsection if, during that quarter, the Commissioner gives the company (as that head company) the *initial head company instalment rate.

Note: The operation of this subsection may be affected by section 45-885.

When the period begins - group created from MEC group

(3) This Subdivision starts to apply to a company as the *head company of a *consolidated group at the start of an *instalment quarter (the starting quarter ) under this subsection if all of the following conditions are satisfied:

(a) the consolidated group is *created from a *MEC group during the starting quarter;

(b) the company is the head company of the consolidated group when the consolidated group is created from the MEC group;

(c) either of the following applies:

(i) this Subdivision applied, in accordance with Subdivision 45-S, to the *provisional head company of the MEC group at the end of the previous instalment quarter;

(ii) the Commissioner gives the *initial head company instalment rate to the provisional head company of the MEC group during the starting quarter.

Note: For the application of this Subdivision to a provisional head company of a MEC group: see section 45-915.

When the period begins - new head company

(4) This Subdivision starts to apply to a company as the *head company of a *consolidated group at the start of an *instalment quarter (the starting quarter ) under this subsection if all of the following conditions are satisfied:

(a) the company is an interposed company mentioned in subsection 124-380(5) of the Income Tax Assessment Act 1997;

(b) the company chooses under that subsection that the consolidated group is to continue in existence at and after the completion time mentioned in that subsection;

(c) the completion time occurs during the starting quarter;

(d) one of the following subparagraphs applies:

(i) this Subdivision applied to the original company mentioned in that subsection (as the head company of the consolidated group) at the end of the previous instalment quarter;

(ii) the Commissioner gives the *initial head company instalment rate to the original company mentioned in that subsection (as the head company of the consolidated group) during the starting quarter;

(iii) the consolidated group is *created from a *MEC group during the starting quarter and this Subdivision applied to the *provisional head company of the MEC group at the end of the previous instalment quarter;

(iv) the consolidated group is created from a MEC group during the starting quarter and the Commissioner gives the initial head company instalment rate to the provisional head company of the MEC group during the starting quarter.

When the period ends

(5) This Subdivision stops applying to a company as the *head company of a *consolidated group at the earliest of the following times after the company becomes the head company:

(a) the end of the *instalment quarter during which the consolidated group ceases to exist (other than because a *MEC group is *created from the consolidated group);

(b) the end of the instalment quarter during which the Commissioner is notified of the creation of a MEC group from the consolidated group if the MEC group is created during that instalment quarter;

(c) just before the instalment quarter during which the Commissioner is notified of the creation of a MEC group from the consolidated group if the MEC group was created before that instalment quarter;

(d) just before the instalment quarter that includes the completion time mentioned in subsection 124-380(5) of the Income Tax Assessment Act 1997 where an interposed company mentioned in that subsection chooses under that subsection that the consolidated group is to continue in existence.

Note: The operation of this subsection because of paragraph (a) may be affected by section 45-880.

(6) For the purposes of subsection (5), the Commissioner is notified of the creation of a *MEC group from a *consolidated group when the Commissioner receives a notice of the consolidation of the MEC group under subsection 719-40(1) of the Income Tax Assessment Act 1997.

(7) If this Subdivision stops applying to a company as the *head company of a *consolidated group just before an *instalment quarter under paragraph (5)(c), then, for the purposes of this Part, this Act has effect for the company and other *members of the group as if:

(a) the consolidated group had continued to exist until just before the start of that quarter; and

(b) the company were the head company of the group until just before the start of that quarter.

(8) To avoid doubt, this Subdivision does not apply to a company as the *head company of a *consolidated group for any time at all if:

(a) subsection (2), (3) or (4), and subsection (5), would, apart from this subsection, apply to the company; but

(b) the time at which this Subdivision would stop applying to the company under subsection (5) is before the time at which this Subdivision would start to apply to the company under subsection (2), (3) or (4).

(9) To avoid doubt, and apart from the operation of subsection (7), this Subdivision may apply to a company as the *head company of a *consolidated group at a time when the company is not in fact the head company of the group.

Note: An example of this is when an interposed company becomes the new head company of a consolidated group. Under this section and section 45-740, this Subdivision may start applying to the company as if it had already become the head company when it is not yet such a company.

6   Section 45-720 in Schedule 1 (link note)

Repeal the link note, substitute:

Note: You stop being an annual payer when this Subdivision starts applying to you as the head company of a consolidated group: see section 45-160.

7   Before section 45-755 in Schedule 1

Insert (after the group heading):

45-740 Change of head company

Object

(1) The object of this section (except subsection (8)) is to ensure that, for the purposes of this Part, when a company becomes the new *head company of a *consolidated group:

(a) the company inherits the history of the former head company of the group; and

(b) the history of the new head company is effectively ignored.

(2) This section applies to a *head company of a *consolidated group if:

(a) the company is an interposed company mentioned in subsection 45-705(4) (an interposed company that chooses under subsection 124-380(5) of the Income Tax Assessment Act 1997 that the consolidated group is to continue in existence at and after the completion time mentioned in that subsection); and

(b) the conditions in subsection 45-705(4) are satisfied in relation to the interposed company (whether or not this Subdivision applies to the company as the head company of the group for any period of time).

(3) Everything that happened before the completion time in relation to the company (the original company ) that was the *head company of the *consolidated group immediately before the completion time:

(a) is taken to have happened in relation to the interposed company instead of in relation to the original company; and

(b) is taken to have happened in relation to the interposed company instead of what would (apart from this section) be taken to have happened in relation to the interposed company before the completion time;

just as if, at all times before the completion time:

(c) the interposed company had been the original company; and

(d) the original company had been the interposed company.

(4) To avoid doubt, subsection (3) also covers everything that, immediately before the completion time, was taken to have happened in relation to the original company because of:

(a) section 701-1 of the Income Tax Assessment Act 1997 (single entity rule); or

(b) section 701-5 of that Act (entry history rule); or

(c) section 703-75 of that Act (effects of an interposed company becoming the *head company of a *consolidated group); or

(d) section 719-90 of that Act (effects of a change of head company of a *MEC group); or

(e) section 45-710 in this Schedule (single entity rule for the purposes of this Part), including an application of that section under Subdivision 45-S in this Schedule; or

(f) this section; or

(g) section 45-920 in this Schedule (effects of a change of *provisional head company of a MEC group for the purposes of this Part); or

(h) one or more previous applications of any of the provisions covered by paragraphs (a) to (g).

(5) In addition, and without affecting subsection (3):

(a) an assessment of the original company for an income year that ends before the income year that includes the completion time; or

(b) an amendment of the assessment;

is taken to be something that had happened to the interposed company, whether or not the assessment or amendment is made before the completion time.

(6) This section has effect for the purposes of applying this Part to *members of the *consolidated group in relation to an *instalment quarter of the interposed company that ends after the completion time.

Note: An assessment mentioned in subsection (5) may therefore be taken to be the base assessment of the interposed company for the purposes of this Part.

(7) Subsections (1) to (6) are to be disregarded in applying section 45-705 (about the application of this Subdivision to a company as the *head company of a *consolidated group).

Note: For example, if the Commissioner has given an initial head company instalment rate to the original company during an earlier instalment quarter, the rate is not, despite this section, treated as if it had been given to the interposed company for the purposes of section 45-705. Subject to the other provisions in that section, this Subdivision therefore starts applying to the interposed company under subsection 45-705(4).

Special rule for the original company

(8) A provision of this Part that applies on an entity becoming a *subsidiary member of a *consolidated group does not apply to the original company when it is taken to have become such a member at the completion time as a result of section 703-70 of the Income Tax Assessment Act 1997.

Note: Section 45-755 (the entry rule) therefore does not apply to the original company on the company becoming a subsidiary member of the consolidated group.

8   Subsection 45-760(1) in Schedule 1

Repeal the subsection, substitute:

(1) This section applies to an entity if all of the following conditions are satisfied:

(a) the entity ceases to be a *subsidiary member of a *consolidated group during an *instalment quarter of the *head company of the group;

(b) this Subdivision applies to the head company of the group during that instalment quarter;

(c) the entity does not, at the time it ceases to be a subsidiary member of the group, become:

(i) a subsidiary member of another consolidated group the head company of which is one to which this Subdivision applies at that time; or

(ii) a member (other than the *provisional head company) of a *MEC group the provisional head company of which is one to which this Subdivision applies, in accordance with Subdivision 45-S, at that time;

(d) this Part applies to the entity under section 45-10.

9   At the end of section 45-775 in Schedule 1

Add:

Additional applications of subsection (2)

(4) If, after exercising the power in relation to the membership change under subsection (2) for the first time, and on the basis of an assessment (including an amendment) of the *head company for the income year in which the change occurs, or for an earlier year, the Commissioner has worked out:

(a) another instalment rate under section 45-320 for the company (whether or not the Commissioner has given that rate to the company); or

(b) another amount of *GDP-adjusted notional tax under section 45-405 for the company (whether or not the Commissioner has notified the company an amount of instalment based on that other amount);

the Commissioner may again exercise the power under subsection (2) in relation to the membership change, as if:

(c) the rate mentioned in paragraph (a) were the most recent instalment rate mentioned in paragraph (2)(a); and

(d) the amount of GDP-adjusted notional tax mentioned in paragraph (b) were the amount of GDP-adjusted notional tax worked out for the purposes of the most recent amount of instalment that is mentioned in paragraph (2)(b).

(5) To avoid doubt, in relation to the membership change, the Commissioner:

(a) may exercise the power under subsection (2) by applying subsection (4) more than once; but

(b) must not exercise that power more than once in relation to a particular instalment rate mentioned in paragraph (4)(a) or a particular amount of *GDP-adjusted notional tax mentioned in paragraph (4)(b).

10   Subdivision 45-R in Schedule 1 (heading)

Repeal the heading, substitute:

Subdivision 45-R - Special rules for consolidated groups

11   Section 45-850 in Schedule 1

Repeal the section, substitute:

45-850 What this Subdivision is about

This Subdivision deals with the application of this Part to members of a consolidated group after the group has come into existence but before the members are treated as a single entity for the purposes of this Part.

This Subdivision also contains special rules in relation to the application of Subdivision 45-Q to members of a consolidated group in these circumstances:

(a) a group whose members were treated as a single entity under that Subdivision (a mature group ) is acquired by another group (see section 45-880); or

(b) a member of a mature group ceases to be such a member and becomes the head company of a new group (see section 45-885).

Note: Subdivision 45-S extends the operation of this Subdivision so that it can apply to members of a MEC group. It contains modifications of this Subdivision for the purposes of that extended operation.

12   Paragraph 45-855(b) in Schedule 1

Repeal the paragraph, substitute:

(b) the period ends before Subdivision 45-Q starts to apply, because of subsection 45-705(2) or subparagraph 45-705(3)(c)(ii), (4)(d)(ii) or (iv), to the *head company of the group;

13   Paragraphs 45-860(1)(a) and (2)(a) in Schedule 1

Omit "during which Subdivision 45-Q starts to apply to the *head company of the group", substitute "that includes the starting time".

14   Paragraphs 45-860(1)(b) and (2)(b) in Schedule 1

Omit "the head company during which that Subdivision starts to apply to the head company", substitute "the *head company of the group that includes the starting time".

15   Paragraph 45-860(3)(a) in Schedule 1

Omit "Subdivision 45-Q starts to apply to the *head company of the group", substitute "the starting time".

16   At the end of section 45-860 in Schedule 1

Add:

(4) For the purposes of this section, the starting time is the time at which Subdivision 45-Q starts to apply to the *head company of the group because of subsection 45-705(2) or subparagraph 45-705(3)(c)(ii), (4)(d)(ii) or (iv).

17   At the end of section 45-865 in Schedule 1

Add:

(3) To avoid doubt, if:

(a) during the *instalment quarter or the *consolidation transitional year mentioned in paragraph (2)(a), the entity is a *subsidiary member of:

(i) 2 or more *consolidated groups; or

(ii) one or more consolidated groups and one or more *MEC groups; and

(b) an amount is taken into account under that paragraph or paragraph (2)(b) in working out the credit to which the *head company of one of the groups is entitled under subsection (1);

that amount is not to be taken into account in working out the credit to which the head company of another of those groups is entitled under that subsection.

(4) A reference in subsection (3) to subsection (1) or paragraph (2)(a) or (b) includes a reference to that provision in its extended operation in relation to a *MEC group under Subdivision 45-S.

Note: This section applies to members of a MEC group with the modifications set out in section 45-930.

18   At the end of Subdivision 45-R in Schedule 1

Add:

45-880 Continued application of Subdivision 45-Q to the head company of an acquired group

(1) This section applies to a company for which all of the following conditions are satisfied in relation to a particular time (the takeover time ):

(a) just before the takeover time, Subdivision 45-Q applied to the company as the *head company of a *consolidated group;

(b) at the takeover time, the company becomes a *wholly-owned subsidiary of a *member of another consolidated group or *MEC group;

(c) that other group is consolidated at or before the takeover time under section 703-50 or 719-50 of the Income Tax Assessment Act 1997;

(d) the Commissioner receives the choice (or notice) under that section for the consolidation of that other group not later than 28 days after the takeover time, or within such further period (if any) as the Commissioner allows;

(e) at the takeover time, Subdivision 45-Q (including that Subdivision as applied under Subdivision 45-S) does not apply to the head company or the *provisional head company of that other group.

(2) For the purposes of this Part only, this Act has effect in relation to the company and the other *members of the *consolidated group mentioned in paragraph (1)(a) (the preserved group ) as if, during the period covered by subsection (5):

(a) the preserved group had continued to exist as a consolidated group; and

(b) the company were still the *head company of the preserved group; and

(c) Subdivision 45-Q had continued to apply to the company as the head company of the preserved group; and

(d) an entity, while being a *subsidiary member of the preserved group, were not treated as a member of the group mentioned in paragraph (1)(b) (the new group ).

(3) Subsection (2) does not stop the company from being a member of the new group for the purposes of this Part during the period covered by subsection (5).

Note: This means, for example, sections 45-855 and 45-860 apply to the head company as a member of the new group.

(4) However, for the purposes of applying section 45-855 to the company, a reference in that section to an application of section 701-1 of the Income Tax Assessment Act 1997 to the company in relation to the period mentioned in section 45-855 is taken to be:

(a) a reference only to an application of section 701-1 of that Act to the company as a member of the new group during that period; and

(b) not a reference to an application (because of subsection (2) of this section) of section 701-1 of that Act to the company as the *head company of the preserved group during that period.

(5) This subsection covers the period that starts from the start of the *instalment quarter of the company that includes the takeover time and ends at the earlier of the following times:

(a) the end of the instalment quarter of the company during which the company ceases to be a member of the new group;

(b) just before the instalment quarter of the company during which the Commissioner gives the *initial head company instalment rate to the *head company, or the *provisional head company, of the new group.

(6) The Commissioner may, on the application of the company made not later than 28 days after the takeover time, allow such extension of time for the purposes of paragraph (1)(d) as he or she considers appropriate.

(7) To avoid doubt, nothing in this section prevents the operation of section 45-755 or 45-760 to *members of the preserved group while it continues to exist under subsection (2).