Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-5 - CORPORATE TAXPAYERS AND CORPORATE DISTRIBUTIONS  

Division 165 - Income tax consequences of changing ownership or control of a company  

Subdivision 165-CD - Reductions after alterations in ownership or control of loss company  

Operative provisions

SECTION 165-115ZA   Reductions and other consequences if entity has relevant equity interest or relevant debt interest in loss company immediately before alteration time  

Application of section

165-115ZA(1)    
This section applies to an entity (an affected entity ) that has a relevant equity interest or a relevant debt interest, or both, in a *loss company immediately before a time (a relevant time ) that is an alteration time in respect of the loss company.

Note:

This section and section 165-115ZB can apply differently for a company that has used the global method of working out whether it has an adjusted unrealised loss at an alteration time. See section 165-115ZD .

Application of section nullified in certain circumstances

165-115ZA(2)    
However, if:

(a) this section has applied to an entity in respect of a debt owed to the entity; and

(b) Subdivisions 245-C to 245-G (which relate to the forgiveness of commercial debts) also applied in respect of the debt at the same time or at a later time;

any reductions or other consequences affecting the entity in respect of the debt under this section are taken not to have occurred or to have been required to occur.

Note:

An amendment of an assessment can be made at any time to give effect to this subsection (see subsection 170(10AA) of the Income Tax Assessment Act 1936 ).

Reduction of reduced cost base

165-115ZA(3)    
The *reduced cost base of an equity or debt that was *acquired on or after 20 September 1985 is to be reduced immediately before the relevant time by the adjustment amount calculated under section 165-115ZB .

Reduction of deduction - equity or debt is not trading stock

165-115ZA(4)    
If an equity or debt is not an item of *trading stock of the affected entity immediately before the relevant time, any amount that the entity can deduct in respect of the disposal of any of the equity or debt is to be reduced by the adjustment amount calculated under section 165-115ZB .

Reduction of cost - equity or debt is trading stock

165-115ZA(5)    
If:

(a) an equity or debt is an item of *trading stock of the affected entity immediately before the relevant time; and

(b) the *cost for the purposes of Division 70 of the equity or debt exceeds its *market value immediately before the relevant time;

then, subject to any later application or applications of this Subdivision, the cost of the equity or debt for the purposes of Division 70 , and any deduction for an outlay to *acquire it, are reduced by the lesser of the following amounts or, if they are equal, by one of them:

(c) the adjustment amount calculated under section 165-115ZB ;

(d) the amount of the excess referred to in paragraph (b).

Subsection (4) to apply only in respect of certain income years

165-115ZA(6)    
For the purpose of working out:

(a) deductions under section 8-1 ; or

(b) whether an amount is included in assessable income under subsection 70-35(2) ; or

(c) whether an amount can be deducted under subsection 70-35(3) ;

subsection (5) applies only in respect of income years ending after the later of the following:

(d) the commencement time;

(e) the time 12 months before the relevant time.

Further election to value trading stock

165-115ZA(7)    
If an election has been made under section 70-45 to value an item of *trading stock on hand at the end of an income year otherwise than at its *cost and subsection (5) applies in respect of it, a further election may be made under that section to value the item of trading stock at cost.

Previous applications of this section in relation to trading stock to be taken into account

165-115ZA(8)    
In applying this section to the affected entity in respect of an equity or debt that is *trading stock of the entity, any previous applications of this section to the entity in respect of the equity or debt are to be taken into account.

Cost of equity or debt that becomes trading stock after relevant time

165-115ZA(9)    
If:

(a) an equity or debt becomes an item of *trading stock of the affected entity after the relevant time; and

(b) had the equity or debt been an item of trading stock of the affected entity at an earlier time that was, or at 2 or more earlier times each of which was, the relevant time for the purposes of a previous application or previous applications of this section, its *cost for the purposes of Division 70 would have exceeded its *market value at the earlier time or at one of the earlier times;

its cost for the purposes of Division 70 is taken to be its market value at the earlier time or the smallest of its market values at the earlier times.

Reduction of proceeds of disposal of trading stock

165-115ZA(10)    
If:

(a) an equity or debt was an item of *trading stock of the affected entity immediately before a relevant time or became such an item of trading stock after a relevant time; and

(b) the equity or debt is *disposed of by the entity after the relevant time concerned; and

(c) the equity or debt is an item of trading stock of the affected entity at the time of the disposal; and

(d) the proceeds of the disposal exceed the *market value of the equity or debt immediately before the relevant time concerned or the market value of the equity or debt immediately before any previous relevant time;

the proceeds of the disposal are taken to be reduced by so much of the amount or the total of the amounts of any reductions made by any previous application or applications of subsection (5) in relation to the affected entity in respect of the equity or debt as does not exceed the excess amount or the greater or greatest of the excess amounts referred to in paragraph (d).