Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 705 - Tax cost setting amount for assets where entities become subsidiary members of consolidated groups  

Subdivision 705-A - Basic case: a single entity joining an existing consolidated group  

Application and object

SECTION 705-10   Application and object of this Subdivision  

Application

705-10(1)    
This Subdivision has effect, subject to section 705-15 , for the head company core purposes set out in subsection 701-1(2) if an entity (the joining entity ) becomes a ^* subsidiary member of a ^* consolidated group (the joined group ) at a particular time (the joining time ).

Object

705-10(2)    
The object of this Subdivision is to recognise the ^* head company ' s cost of becoming the holder of the joining entity ' s assets as an amount reflecting the group ' s cost of acquiring the entity. That amount consists of the cost of the group ' s ^* membership interests in the joining entity, increased by the joining entity ' s liabilities and adjusted to take account of the joining entity ' s retained profits, distributions of profits, deductions and losses.

705-10(3)    
The reason for recognising the ^* head company ' s cost in this way is to align the costs of assets with the costs of ^* membership interests, and to allow for the preservation of this alignment until the entity ceases to be a ^* subsidiary member, in order to:

(a) prevent double taxation of gains and duplication of losses; and

(b) remove the need to adjust costs of membership interests in response to transactions that shift value between them, as the required adjustments occur automatically.

Note:

Under Division 711 , the alignment is preserved by recognising the head company's cost of membership interests in the entity if it ceases to be a subsidiary member of the group as the cost of its assets reduced by its liabilities.