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-D - Where multiple entities are linked by membership interests  

Modified application of Subdivision 705-A

SECTION 705-240   Modified application of section 705-57  

Object

705-240(1)    

The object of this section is to ensure that, in working out ^* tax cost setting amounts for ^* trading stock, ^* depreciating assets, *registered emissions units or ^* revenue assets of the linked entities, section 705-57 (about loss of pre-CGT status of certain membership interests) only applies if the ^* membership interests held directly by the ^* head company of the group are affected.

Modified application of section 705-57 - basic modification

705-240(2)    
For the purposes of applying section 705-57 in accordance with this Subdivision, a reference in that section to a ^* membership interest that a ^* member of the joined group holds in the joining entity at the joining time is taken to be a reference to a membership interest that the ^* head company of the ^* consolidated group holds directly in a linked entity at the time the linked entity becomes a ^* subsidiary member.

Modified application of section 705-57 - additional modifications where section 705-225 applies

705-240(3)    
Also, if a linked entity (the first linked entity ) holds a ^* membership interest (the subject membership interest ) in another linked entity (the second linked entity ), section 705-57 (as modified in accordance with subsection (2)) is to be applied in relation to the subject membership interest as follows.

705-240(4)    
First work out whether there would be a reduction under that section in the ^* tax cost setting amount for the subject membership interest that is used as mentioned in subsection 705-225(3) (the subsection 705-225(3) tax cost setting amount ) if:

(a) the subject membership interest, if it is not a revenue etc. asset of the first linked entity, were taken to be such an asset; and

(b) paragraphs 705-57(2)(c) and (d) and subsection 705-57(7) did not apply to the subject membership interest.

705-240(5)    
Next, if there would be such a reduction (whose amount is the notional section 705-57 reduction amount ):

(a) apply section 705-57 to reduce the ^* tax cost setting amount for any revenue etc. asset of the second linked entity; and

(b) if the second linked entity holds a ^* membership interest in another linked entity - apply section 705-57 in relation to that interest in accordance with subsection (3) of this section;

and for those purposes:

(c) the subject membership interest is taken to be a membership interest that the ^* head company of the group holds directly in the second linked entity; and

(d) the requirements of paragraphs 705-57(2)(a) and (b) are taken to be satisfied in relation to the subject membership interest; and

(e) the subject membership interest is taken to have a ^* cost base and ^* reduced cost base equal to the subsection 705-225(3) tax cost setting amount; and

(f) the subject membership interest is taken to have a loss of pre-CGT status adjustment amount equal to the notional section 705-57 reduction amount.

Note:

If the head company actually held any membership interests in the second linked entity, or if other linked entities held membership interests in the second linked entity to which this subsection also applied, those membership interests would also be taken into account in working out the reduction under paragraph (a) and in applying paragraph (b).