Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 707 - Losses for head companies when entities become members etc.  

Subdivision 707-C - Amount of transferred losses that can be utilised  

How much of a transferred loss can be utilised?

SECTION 707-325   Modified market value of an entity becoming a member of a consolidated group  

Basic rule

707-325(1)    

The modified market value of an entity that becomes a ^* member of a ^* consolidated group at a particular time is the amount that would be the ^* market value of the entity at that time if:

(a) the entity had no loss of any ^* sort for any income year, and the balance of its ^* franking account at that time were nil; and

(b) the ^* subsidiary members of the group at that time were separate entities and not just parts of the ^* head company of the group; and

(c) the entity ' s market value did not include an amount attributable (directly or indirectly) to a ^* membership interest in a member of the group (other than the entity):

(i) that is a ^* corporate tax entity; or

(ii) that transferred a loss under Subdivision 707-A to the head company of the group at or before that time; and

(d) the contribution to the entity ' s market value made by a trust (other than one that is a member described in paragraph (c)) were limited to the amount attributable to the entity ' s ^* fixed entitlements (if any) at that time to income or capital of the trust that is not attributable (directly or indirectly) to a membership interest in such a member.

Note 1:

Section 707-330 affects the modified market value of an entity that becomes a subsidiary member of the consolidated group, if the entity was the head company of another consolidated group just beforehand.

Note 2:

Section 707-325 of the Income Tax (Transitional Provisions) Act 1997 provides for an entity ' s modified market value to be increased in certain circumstances for the purposes of working out the available fraction for a bundle of losses transferred from the entity.

Rule to prevent inflation of modified market value

707-325(2)    
However, if:

(a) one or more of the events described in subsection (4) occurred in the 4 years before the time; and

(b) the amount worked out under subsection (1) exceeds what it would have been if none of those events had occurred;

the modified market value of the entity at the time is the amount worked out under subsection (1), reduced by the amount worked out under subsection (3).

707-325(3)    
The amount of the reduction is the lesser of:

(a) the excess described in paragraph (2)(b); and

(b) the total increase in the *market value of the entity that occurred immediately after each event mentioned in paragraph (2)(a) because of the event.

707-325(4)    
These are the events:

(a) an injection of capital into the entity or an entity that was an ^* associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the injection;

(b) a transaction that:

(i) did not take place at *arm ' s length; and

(ii) involved the entity or an entity that was an associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the transaction.

707-325(5)    
For the purposes of paragraph (2)(a), disregard an injection of capital if, and only if, it is made:

(a) into a ^* listed public company through a ^* dividend reinvestment ^* scheme involving the issue of a ^* share in the company to an entity that held a share in the company before the injection; or

(b) in association with the acquisition of a *share in a company in relation to which the conditions in subsection 703-35(5) are met; or

(c) in association with the acquisition of a ^* share, in a body corporate, in relation to which the conditions in subsection 703-37(4) are met.

Note 1:

Section 703-35 of this Act deals with shares acquired under arrangements for employee shareholdings.

Note 2:

Section 703-37 of this Act deals with certain preference shares following an ADI restructure.