Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES

PART 3-90 - CONSOLIDATED GROUPS

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Division 716 - Miscellaneous special rules

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Subdivision 716-S - Miscellaneous consequences of tax cost setting

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History

Subdiv 716-S heading substituted by No 15 of 2017, s 3 and Sch 4 item 77, effective 1 April 2017. The heading formerly read:

Subdivision 716-S - Miscellaneous consequences of tax cost setting

Subdiv 716-S inserted by No 56 of 2010, s 3 and Sch 5 item 4, applicable on and after 1 July 2002.

No 56 of 2010, s 3 and Sch 5 item 8 contains the following transitional provision:

8 Transitional provision - use of the tax cost setting amount
(1)
This item applies if:

(a) the tax cost of an asset was set at the time (the joining time ) an entity (the joining entity ) became a subsidiary member of a consolidated group or MEC group, at the asset's tax cost setting amount; and

(b) the asset is a trade receivable that is denominated in foreign currency; and

(c) CGT event C2 happens in relation to the asset:

(i) after the joining time; and

(ii) before 23 August 2006; and

(d) just before the CGT event, the head company of the group held the asset because of the operation of subsection 701-1(1) of the Income Tax Assessment Act 1997 (the single entity rule); and

(e) disregarding section 118-20 of that Act, there is a capital gain or capital loss from the event; and

(f) the head company of the group makes a choice to apply this item, in accordance with subitems (4) and (5).

(2)
These provisions do not apply to the CGT event:

(a) section 6-5 of the Income Tax Assessment Act 1997 (about ordinary income);

(b) any other provision of that Act that includes an amount in assessable income, other than a provision in Part 3-1 or 3-3 of that Act;

(c) section 8-1 of that Act (about amounts you can deduct);

(d) any other provision of that Act that allows you to deduct an amount from your assessable income;

(e) section 118-20 of that Act.

(3)
The provisions referred to in subitem (2) can apply to the CGT event to the extent that any capital gain or capital loss from the event is attributable to currency exchange rate fluctuations.

(4)
A choice mentioned in paragraph (1)(f) must be made:

(a) by the day the head company lodges its income tax return for the income year in which the relevant CGT event happened; or

(b) within a further time allowed by the Commissioner.

(5)
The way the head company prepares its income tax return is sufficient evidence of the making of the choice.

SECTION 716-400 Tax cost setting and bad debts

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716-400(1)
The object of this section is to clarify the effect of section 701-5 (entry history rule) and subsection 701-55(6) in relation to an asset that may give rise to a bad debt. It achieves this object by clarifying that certain things are taken to have happened in relation to the asset through the operation of section 701-5 and subsection 701-55(6) .

716-400(2)
This section applies if:

(a) the tax cost of an asset was set at the time (the joining time ) an entity (the joining entity ) became a subsidiary member of a *consolidated group at the asset's tax cost setting amount; and

(b) the asset is a debt; and

(c) any of the following apply:

(i) the debt was included in the joining entity's assessable income before the joining time;

(ii) the debt was in respect of money that the joining entity lent before the joining time in the ordinary course of a business of lending money;

(iii) the joining entity bought the debt before the joining time in the ordinary course of a business of lending money; and

(d) the requirements in subsection 701-58(1) (intra-group assets) are not satisfied in relation to the asset.

716-400(3)
To avoid doubt, in determining the extent to which the *head company of the group can deduct an amount under section 25-35 (bad debts) in relation to the asset, section 701-5 (entry history rule) and subsection 701-55(6) have the effect that, before the joining time:

(a) in a case covered by subparagraph (2)(c)(i) - the head company included an amount equal to the tax cost setting amount in its assessable income in respect of the debt; or

(b) in a case covered by subparagraph (2)(c)(ii) - the head company lent an amount of money in respect of the debt equal to the tax cost setting amount in the ordinary course of a business of lending money; or

(c) in a case covered by subparagraph (2)(c)(iii) - the head company incurred expenditure equal to the tax cost setting amount in buying the debt in the ordinary course of a business of lending money.

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