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 716-440 Membership interests in joining entity not subject to CGT under Division 855 - foreign entity ceasing to hold interests

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716-440(1)
Subsection (3) applies if:

(a) an entity (the joining entity ) becomes a *subsidiary member of a *consolidated group at a time (the joining time ); and

(b) another entity (the disposing entity ) ceased to hold *membership interests in the joining entity during the period that:

(i) started 12 months before the joining time; and

(ii) ended immediately after the joining time; and

(c) a *CGT event happened because the disposing entity ceased to hold the membership interests; and

(d) either:

(i) a *capital gain or *capital loss of the disposing entity from the CGT event was disregarded because of the operation of Division 855 ; or

(ii) if there had been a capital gain or capital loss of the disposing entity from the CGT event, the capital gain or capital loss would have been disregarded because of the operation of Division 855 ; and

(e) section 701-10 (cost to head company of assets of joining entity) applies to the joining entity ' s assets in respect of the joining entity becoming a subsidiary member of the group (disregarding subsection (3) of this section); and

(f) it is reasonable to conclude that, throughout the period mentioned in paragraph (b), the sum of the *total participation interests held by an entity (the control entity ) and its *associates in the joining entity was 50% or more; and

(g) in a case where the control entity is not the disposing entity - it is reasonable to conclude that the sum of the total participation interests held by the control entity and its associates in the disposing entity was 50% or more at the time the CGT event happened.

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716-440(2)
For the purposes of paragraphs (1)(f) and (g), in working out the sum of the *total participation interests held by the control entity and its *associates in another entity, take into account:

(a) a particular *direct participation interest; or

(b) a particular *indirect participation interest;

held in the other entity only once if it would otherwise be counted more than once because the entity holding it is an associate of the control entity.

716-440(3)
The following provisions do not apply to the joining entity ' s assets in respect of the joining entity becoming a *subsidiary member of the group:

(a) section 701-10 (cost to head company of assets of joining entity);

(b) subsection 701-35(4) (setting value of trading stock at tax-neutral amount);

(c) subsection 701-35(5) (setting value of registered emissions unit at tax-neutral amount).

Note:

This subsection does not affect the application of subsection 701-1(1) (the single entity rule).

716-440(4)
Subsection (5) applies if:

(a) an entity (the higher level entity ) holds *membership interests in the joining entity (whether directly or through one or more interposed entities) at a time during the period mentioned in paragraph (1)(b); and

(b) the higher level entity becomes a *subsidiary member of the *consolidated group at the joining time; and

(c) the requirement in paragraph (1)(b) is not satisfied (disregarding subsection (5)); and

(d) the requirement in paragraph (1)(b) would be satisfied if the reference in paragraph (1)(b) to membership interests in the joining entity included a reference to membership interests in the higher level entity.

716-440(5)
Treat the reference in paragraph (1)(b) to *membership interests in the joining entity as including a reference to membership interests in the higher level entity.

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History

S 716-440 inserted by No 14 of 2018, s 3 and Sch 1 item 20, effective 1 April 2018. No 14 of 2018, s 3 and Sch 1 item 21 contains the following application provision:

21 Application
(1)
The amendments made by this Part apply in relation to an income year in respect of an entity that becomes a subsidiary member of a consolidated group or MEC group under an arrangement that commences on or after the 2013 budget time.

(2)
Subitem (3) applies if the arrangement commenced before the start of the day on which the Bill that became this Act was introduced into the House of Representatives.

(3)
Despite subitem (1), section 716-440 of the Income Tax Assessment Act 1997 (as inserted by this Part) applies as if:

(a) the words " the sum of " and " and its *associates " in paragraph (1)(f) of that section were omitted; and

(b) the words " the sum of " and " and its associates " in paragraph (1)(g) of that section were omitted; and

(c) subsection (2) of that section were repealed.

(4)
In this item:
2013 budget time
means 7.30 pm, by legal time in the Australian Capital Territory, on 14 May 2013.

No 14 of 2018, s 3 and Sch 1 item 31 contains the following provision:

31 Commencement of arrangements
(1)
Subitems (2), (3) and (4) specify, for the purpose of this Schedule, the time of commencement of an arrangement under which:

(a) an entity becomes a subsidiary member of a consolidated group or MEC group; or

(b) an entity that ceases to be a subsidiary member of a consolidated group or MEC group.

(2)
If the arrangement is or relates to a takeover bid (within the meaning of the Corporations Act 2001 ) the time is when:

(a) for an off-market bid (within the meaning of that Act) - step 4 of the table in subsection 633(1) of that Act is completed; or

(b) for a market bid (within the meaning of that Act) - step 2 of the table in subsection 635(1) of that Act is completed.

(3)
If a court orders, under subsection 411(1) of the Corporations Act 2001 :

(a) a meeting or meetings of a company ' s members about the arrangement; or

(b) a meeting or meetings of one or more classes of a company ' s members about the arrangement;
the time is when the application for the order was made.

(4)
If subitem (2) or (3) does not apply, the time is when the decision to enter into the arrangement was made.

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