Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 855 - Capital gains and foreign residents  

Subdivision 855-A - Disregarding a capital gain or loss by foreign residents  

SECTION 855-30   Principal asset test  

855-30(1)    
The purpose of this section is to define when an entity ' s underlying value is principally derived from Australian real property (see paragraph 855-5(2)(b) ).

855-30(2)    
A *membership interest held by an entity (the holding entity ) in another entity (the test entity ) passes the principal asset test if the sum of the *market values of the test entity ' s assets that are *taxable Australian real property exceeds the sum of the *market values of its assets that are not taxable Australian real property.

Note:

The market value of any of the latter kind of assets that are duplicated within the test entity ' s corporate group could be disregarded (see section 855-32 ).

855-30(3)    
For the purposes of subsection (2), treat an asset of an entity (the first entity ) that is a *membership interest in another entity (the other entity ) as if it were instead the following 2 assets:

(a) an asset that is *taxable Australian real property (the TARP asset );

(b) an asset that is not taxable Australian real property (the non-TARP asset ).

855-30(4)    

For the purposes of subsection (2), treat the *market value of the TARP asset and the non-TARP asset according to the following table.

Market value of the TARP asset and the non-TARP asset
Item	If:	the market value of the TARP asset is:	the market value of the non-TARP asset is:
1	the sum of the *total participation interests held by the holding entity and its *associates in the other entity is less than 10%	zero	the *market value of the *membership interest mentioned in subsection (3)
2	item 1 does not apply	the product of:	the product of:
		(a)	the sum of the *market values of all the assets of the other entity that are *taxable Australian real property; and	(a)	the sum of the market values of all the assets of the other entity that are not taxable Australian real property; and
		(b)	the first entity ' s *direct participation interest in the other entity	(b)	the first entity ' s direct participation interest in the other entity

Note 1:

For the purposes of item 2 of the table, it is necessary to work out the market value of any TARP assets and non-TARP assets in relation to any membership interests held by the other entity before working out the value of the TARP asset and non-TARP asset held by the first entity.

Note 2:

The market value of an asset of the other entity that is not taxable Australian real property, and is duplicated within the other entity ' s corporate group, could be disregarded (see section 855-32 ).

855-30(4A)    

For the purposes of working out the *total participation interests held by the holding entity and its *associates under item 1 of the table in subsection (4), 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 holding entity.

855-30(5)    
For the purposes of this section, disregard the *market value of any asset acquired by the test entity, or by any other entity, if the *acquisition was done for a purpose (other than an incidental purpose) that included ensuring that a *membership interest in any entity would not pass the principal asset test in this section.