Income Tax (Transitional Provisions) Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 701A - Modified application of provisions of Income Tax Assessment Act 1997 for entities with continuing majority ownership from 27 June 2002 until joining a consolidated group  

SECTION 701A-10   Modified application of Part 3-90 of Income Tax Assessment Act 1997 to certain internally generated assets of continuing majority-owned entity  

701A-10(1)    
This section applies if:

(a) because subsection 701-1(1) (the single entity rule) of the Income Tax Assessment Act 1997 applies, a depreciating asset becomes that of the head company of a continuing majority-owned entity's designated group when the entity becomes a subsidiary member of that group; and

(b) the continuing majority-owned entity's terminating value for the asset is less than the asset's tax cost setting amount; and

(c) the asset existed at the start of 27 June 2002; and

(d) more than half of the expenditure incurred in constructing or creating the asset was of a revenue nature and allowable as a deduction to the entity (whether or not the continuing majority-owned entity) that constructed or created the asset; and

(e) for every balancing adjustment event occurring for the asset before the continuing majority-owned entity became a subsidiary member of the group, there was roll-over relief under section 40-340 of the Income Tax Assessment Act 1997 .

Reduced depreciation deductions etc. for head company

701A-10(2)    
If this section applies, for the head company core purposes:

(a) while the asset is, because subsection 701-1(1) of that Act applies, that of the head company of the designated group, for the purpose of working out deductions for the asset's decline in value under Division 40 of the Income Tax Assessment Act 1997 , its tax cost setting amount is taken to be equal to the continuing majority-owned entity's terminating value for the asset; and

(b) if a balancing adjustment event occurs for the asset, or the head company ceases to hold the asset because an entity ceases to be a subsidiary member of the group, and:

(i) the deductions for its decline in value up to that time worked out on the basis in paragraph (a);

are less than:

(ii) the deductions that would have been worked out using its actual tax cost setting amount;

then:

(iii) if a balancing adjustment event occurs for the asset - the shortfall is allowable as a deduction to the head company for the income year in which it ceases to hold the asset; or

(iv) if the head company ceases to hold the asset because an entity ceases to be a subsidiary member of the group - the group's allocable cost amount worked out under section 711-30 of the Income Tax Assessment Act 1997 for the entity is increased by the shortfall.

Note:

The asset's actual tax cost setting amount would be used for the purpose of working out any balancing adjustment for a balancing adjustment event or for working out the terminating value of the asset under Division 711 of the Income Tax Assessment Act 1997 .

Reduced depreciation deductions etc. for acquirer from head company

701A-10(3)    
If:

(a) the asset is acquired by another entity (a new asset holder ) from the head company; and

(b) at the time of the acquisition:

(i) either party to the acquisition controls (for value shifting purposes) the other; or

(ii) a third entity controls (for value shifting purposes) the parties to the acquisition; and

(c) the following amount:

(i) the asset's adjustable value (the roll-over adjustable value ) just before the acquisition, worked out on the assumption that the head company had acquired the asset for an amount equal to the continuing majority-owned entity's terminating value for the asset;

is less than:

(ii) the asset's cost to the new asset holder;

then the consequences in subsection (4) occur.

701A-10(4)    
The consequences are as follows:

(a) while the asset is held by the new asset holder, for the purpose of working out deductions for the asset's decline in value under Division 40 of the Income Tax Assessment Act 1997 , the acquisition by the new asset holder is taken to have been for an amount equal to the asset's roll-over adjustable value;

(b) if a balancing adjustment event occurs for the asset and:

(i) the deductions for its decline in value up to that time, worked out on the basis in paragraph (a);

are less than:

(ii) the deductions that would otherwise have been worked out;

then the shortfall is allowable as a deduction to the new asset holder for the income year in which it ceases to hold the asset.

Reduced depreciation deductions etc. for entity that ceases to be a subsidiary member

701A-10(5)    
If:

(a) the asset becomes that of an entity (a new asset holder ) other than the head company because subsection 701-1(1) of the Income Tax Assessment Act 1997 ceases to apply when the entity ceases to be a subsidiary member of the designated group as a result of a third entity (the buyer of the new asset holder ) acquiring some or all of the membership interests in the new asset holder; and

(b) at the time of the acquisition:

(i) the buyer of the new asset holder controls (for value shifting purposes) the head company of the designated group, or vice versa; or

(ii) a third entity controls (for value shifting purposes) the head company of the designated group and the buyer of the new asset holder; and

(c) the following amount:

(i) the asset's adjustable value (the roll-over adjustable value ) just before the cessation, worked out on the assumption that the head company had acquired the asset for an amount equal to the continuing majority-owned entity's terminating value for the asset;

is less than:

(ii) the asset's cost to the new asset holder;

then the consequences in subsection (6) occur.

701A-10(6)    
The consequences are as follows:

(a) while the asset is held by the new asset holder, for the purpose of working out deductions for the asset's decline in value under Division 40 of the Income Tax Assessment Act 1997 , the acquisition by the new asset holder is taken to have been for an amount equal to the asset's roll-over adjustable value; and

(b) if a balancing adjustment event occurs for the asset and:

(i) the deductions for its decline in value up to that time worked out on the basis in paragraph (a);

are less than:

(ii) the deductions that would otherwise have been worked out;

then the shortfall is allowable as a deduction to the new asset holder for the income year in which it ceases to hold the asset.

Reduced depreciation deductions etc. for later acquirer

701A-10(7)    
If:

(a) the asset is acquired by another entity (a new asset holder ) from an entity that is a new asset holder under subsection (3) or (5) or a previous application of this subsection; and

(b) an entity:

(i) was a party to the acquisition and, at the time of the acquisition, controlled (for value shifting purposes) the other party; or

(ii) was not a party to each acquisition but, at the time of the acquisition, controlled (for value shifting purposes) the parties to the acquisition; and

(c) that entity was also the entity whose control (for value shifting purposes) resulted in the control test being satisfied in respect of each previous acquisition or cessation involving a new asset holder; and

(d) the following amount:

(i) the asset's adjustable value (the roll-over adjustable value ) just before the acquisition, worked out on the assumption that every previous new asset holder had acquired the asset for the asset's roll-over adjustable value, worked out under subsection (3) or (5) or this subsection, just before it did so;

is less than:

(ii) the asset's cost to the new asset holder;

then the consequences in subsection (8) occur.

701A-10(8)    
The consequences are as follows:

(a) while the asset is held by the new asset holder, for the purpose of working out deductions for the asset's decline in value under Division 40 of the Income Tax Assessment Act 1997 , the acquisition by the new asset holder is taken to have been for an amount equal to the asset's roll-over adjustable value asset just before the acquisition; and

(b) if a balancing adjustment event occurs for the asset and:

(i) the deductions for its decline in value up to that time worked out on the basis in paragraph (a);

are less than:

(ii) the deductions that would otherwise have been worked out;

then the shortfall is allowable as a deduction to the new asset holder for the income year in which it ceases to hold the asset.