New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 (90 of 2002)

Schedule 6   Consolidation: international tax

Income Tax Assessment Act 1997

2   After Division 711

Insert:

Division 717 - International tax rules

Table of Subdivisions

717-A Foreign tax credits

717-D Attributable income: entry rules

717-E Attributable income: exit rules

Subdivision 717-A - Foreign tax credits

Guide to Subdivision 717-A

717-1 What this Subdivision is about

If an entity becomes a subsidiary member of a consolidated group, its excess foreign tax credits are transferred to the head company of the group, for use in later income years. The head company receives any foreign tax credits that arise because the entity pays foreign tax while it is a subsidiary member of the group.

Table of sections

Objects

717-5 Objects of this Subdivision

Foreign tax on amounts in head company's assessable income

717-10 Head company taken to be liable for subsidiary member's foreign tax

Foreign tax on amounts not in head company's assessable income

717-15 Transferring subsidiary member's excess foreign tax credits from earlier years to head company

717-20 Where entity not subsidiary member for whole of income year

[This is the end of the Guide.]

Objects

717-5 Objects of this Subdivision

(1) The main objects of this Subdivision are set out in subsections (2), (3) and (4).

(2) The first of those objects is to allow the*head company of a*consolidated group to get the benefit of foreign tax paid in respect of foreign income (within the meaning of theIncome Tax Assessment Act 1936) included in the head company's assessable income because another entity is or was a*subsidiary member of the group.

(3) The second of those objects is to allow the*head company of a*consolidated group to apply, in relation to an income year,*excess foreign tax credits of an entity (the joining entity ) that becomes a*subsidiary member of the group at a time (the joining time ) if:

(a) the income year starts after the joining time; and

(b) those excess foreign tax credits are from an income year ending before the joining time.

(4) The third of those objects is to prevent an entity (other than the*head company of the group) from applying*excess foreign tax credits mentioned in paragraph (3)(b) to increase its own credits in respect of foreign tax.

Foreign tax on amounts in head company's assessable income

717-10 Head company taken to be liable for subsidiary member's foreign tax

(1) This section operates if:

(a) an entity was a*subsidiary member of a*consolidated group for all or part of an income year; and

(b) the assessable income of the*head company of the group for that income year included foreign income (within the meaning of theIncome Tax Assessment Act 1936); and

(c) the entity paid, and was personally liable for, foreign tax (within the meaning of that Act) in respect of that foreign income (whether or not the entity was a subsidiary member of the group at the time of payment).

(2) Section 160AF of theIncome Tax Assessment Act 1936 operates as if:

(a) the*head company had paid and been personally liable for the foreign tax; and

(b) the entity had not paid and had not been personally liable for the foreign tax.

Note: Section 160AF of theIncome Tax Assessment Act 1936 provides a foreign tax credit (which is a tax offset) of an amount that depends on:

(a) foreign tax that an entity paid, and was personally liable for, in respect of foreign income included in the entity's assessable income; and

(b) the amount of Australian tax payable (worked out as described in that section) in respect of the foreign income.

(3) This section does not limit the operation of section 160AF of theIncome Tax Assessment Act 1936.

Foreign tax on amounts not in head company's assessable income

717-15 Transferring subsidiary member's excess foreign tax credits from earlier years to head company

(1) This section operates for the purposes of section 160AFE of theIncome Tax Assessment Act 1936 in relation to an income year if:

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

(b) the joining time is:

(i) before the start of that income year; and

(ii) after the start of an earlier income year (the earlier year ); and

(c) the joining entity has*excess foreign tax credits (the transfer credits ) from the earlier year.

(2) For those purposes:

(a) the*head company of the group is taken to have the transfer credits; and

(b) the joining entity is takennot to have the transfer credits; and

(c) if, apart from paragraph (a), the head company has*excess foreign tax credits from the earlier year - the transfer credits are taken to be included in those excess foreign tax credits.

(3) Subsection (2) also has effect for the purposes of a subsequent operation of this section.

Example: An entity becomes a subsidiary member of a consolidated group in an income year. This section operates in relation to a later income year so that the entity no longer has the transfer credits mentioned in paragraph (1)(c) (see paragraph (2)(b)). The entity later leaves the group and becomes a subsidiary member of a second consolidated group. In a subsequent operation of this section in relation to the head company of the second group, the entity will not have those transfer credits, because of the previous operation of paragraph (2)(b).

(4) This section operates separately in relation to each class of foreign income (within the meaning of theIncome Tax Assessment Act 1936) identified in subsection 160AF(7) of that Act, as if:

(a) the*head company's foreign income of that class for an income year were the whole of the head company's foreign income for that year; and

(b) the joining entity's foreign income of that class for an income year were the whole of the joining entity's foreign income for that year.

717-20 Where entity not subsidiary member for whole of income year

(1) This sectionoperates if:

(a) an entity (the joining entity ) is a*subsidiary member of a*consolidated group for some but not all of an income year (the joining year ); and

(b) there are one or more periods in the joining year (each of which is a non-membership period ) during which the entity is not a subsidiary member of any*consolidated group.

Note: Section 701-30 treats each non-membership period as a separate income year for some purposes.

(2) Subsection (3) has effect for the purposes of section 701-30 in relation to the joining entity.

(3) In working out amounts for the joining entity under subsection 701-30(3) in relation to each non-membership period, make these assumptions:

(a) if the joining year starts at the same time as the earliest of those non-membership periods:

(i) subsection 160AFE(2) of theIncome Tax Assessment Act 1936 operates in relation to the joining entity for that non-membership period; and

(ii) subsection 160AFE(2) of that Act doesnotoperate in relation to the joining entity for the later non-membership periods (if any);

(b) otherwise - subsection 160AFE(2) of that Act doesnotoperate in relation to the joining entity for any of the non-membership periods.

(4) Subsection (5) has effect for the purposes of section 717-15 in relation to the*head company of the*consolidated group for a later income year.

(5) In working out the amount (if any) of the joining entity's transfer credits (within the meaning of paragraph 717-15(1)(c)) from the joining year, do not include the amount of the joining entity's*excess foreign tax credits from a non-membership period (if any) that ends at the same time the joining year ends.

[The next Subdivision is Subdivision 717-D.]

Subdivision 717-D - Attributable income: entry rules

Guide to Subdivision 717-D

717-200 What this Subdivision is about

Each attribution surplus, attributed tax account surplus, FIF attribution surplus and FIF attributed tax account surplus relating to a company that becomes a subsidiary member of a consolidated group is transferred to the head company of the group.

Table of sections

Object

717-205 Object of this Subdivision

Transfers

717-210 Attribution surpluses

717-215 Attributed tax account surpluses

717-220 FIF attribution surpluses

717-225 FIF attributed tax account surpluses

717-230 Calculating FIF income where a company joins the group

[This is the end of the Guide.]

Object

717-205 Object of this Subdivision

The main object of this Subdivision is to avoid double taxation by transferring from a company (the joining company ) that becomes a*subsidiary member of a*consolidated group at a time (the joining time ) to the*head company of the group the benefit of each of these:

(a) the attribution surplus (if any) for an attribution account entity (within the meaning of Part X of theIncome Tax Assessment Act 1936) in relation to the joining company just before the joining time;

(b) the attributed tax account surplus (if any) for an attribution account entity (within the meaning of Part X of theIncome Tax Assessment Act 1936) in relation to the joining company just before the joining time;

(c) the FIF attribution surplus (if any) for a FIF attribution account entity (within the meaning of Part XI of theIncome Tax Assessment Act 1936) in relation to the joining company just before the joining time;

(d) the FIF attributed tax account surplus (if any) for a*FIF (within the meaning of Part XI of theIncome Tax Assessment Act 1936) in relation to the joining company just before the joining time.

Transfers

717-210 Attribution surpluses

(1) This section operates for the purposes of Part X of theIncome Tax Assessment Act 1936 if:

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

(b) just before the joining time there was an attribution surplus for an attribution account entity in relation to the joining company for the purposes of that Part; and

(c) just before the joining time the joining company's attribution account percentage in relation to the attribution account entity for the purposes of that Part was more than nil.

Credit in relation to the head company

(2) An attribution credit arises at the joining time for the attribution account entity in relation to the*head company of the group. The credit is equal to the attribution surplus.

Debit in relation to the joining company

(3) An attribution debit arises at the joining time for the attribution account entity in relation to the joining company. The debit is equal to the attribution surplus.

717-215 Attributed tax account surpluses

Section 717-210 also operates as described in the table:

717-220 FIF attribution surpluses

Section 717-210 also operates for the purposes of Part XI of theIncome Tax Assessment Act 1936 as described in the table:

Note: Section 717-230 may affect the calculation of the FIF attribution surplus for the FIF attribution account entity in relation to the joining company just before the joining time.

717-225 FIF attributed tax account surpluses

Section 717-210 also operates for the purposes of Part XI of theIncome Tax Assessment Act 1936 as described in the table:

Note: Section 717-230 may affect the calculation of the FIF attributed tax account surplus for the FIF in relation to the joining company just before the joining time.

717-230 Calculating FIF income where a company joins the group

(1) This section modifies the operation of Part XI of theIncome Tax Assessment Act 1936 if:

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

(b) for the purposes of that Part, the FIF attribution account percentage of the joining company in relation to a FIF attribution account entity that is a*FIF is more than nil at the time (the surplus time ) just before the joining time.

(2) That Part operates in relation to the joining company as if a notional accounting period of the*FIF in relation to the joining company ended at the time (the credit/debit time ) just before the surplus time.

(3) That Part operates in relation to the joining company as if subsection 485(3) of that Act provided that the operative provision applied to the joining company in relation to the*FIF in respect of the notional accounting period of that FIF that ended in the year of income that included the credit/debit time.

(4) Paragraph 538(2)(d) of that Act operates in relation to the*head company of the*consolidated group in relation to the*FIF in respect of the notional accounting period of that FIF that included the joining time as if:

(a) the head company had acquired the interest or interests mentioned in that paragraph during that period (so far as those interests are held by the head company because the joining company became a*subsidiary member of the group); and

(b) the amount or value of the consideration paid or given by the head company in respect of the acquisition was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the joining company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

Note: The modifications made by this section:

(a) apply if a company joins a consolidated group during a notional accounting period of a FIF in which the company has an interest; and

(b) allow the appropriate calculation of amounts attributed under FIF rules to the head company and joining company before and after the joining time; and

(c) mean that foreign investment fund income that accrued to the joining company from the FIF will be included in the joining company's assessable income and will give rise to a FIF attribution credit, and may also give rise to a FIF attribution debit, in relation to the joining company; and

(d) mean that the FIF attribution surplus and the FIF attributed tax account surplus for the FIF attribution account entity in relation to the joining company at the surplus time will take account of credits and debits arising at the credit/debit time and earlier.

Subdivision 717-E - Attributable income: exit rules

Guide to Subdivision 717-E

717-235 What this Subdivision is about

Each attribution surplus, attributed tax account surplus, FIF attribution surplus and FIF attributed tax account surplus relating to a company that ceases to be a subsidiary member of a consolidated group is transferred to that company from the head company of the group.

Table of sections

Object

717-240 Object of this Subdivision

Transfer of Part X surpluses

717-245 Attribution surpluses

717-250 Attributed tax account surpluses

Transfer of Part XI surpluses

717-255 FIF attribution surpluses

717-260 FIF attributed tax account surpluses

717-265 Calculating FIF income where a company leaves the group

[This is the end of the Guide.]

Object

717-240 Object of this Subdivision

The main object of this Subdivision is to avoid double taxation by transferring from the*head company of a*consolidated group to a company (the leaving company ) that ceases to be a*subsidiary member of the group at a time (the leaving time ) the benefit of each of these surpluses (to the extent that each surplus can be attributed to the leaving company):

(a) the attribution surplus (if any) for an attribution account entity (within the meaning of Part X of theIncome Tax Assessment Act 1936) in relation to the head company just before the leaving time;

(b) the attributed tax account surplus (if any) for an attribution account entity (within the meaning of Part X of theIncome Tax Assessment Act 1936) in relation to the head company just before the leaving time;

(c) the FIF attribution surplus (if any) for a FIF attribution account entity (within the meaning of Part XI of theIncome Tax Assessment Act 1936) in relation to the head company just before the leaving time;

(d) the FIF attributed tax account surplus (if any) for a*FIF (within the meaning of Part XI of theIncome Tax Assessment Act 1936) in relation to the head company just before the leaving time.

Transfer of Part X surpluses

717-245 Attribution surpluses

(1) This section operates for the purposes of Part X of theIncome Tax Assessment Act 1936 if:

(a) a company (the leaving company ) ceases to be a*subsidiary member of a*consolidated group at a time (the leaving time ); and

(b) just before the leaving time there was, for the purposes of that Part, an attribution surplus for an attribution account entity in relation to the*head company of the group; and

(c) at the leaving time the leaving company's attribution account percentage in relation to the attribution account entity for the purposes of that Part is more than nil.

Credit in relation to leaving company

(2) An attribution credit arises at the leaving time for the attribution account entity in relation to the leaving company. The credit is the amount worked out under subsection (4).

Debit in relation to head company

(3) An attribution debit arises at the leaving time for the attribution account entity in relation to the company that was the*head company of the group just before the leaving time. The debit is the amount worked out under subsection (4).

Amount of credit and debit

(4) The amount of the credit and debit is worked out using the formula:

717-250 Attributed tax account surpluses

Section 717-245 also operates as described in the table:

Transfer of Part XI surpluses

717-255 FIF attribution surpluses

Section 717-245 also operates for the purposes of Part XI of theIncome Tax Assessment Act 1936 as described in the table:

Note: Section 717-265 may affect the calculation of the FIF attribution surplus for the FIF attribution account entity in relation to the head company just before the leaving time.

717-260 FIF attributed tax account surpluses

Section 717-245 also operates for the purposes of Part XI of theIncome Tax Assessment Act 1936 as described in the table:

Note: Section 717-265 may affect the calculation of the FIF attributed tax account surplus for the FIF in relation to the head company just before the leaving time.

717-265 Calculating FIF income where a company leaves the group

(1) This section modifies the operation of Part XI of theIncome Tax Assessment Act 1936 in relation to a company (the transferor company ) if:

(a) the transferor company is the*head company of a*consolidated group at a time (the surplus time ); and

(b) for the purposes of that Part, the FIF attribution account percentage of the transferor company in relation to a FIF attribution account entity that is a*FIF is more than nil at the surplus time; and

(c) another company (the leaving company ) ceases to be a*subsidiary member of the group at the time (the leaving time ) just after the surplus time; and

(d) for the purposes of that Part, the leaving company's FIF attribution account percentage in relation to that FIF attribution account entity is more than nil at the leaving time.

(2) That Part operates in relation to the transferor company as if a notional accounting period of the*FIF in relation to the transferor company ended at the time (the credit/debit time ) just before the surplus time.

(3) That Part operates in relation to the transferor company as if the next notional accounting period of the*FIF in relation to the transferor company started at the surplus time and continued until whichever of these times occurs first:

(a) the time when a notional accounting period of the FIF in relation to the transferor company would have ended apart from this section;

(b) the time when the period ends because of another application of this section.

(4) That Part operates in relation to the transferor company as if subsection 485(3) of that Act provided that the operative provision applied to the transferor company in relation to the*FIF in respect of the notional accounting period of that FIF that ended in the year of income that included the credit/debit time.

(5) Paragraph 538(2)(d) of that Act operates in relation to the leaving company in relation to the*FIF in respect of the notional accounting period of that FIF that included the leaving time as if:

(a) the leaving company had acquired the interest or interests mentioned in that paragraph during that period (so far as those interests are held by the leaving company because it ceased to be a*subsidiary member of the group); and

(b) the amount or value of the consideration paid or given by the leaving company in respect of the acquisition was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the transferor company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

Note: The modifications made by this section:

(a) apply if a company leaves a consolidated group during a notional accounting period of a FIF in which the company has an interest; and

(b) allow the appropriate calculation of amounts attributed under FIF rules to the transferor company and leaving company before and after the leaving time; and

(c) mean that foreign investment fund income that accrued to the transferor company from the FIF will be included in the transferor company's assessable income and will give rise to a FIF attribution credit, and may also give rise to a FIF attribution debit, in relation to the transferor company; and

(d) mean that the FIF attribution surplus and the FIF attributed tax account surplus for the FIF attribution account entity in relation to the transferor company at the surplus time will take account of credits and debits arising at the credit/debit time and earlier.

[The next Division is Division 719.]