New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (117 of 2002)

Schedule 2   Consolidation: group continues when shelf company becomes new head company

Income Tax Assessment Act 1997

10   After section 703-60

Insert:

Effects of choice to continue group after shelf company becomes new head company

703-65 Application

Sections 703-70 to 703-80 set out the effects if a company (the interposed company ) chooses under subsection 124-380(5) that a*consolidated group is to continue in existence at and after the time referred to in that subsection as the completion time.

Note: The choice is one of the conditions for a compulsory roll-over under Subdivision 124-G on an exchange of shares in the head company of a consolidated group for shares in the interposed company.

703-70 Consolidated group continues in existence with interposed company as head company and original company as a subsidiary member

(1) The*consolidated group is takennot to have ceased to exist under subsection 703-5(2) because the company referred to in subsection 124-380(5) as the original company ceases to be the*head company of the group.

(2) To avoid doubt, the interposed company is taken to have become the*head company of the*consolidated group at the completion time, and the original company is taken to have ceased to be the head company at that time.

Note: A further result is that the original company is taken to have become a subsidiary member of the group at that time. Section 703-80 deals with the original company's tax position for the income year that includes the completion time.

(3) A provision of this Part that applies on an entity becoming a*subsidiary member of a*consolidated group doesnot apply to an entity being taken to have become such a member as a result of this section, unless the provision is expressed to apply despite this subsection.

Note: An example of the effect of this subsection is that there is no resetting under section 701-10 of the tax cost of assets of the original company that become assets of the interposed company because of subsection 701-1(1) (the single entity rule).

(4) To avoid doubt, subsection (3) does not affect the application of subsection 701-1(1) (the single entity rule).

703-75 Interposed company treated as substituted for original company at all times before the completion time

(1) Everything that happened in relation to the original company before the completion time:

(a) is taken to have happened in relation to the interposed company instead of in relation to the original company; and

(b) is taken to have happened in relation to the interposed company instead of what would (apart from this section) be taken to have happened in relation to the interposed company before that time;

just as if, at all times before the completion time:

(c) the interposed company had been the original company; and

(d) the original company had been the interposed company.

Note: This section treats the original company and the interposed company as having in effect exchanged identities throughout the period before the completion time, but without affecting any of the original company's other attributes.

(2) To avoid doubt, subsection (1) also covers everything that, immediately before the completion time, was taken, because of:

(a) section 701-1 (Single entity rule); or

(b) section 701-5 (Entry history rule); or

(c) one or more previous applications of this section; or

(d) section 719-90 (about the effects of a change of head company of a MEC group);

to have happened in relation to the original company.

(3) Subsections (1) and (2) have effect:

(a) for the head company core purposes in relation to an income year ending after the completion time; and

(b) for the entity core purposes in relation to an income year ending after the completion time; and

(c) for the purposes of determining the respective balances of the*franking accounts of the original company and the interposed company at and after the completion time.

(4) Subsections (1) and (2) have effect subject to:

(a) section 701-40 (Exit history rule); and

(b) a provision of this Act to which section 701-40 is subject because of section 701-85 (about exceptions to the core rules in Division 701).

Note: An example of provisions covered by paragraph (b) of this subsection is Subdivision 717-E (about transferring to a company leaving a consolidated group various surpluses under the CFC and FIF rules in Parts X and XI of theIncome Tax Assessment Act 1936).

703-80 Effects on the original company's tax position

In applying section 701-30 to the original company for the income year that includes the completion time, disregard a non-membership period that starts before the completion time.

Note 1: Section 701-30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Its application can also affect the entity's tax position in later income years.

Note 2: Under section 703-75 the interposed company inherits the original company's tax position for the part of the income year that ends before the completion time, with the consequence that the original company's taxable income, income tax payable, and losses of any sort, for that part are each nil.

Because of section 703-75 and this section, the only tax payable by the original company for the income year arises because of the application of section 701-30 to non-membership periods in the income year after the completion time.

[The next Division is Division 705.]