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

Schedule 5 Consolidation: allocable cost amount for a joining trust

Part 1 New provisions inserted in the Income Tax Assessment Act 1997

6 After Division 711

Insert:

Division 713 - Rules for particular kinds of entities

Table of Subdivisions

713-A Trusts

Subdivision 713-A - Trusts

Table of sections

Working out a joined group's allocable cost amount for a joining trust

713-20 Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests

713-25 Undistributed, realised profits that accrue to joined group before joining time and could be distributed tax free in respect of discretionary interests - step 3 in working out allocable cost amount

Determining destination of distribution by non-fixed trust

713-50 Factors to consider

Working out a joined group's allocable cost amount for a joining trust

713-20 Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests

(1) The object of this section is to increase the step 1 amount worked out under section 705-65 (for the purpose of working out the joined group's allocable cost amount) if:

(a) the joining entity is a trust; and

(b) some or all of the*membership interests in the trust are neither units nor interests in the trust; and

The increase in the step 1 amount takes account of the settled capital that could be distributed tax free.

Note 1: As a result, the settled capital that could be distributed tax free is treated in a way that is analogous to the group's cost of acquiring the trust: see subsection 705-10(2).

Note 2: Paragraph (1)(b) reflects the position that a distribution in respect of a unit or interest in the trust is generally covered by CGT event E4 and so is not tax-free: see section 104-70.

(2) The step 1 amount worked out under section 705-65 is increased by the amount worked out under the following method statement if, at the joining time, there are*membership interests (the discretionary interests ) in the trust each of which satisfies these conditions:

(a) it is neither a unit nor an interest in the trust;

(b) the entity that owned it at the joining time began to own it only because money or property was settled on the trust;

Note: If a membership interest has a cost base greater than nil, the cost base is already taken into account in working out the step 1 amount under section 705-65.

Method statement

Step 1. Add up:

(a) each amount settled on the trust before or at the joining time; and

(b) the*market value of each item of property settled on the trust before or at the joining time, worked out as at when the item was settled;

except to the extent that that amount or market value forms part of the*cost base of a*membership interest in the trust that was taken into account in working out the step 1 amount under section 705-65.

Step 2. Work out how much of the step 1 amount would have been paid in respect of the discretionary interests if, at the joining time:

(a) the entire trust capital and trust income had been realised and distributed; and

(b) the trust had ended.

Note: This may involve determining how a power of appointment would have been exercised. Section 713-50 lists matters to have regard to in determining this.

Step 3. Reduce the step 2 amount by so much of it as:

(a) would have been included in the assessable income of any*member of the trust who owned any of the discretionary interests at the joining time; or

(b) would have been taken into account in working out a*capital gain or*capital loss made by such a member.

Step 4. Work out how much of the step 1 amount consists of one or more of these:

(a) an amount settled on the trust directly by the*head company of the*consolidated group (whether or not the group was in existence when the amount or item was settled on the trust);

(b) an amount settled on the trust directly by any other entitynot excluded by subsection (3) (which covers entities that are not independent and unconnected donors to the trust);

(d) the market value of an item of property settled on the trust directly by any other entitynot excluded by subsection (3).

Step 5. The step 1 amount worked out under section 705-65 is increased by thelesser of:

(a) the step 3 amount worked out under this method statement; and

(b) the step 4 amount worked out under this method statement.

(3) This subsection excludes these entities for the purposes of step 4 of the method statement in subsection (2):

Entities that are not independent and unconnected donors to the trust
Item	This entity is excluded:
1	An entity that is amember of theconsolidated group at the joining time
2	An entity that has been amember of theconsolidated group at any time before the joining time, even if it was not such a member when it settled the amount or item of property on the joining entity
3	An entity that, because of ascheme, will or may become amember of the*consolidated group at some time after the joining time
4	An entity that, when the amount or item of property was settled on the joining entity, was an*associate of an entity covered by item 1, 2 or 3
5	An entity that, in settling the amount or item of property on the joining entity, acted in accordance with the directions, instructions or wishes of one or more entities, at least one of which is covered by item 1, 2, 3 or 4 (whether those directions, instructions or wishes were communicated directly or indirectly, including through interposed entities)
6	A company or trust that an entity covered by item 1, 2 or 3 would be taken tocontrol (for value shifting purposes) when the company or trust settled the amount or item of property on the joining entity, if each entity covered by item 1, 2, 3 or 4 had been at that time anassociate of every other entity covered by item 1, 2, 3 or 4
7	A partnership if, when the partnership settled the amount or item of property on the joining entity, a*member of the partnership was an entity covered by item 1, 2, 3, 4 or 6

713-25 Undistributed, realised profits that accrue to joined group before joining time and could be distributed tax free in respect of discretionary interests - step 3 in working out allocable cost amount

(1) For the purposes of step 3 in the table in section 705-60, if the joining entity is a trust, the step 3 amount is the sum of the trust's realised profits, to the extent that:

(a) they accrued to the joined group before the joining time (as defined in subsection 705-90(7)); and

(b) as at the joining time, they have not been distributed to*members of the trust; and

(i) they would be distributedotherwise than in respect of a unit or an interest in the trust; or

(ii) their non-assessable parts for the purposes of section 104-70 wouldnot be taken into account in working out whether or not a*capital gain had been made because of CGT event E4;

except to the extent that they recouped losses of any*sort that accrued to the joined group before the joining time (as defined in subsection 705-90(8)).

Note: If the joining entity, or an entity interposed between the head company and the joining entity, is a non-fixed trust, this section may involve determining how a power of appointment would have been exercised. Section 713-50 lists matters to have regard to in determining this.

Trusts not covered

(2) Subsection (1) does not apply to a trust that is a*corporate tax entity at the joining time.

Note: This excludes corporate unit trusts and public trading trusts, which are covered by the imputation system.

Determining destination of distribution by non-fixed trust

713-50 Factors to consider

In working out, for the purposes of this Part, how much of something a*non-fixed trust would have distributed to an entity, or in respect of a*membership interest in the trust, have regard to all relevant factors, including:

(a) the pattern of any previous distributions by the trust; and

(b) by whom the trust has from time to time been*controlled (for value shifting purposes).

[The next Division is Division 716.]

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