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

Schedule 9   Consolidation: application provision and transitional provisions about trading stock and internally-generated assets

Income Tax (Transitional Provisions) Act 1997

2   After Division 701

Insert:

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

Table of sections

701A-1 Continuing majority-owned entity, designated group etc.

701A-5 Modified application of Part 3-90 ofIncome Tax Assessment Act 1997 to trading stock of continuing majority-owned entity

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

701A-1 Continuing majority-owned entity, designated group etc.

Continuing majority-owned entity and designated group

(1) If:

(a) an entity becomes a subsidiary member of a consolidated group at any time on or after 1 July 2002; and

(b) a person or persons continued to be the majority owners (see subsection (2)) of the entity from the start of 27 June 2002 until the entity became a subsidiary member of the group;

the entity is a continuing majority-owned entity and the group is the entity's designated group .

Majority owners of an entity

(2) A person or persons are the majority owners of an entity if they beneficially own, directly or indirectly through one or more interposed entities, membership interests in the entity whose market value is more than 50% of the market value of all of the membership interests in the entity.

Interposed non-fixed trust to be treated as fixed trust

(3) For the purposes of subsection (2), if the interposed entity or any of the interposed entities is a trust that is not a fixed trust:

(a) it is treated as if it were a fixed trust; and

(b) all of its objects are treated as if they were beneficiaries of that trust with equal interests in it.

701A-5 Modified application of Part 3-90 of Income Tax Assessment Act 1997 to trading stock of continuing majority-owned entity

(1) The operation of Part 3-90 of theIncome Tax Assessment Act 1997is modified in accordance with this sectionin relation to each asset of a continuing majority-owned entity that is trading stock just before the entity becomes a subsidiary member of the entity's designated group.

Continuing majority-owned entity to revalue its trading stock under normal provisions

(2) For the entity core purposes:

(a) subsection 701-35(4) of theIncome Tax Assessment Act 1997does not apply in relation to the asset; and

(b) instead, the value of the asset at the end of the income year that ends, or, if section 701-30 of that Act applies, of the income year that is taken by subsection (3) of that section to end, is the value determined in accordance with sections 70-45 to 70-70 of that Act.

For head company, trading stock to be retained cost base asset with tax cost setting amount equal to entity's year-end valuation

(3) For the head company core purposes when the continuing majority-owned entity becomes a subsidiary member of the designated group, the asset is a retained cost base asset whose tax cost setting amount is equal to the value applicable in accordance with paragraph (2)(b).

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

(1) This section applies if:

(a) because subsection 701-1(1) (the single entity rule) of theIncome 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 theIncome Tax Assessment Act 1997.

Reduced depreciation deductions etc. for head company

(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 theIncome 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 theIncome Tax Assessment Act 1997for 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 theIncome Tax Assessment Act 1997.

Reduced depreciation deductions etc. for acquirer from head company

(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.

(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 theIncome 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

(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 theIncome 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.

(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 theIncome 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

(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.

(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 theIncome 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.