New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)

Schedule 1   Consolidation: amendments of various cost base provisions

Part 1   Adjustments to restrict step 4 reduction in allocable cost amount in Subdivision 705-B and 705-D cases

Income Tax Assessment Act 1997

1   Section 705-155

Repeal the section, substitute:

705-155 Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests

Object

(1) The object of this section is to ensure that, in working out the group's*allocable cost amount for entities that become*subsidiary members of the group at the formation time, the reduction under step 4 in the table in section 705-60 (about pre-formation time distributions out of certain profits) is made only for profits that have been effectively distributed to the*head company in respect of its direct*membership interests in the entities. This ensures consistency with the ordering rule in section 705-145.

When section applies

(2) This section applies to a distribution (the subject distribution ) to the extent that the following conditions are satisfied:

(a) the distribution is made by an entity (the subject entity ) that becomes a*subsidiary member of the group at the formation time;

(b) in working out the group's *allocable cost amount for the subject entity there would, apart from this section, be a reduction under step 4 in the table in section 705-60 for the distribution.

Step 4 reduction only if subject distribution is made to head company etc.

(3) There is no reduction as mentioned in paragraph (2)(b) for the subject distribution unless:

(a) the subject distribution is made to the *head company of the group; or

(b) the reduction is in accordance with subsection (5).

Step 4 reduction for effective distribution to head company

(4) If:

(a) at the formation time, the *head company of the group has a direct *membership interest in the subject entity; and

(b) the head company acquired the membership interest directly from another entity, or indirectly as a result of one or more acquisitions from other entities, where:

(i) section 160ZZ0 of the Income Tax Assessment Act 1936 applied to each acquisition; or

(ii) there was a roll-over under Subdivision 126-B for each acquisition;

or a combination of these happened; and

(c) while it held the membership interest, the entity, or one of the entities, mentioned in paragraph (b) (the recipient of the further distribution ) received a distribution (the further distribution ) of some of the subject distribution from the subject entity;

the consequences in subsections (5) and (6) apply.

Reduction for further distribution that remains with recipient

(5) If:

(a) the following happen:

(i) by the formation time, any of the further distribution (the eligible reduction amount ) had not again been distributed by the recipient of the further distribution;

(ii) the recipient of the further distribution does not become a *subsidiary member of the group at the formation time; or

(b) the following happen:

(i) by the formation time, any of the further distribution (the eligible reduction amount ) had been distributed by the recipient of the further distribution to another entity directly, or indirectly though successive distributions by interposed entities;

(ii) that other entity does not become a subsidiary member of the group at the formation time; or

(c) both of the above paragraphs apply;

then, in working out the group's *allocable cost amount for the subject entity, the reduction under step 4 in the table in section 705-60 for the subject distribution only takes place to the extent that it equals the sum of all eligible reduction amounts.

Step 1 reduced cost base adjustment to reverse effect of reduction for further distribution

(6) Also, if subsection 160ZK(5) of the Income Tax Assessment Act 1936 or subsection 110-55(7) of this Act applied to the further distribution, then for the purposes of step 1 in the table in section 705-60 in working out the group's *allocable cost amount for the subject entity:

(a) the reference in subsection 705-65(3) to a reduction resulting from the application of subsection 160ZK(5) of the Income Tax Assessment Act 1936; and

(b) the reference in subsection 705-65(5) to a reduction that has taken place under subsection 110-55(7);

include a reference to the reduction in the *reduced cost base of the membership interest in the subject entity resulting from the application of subsection 160ZK(5) of the Income Tax Assessment Act 1936, or subsection 110-55(7) of this Act, to the further distribution.