Tax Laws Amendment (2004 Measures No. 2) Act 2004 (83 of 2004)

Schedule 2   Consolidation etc.

Part 12   Financial Corporations (Transfer of Assets and Liabilities) Act 1993

65   At the end of Division 1 of Part 3

Add:

14A Modified operation of this Part in relation to transfers from subsidiary members of consolidated groups etc.

Object

(1) The object of this section is to modify the operation of other provisions of this Part in relation to a transfer of an asset or liability from a subsidiary member of a consolidated group or MEC group to a receiving corporation so that, where appropriate:

(a) relevant provisions affect the income tax position of the head company of the group in relation to the transfer; and

(b) the effect of the relevant provisions on the income tax position of the receiving corporation is worked out by reference to income tax attributes of the head company, including ones it has because of the following provisions of the Income Tax Assessment Act 1997:

(i) section 701-1 (the single entity rule );

(ii) section 701-5 (the entry history rule );

(iii) section 701-10 (the head company tax cost setting rule ).

Note 1: The single entity rule has the effect that a subsidiary member of a consolidated group or MEC group is taken to be part of the head company.

Note 2: The entry history rule treats things that happened in relation to an entity before it became a subsidiary member of a consolidated group or MEC group as having happened in relation to the head company.

Note 3: The head company tax cost setting rule sets the amount taken to be the cost to the head company of assets that became assets of the head company because of the single entity rule when an entity became a subsidiary member of the consolidated group or MEC group.

Circumstances in which this section has effect

(2) This section modifies the way in which a provision of this Part (except this Division) operates in relation to a transfer of an asset or liability from a financial corporation that (ignoring the single entity rule) is a subsidiary member of a consolidated group or MEC group to the receiving corporation.

Modified operation of the provision

(3) If the head company of the group is not a financial corporation, the provision operates in relation to the head company in the way in which it would operate in relation to the transferring corporation apart from this subsection.

Note: This ensures that, even though the head company is not the transferring corporation (because it is not a financial corporation), the provision operates as though it were. On this basis, the provision may affect the head company and/or the receiving corporation.

(4) So far as the provision affects the receiving corporation, it does so on the basis that the single entity rule, the entry history rule and the head company tax cost setting rule affect the head company of the group.

Note 1: This subsection ensures that, where the effect of the provision on the receiving corporation depends on the transferring corporation, the results of those rules in relation to the head company are taken into account in determining the effect of the provision on the receiving corporation. Some examples of this are as follows:

(a) the head company tax cost setting rule affects subsection 15(3) and section 18 by setting the head company's cost base for assets an entity brought into the group when the entity became a subsidiary member of the group;

(b) the entry history rule affects paragraph 16(3)(d) by treating the head company as having been paid, for assuming a liability that was brought into the group by an entity becoming a subsidiary member, the amount paid to the entity for assuming the liability;

(c) the entry history rule affects subsections 17(1) and 22(4) and table item 1 in subsection 22(1) by treating the head company as having included in its assessable income amounts included in the assessable income of an entity that later became a subsidiary member of the group;

(d) the entry history rule affects subsections 17(1) and (2) and 22(4) by treating deductions allowable to an entity before becoming a subsidiary member of the group as having been allowable to the head company.

Note 2: This subsection also ensures that, if the head company is a financial corporation, the receiving corporation is affected by the provision operating in relation to the head company of the group as the transferring corporation (because the single entity rule operates to treat the subsidiary member of the group as part of the head company, so the transfer is treated as being from that company).

Provisions whose operation is not modified

(5) To avoid doubt, this section does not affect the operation of the following provisions:

(a) section 20;

(b) section 23;

(c) Division 8.