Source: https://www.legislation.gov.au/Details/C2012C00272/Html/Volume_7
Timestamp: 2020-04-04 10:48:08
Document Index: 521010249

Matched Legal Cases: ['art 3', 'art 3', 'art 3', 'art 3', 'art 3', 'art\n700', 'art 3', 'art 4', 'art 4']

Details: C2012C00272
- C2012C00272
Act No. 38 of 1997 as amended, taking into account amendments up to Clean Energy (Tax Laws Amendments) Act 2011
General Comments: This compilation is affected by retrospective amendments. Please see the Tax Laws Amendment (2011 Measures No. 9) Act 2012 (Act No. 12, 2012), the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 (Act No. 158, 2012) and the Tax and Superannuation Laws Amendment (2013 Measures No. 2) Act 2013 (Act No. 85, 2013) for details.
sch 2 (items 693-697)
Tax Laws Amendment (2011 Measures No. 8) Act 2011 - C2011A00136
Tax Laws Amendment (2011 Measures No. 7) Act 2011 - C2011A00147
Sch 1 (items 1-4, 6-8, 10, 11), Sch 5 (items 1-7, 9, 17-19), Sch 6 (item 1) and Sch 9 (items 1-30)
Sch 8 (items 2-9)
Registered 02 Mar 2012
C2012C00272
Act No. 38 of 1997 as amended
This compilation was prepared on 20 February 2012
taking into account amendments up to Act No. 159 of 2011
Volume 7 includes: Table of Contents
Sections 700‑1 to 727‑910
Chapter 3—Specialist liability rules i
Part 3‑90—Consolidated groups 1
Division 700—Guide and objects 1
700‑1..... What this Part is about........................................................................ 1
700‑5..... Overview of this Part.......................................................................... 2
700‑10... Objects of this Part.............................................................................. 3
Division 701—Core rules 4
Common rule 5
701‑1..... Single entity rule................................................................................. 5
Head company rules 6
701‑5..... Entry history rule................................................................................ 6
701‑10... Cost to head company of assets of joining entity................................ 7
701‑15... Cost to head company of membership interests in entity that leaves group 8
701‑20... Cost to head company of assets consisting of certain liabilities owed by entity that leaves group 9
701‑25... Tax‑neutral consequence for head company of ceasing to hold assets when entity leaves group 10
Entity rules 11
701‑30... Where entity not subsidiary member for whole of income year........ 11
701‑35... Tax‑neutral consequence for entity of ceasing to hold assets when it joins group 14
701‑40... Exit history rule................................................................................. 15
701‑45... Cost of assets consisting of liabilities owed to entity by members of the group 16
701‑50... Cost of certain membership interests of which entity becomes holder on leaving group 17
Supporting provisions 18
701‑55... Setting the tax cost of an asset........................................................... 18
701‑56... Setting the tax cost of an asset—subsection 701‑55(6)..................... 20
701‑58... Effect of setting the tax cost of an asset that the head company does not hold under the single entity rule 21
701‑60... Tax cost setting amount..................................................................... 22
701‑61... Assets in relation to Division 230 financial arrangement—head company’s assessable income or deduction 23
701‑65... Net income and losses for trusts and partnerships............................ 23
701‑70... Adjustments to taxable income where identities of parties to arrangement merge on joining group 24
701‑75... Adjustments to taxable income where identities of parties to arrangement re‑emerge on leaving group 28
701‑80... Accelerated depreciation.................................................................... 30
701‑85... Other exceptions etc. to the rules....................................................... 31
701‑90... Valuable right to future income treated as separate asset................... 31
Division 703—Consolidated groups and their members 33
Guide to Division 703 33
703‑1..... What this Division is about............................................................... 33
Basic concepts 34
703‑5..... What is a consolidated group?.......................................................... 34
703‑10... What is a consolidatable group?....................................................... 35
703‑15... Members of a consolidated group or consolidatable group............... 35
703‑20... Certain entities that cannot be members of a consolidated group or consolidatable group 37
703‑25... Australian residence requirements for trusts..................................... 39
703‑30... When is one entity a wholly‑owned subsidiary of another?............... 39
703‑33... Transfer time for sale of shares in company...................................... 40
703‑35... Treating entities as wholly‑owned subsidiaries by disregarding employee shares 41
703‑37... Disregarding certain preference shares following an ADI restructure 42
703‑40... Treating entities held through non‑fixed trusts as wholly‑owned subsidiaries 44
703‑45... Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group........................................................ 44
Choice to consolidate a consolidatable group 44
703‑50... Choice to consolidate a consolidatable group.................................... 44
Consolidated group created when MEC group ceases to exist 46
703‑55... Creating consolidated groups from certain MEC groups.................. 46
Notice of events affecting consolidated group 46
703‑58... Notice of choice to consolidate.......................................................... 46
703‑60... Notice of events affecting consolidated group................................... 47
Effects of choice to continue group after shelf company becomes new head company 49
703‑65... Application........................................................................................ 49
703‑70... Consolidated group continues in existence with interposed company as head company and original company as a subsidiary member............................................................................ 49
703‑75... Interposed company treated as substituted for original company at all times before the completion time 50
703‑80... Effects on the original company’s tax position.................................. 51
Division 705—Tax cost setting amount for assets where entities become subsidiary members of consolidated groups 53
Guide to Division 705 53
705‑1..... What this Division is about............................................................... 53
Subdivision 705‑A—Basic case: a single entity joining an existing consolidated group 53
Guide to Subdivision 705‑A 53
705‑5..... What this Subdivision is about.......................................................... 53
Application and object 55
705‑10... Application and object of this Subdivision........................................ 55
705‑15... Cases where this Subdivision does not have effect........................... 56
Tax cost setting amount for assets that joining entity brings into joined group 57
705‑20... Tax cost setting amount worked out under this Subdivision............. 57
705‑25... Tax cost setting amount for retained cost base assets........................ 57
705‑27... Reduction in tax cost setting amount that exceeds market value of certain retained cost base assets 59
705‑30... What is the joining entity’s terminating value for an asset?.............. 60
705‑35... Tax cost setting amount for reset cost base assets............................. 62
705‑40... Tax cost setting amount for reset cost base assets held on revenue account 63
705‑45... Reduction in tax cost setting amount for accelerated depreciation assets 64
705‑47... Reduction in tax cost setting amount for some privatised assets....... 65
705‑55... Order of application of sections 705‑40, 705‑45 and 705‑47............ 67
705‑56... Modification for tax cost setting in relation to finance leases............ 68
705‑57... Adjustment to tax cost setting amount where loss of pre‑CGT status of membership interests in joining entity 69
705‑58... Assets and liabilities not set off against each other............................ 73
705‑59... Exception: treatment of linked assets and liabilities........................... 73
How to work out the allocable cost amount 77
705‑60... What is the joined group’s allocable cost amount for the joining entity? 77
705‑62... No double counting of amounts in allocable cost amount................. 79
705‑65... Cost of membership interests in the joining entity—step 1 in working out allocable cost amount 80
705‑70... Liabilities of the joining entity—step 2 in working out allocable cost amount 84
705‑75... Liabilities of the joining entity—reductions for purposes of step 2 in working out allocable cost amount 85
705‑80... Liabilities of the joining entity—reductions/increases for purposes of step 2 in working out allocable cost amount.......................................................................................................... 87
705‑85... Liabilities of the joining entity—increases for purposes of step 2 in working out allocable cost amount 88
705‑90... Undistributed, taxed profits accruing to joined group before joining time—step 3 in working out allocable cost amount.......................................................................................................... 90
705‑93... If pre‑joining time roll‑over from foreign resident company or head company—step 3A in working out allocable cost amount.............................................................................................. 93
705‑95... Pre‑joining time distributions out of certain profits—step 4 in working out allocable cost amount 94
705‑100. Losses accruing to joined group before joining time—step 5 in working out allocable cost amount 94
705‑105. Continuity of holding membership interests—steps 3 to 5 in working out allocable cost amount 95
705‑110. If joining entity transfers a loss to the head company—step 6 in working out allocable cost amount 95
705‑115. If head company becomes entitled to certain deductions—step 7 in working out allocable cost amount 96
How to work out a pre‑CGT factor for assets of joining entity 97
705‑125. Pre‑CGT proportion for joining entity.............................................. 97
Subdivision 705‑B—Case of group formation 98
Guide to Subdivision 705‑B 98
705‑130. What this Subdivision is about.......................................................... 98
Application and object 99
705‑135. Application and object of this Subdivision........................................ 99
Modified application of Subdivision 705‑A 100
705‑140. Subdivision 705‑A has effect with modifications........................... 100
705‑145. Order in which tax cost setting amounts are to be worked out where subsidiary members have membership interests in other subsidiary members............................................................... 100
705‑147. Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by subsidiary members in other such members..................................................... 102
705‑155. Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests............................................................. 103
705‑160. Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members........................................................... 106
705‑163. Modified application of section 705‑57........................................... 108
Subdivision 705‑C—Case where a consolidated group is acquired by another 111
Guide to Subdivision 705‑C 111
705‑170. What this Subdivision is about........................................................ 111
Application and object 112
705‑175. Application and object of this Subdivision...................................... 112
Modified application of Division 701 in relation to acquired group etc. 113
705‑180. Modifications of Division 701........................................................ 113
Modified application of Subdivision 705‑A in relation to acquiring group 114
705‑185. Subdivision 705‑A has effect with modifications........................... 114
Modifications of Subdivision 705‑A for the purposes of this Subdivision 115
705‑195. Modified application of subsection 705‑65(6)................................ 115
705‑200. Modified application of section 705‑85........................................... 115
Subdivision 705‑D—Where multiple entities are linked by membership interests 117
Guide to Subdivision 705‑D 117
705‑210. What this Subdivision is about........................................................ 117
Application and object 118
705‑215. Application and object of this Subdivision...................................... 118
Modified application of Subdivision 705‑A 118
705‑220. Subdivision 705‑A has effect with modifications........................... 118
705‑225. Order in which tax cost setting amounts are to be worked out where linked entities have membership interests in other linked entities.................................................................................. 119
705‑227. Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by linked entities in other linked entities......................................................... 120
705‑230. Adjustments to restrict step 4 reduction of allocable cost amount to effective distributions to head company in respect of direct membership interests............................................................. 122
705‑235. Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain linked entities........................................................................................................ 123
705‑240. Modified application of section 705‑57........................................... 125
Subdivision 705‑E—Adjustments for errors etc. 127
Guide to Subdivision 705‑E 127
705‑300. What this Subdivision is about........................................................ 127
705‑305. Object of this Subdivision............................................................... 127
705‑310. Operation of Part IVA of the Income Tax Assessment Act 1936.... 128
705‑315. Errors that attract special adjustment action..................................... 128
705‑320. Tax cost setting amounts taken to be correct................................... 129
Division 707—Losses for head companies when entities become members etc. 131
Subdivision 707‑A—Transfer of previously unutilised losses to head company 131
Guide to Subdivision 707‑A 131
707‑100. What this Subdivision is about........................................................ 131
707‑105. Who can utilise the loss?................................................................. 132
Objects 133
707‑110. Objects of this Subdivision............................................................. 133
707‑115. What losses this Subdivision applies to.......................................... 133
Transfer of loss from joining entity to head company 134
707‑120. Transfer of loss from joining entity to head company..................... 134
707‑125. Modified same business test for companies’ post‑1999 losses....... 135
707‑130. Modified pattern of distributions test.............................................. 137
707‑135. Transferring loss transferred to joining entity because same business test was passed 138
Effect of transfer of loss 138
707‑140. Effect of transfer of loss.................................................................. 138
Cancelling the transfer of the loss 139
707‑145. Cancelling the transfer of the loss................................................... 139
What happens if the loss is not transferred? 139
707‑150. Loss cannot be utilised for income year ending after the joining time 139
Subdivision 707‑B—Can a transferred loss be utilised? 140
Guide to Subdivision 707‑B 140
707‑200. What this Subdivision is about........................................................ 140
Operative provisions 140
707‑205. Modified period for test for maintaining same ownership............... 140
707‑210. Utilisation of certain losses transferred from a company depends on company that made the losses earlier 141
Subdivision 707‑C—Amount of transferred losses that can be utilised 143
Guide to Subdivision 707‑C 143
707‑300. What this Subdivision is about........................................................ 143
Object 144
707‑305. Object of this Subdivision............................................................... 144
How much of a transferred loss can be utilised? 145
707‑310. How much of a transferred loss can be utilised?............................. 145
707‑315. What is a bundle of losses?............................................................. 148
707‑320. What is the available fraction for a bundle of losses?..................... 149
707‑325. Modified market value of an entity becoming a member of a consolidated group [see Note 8] 151
707‑330. Losses transferred from former head company............................... 153
707‑335. Limit on utilising transferred losses if circumstances change during income year 154
707‑340. Utilising transferred losses while exempt income remains.............. 155
707‑345. Other provisions are subject to this Subdivision............................. 157
Subdivision 707‑D—Special rules about losses 157
707‑400. Head company’s business before and after consolidation not compared 157
707‑410. Exit history rule does not treat entity as having made a loss............ 157
707‑415. Application of losses with nil available fraction for certain purposes 158
Division 709—Other rules applying when entities become subsidiary members etc. 162
Subdivision 709‑A—Franking accounts 162
Guide to Subdivision 709‑A 162
709‑50... What this Subdivision is about........................................................ 162
709‑55... Object of this Subdivision............................................................... 163
Treatment of franking accounts at joining time 164
709‑60... Nil balance franking account for joining entity................................ 164
Treatment of subsidiary member’s franking account 164
709‑65... Subsidiary member’s franking account does not operate................ 164
Treatment of head company’s franking account 165
709‑70... Credits arising in head company’s franking account....................... 165
709‑75... Debits arising in head company’s franking account........................ 165
Franking distributions by subsidiary member 166
709‑80... Subsidiary member’s distributions on employee shares and certain preference shares taken to be distributions by the head company................................................................................. 166
709‑85... Non‑share distributions by subsidiary members taken to be distributions by head company 166
709‑90... Subsidiary member’s distributions to foreign resident taken to be distributions by head company 167
Payment of group liability by former subsidiary member 167
709‑95... Payment of group liability by former subsidiary member............... 167
709‑100. Refund of income tax to former subsidiary member....................... 168
Subdivision 709‑B—Imputation issues 169
Guide to Subdivision 709‑B 169
709‑150. What this Subdivision is about........................................................ 169
Operative provisions 169
709‑155. Testing consolidated groups............................................................ 169
709‑160. Subsidiary member is exempting entity........................................... 170
709‑165. Subsidiary member is former exempting entity............................... 171
709‑170. Head company and subsidiary are exempting entities..................... 172
709‑175. Head company is former exempting entity...................................... 172
Subdivision 709‑C—Treatment of excess franking deficit tax offsets when entity becomes a subsidiary member of a consolidated group 175
Guide to Subdivision 709‑C 175
709‑180. What this Subdivision is about........................................................ 175
709‑185. Joining entity’s excess franking deficit tax offsets transferred to head company 175
709‑190. Exit history rule not to treat leaving entity as having a franking deficit tax offset excess 176
Subdivision 709‑D—Deducting bad debts 177
Guide to Subdivision 709‑D 177
709‑200. What this Subdivision is about........................................................ 177
Application and object 177
709‑205. Application of this Subdivision....................................................... 177
709‑210. Object of this Subdivision............................................................... 179
Limit on deduction of bad debt 179
709‑215. Limit on deduction of bad debt........................................................ 179
Extension of Subdivision to debt/equity swap loss 183
709‑220. Limit on deduction of swap loss..................................................... 183
Division 711—Tax cost setting amount for membership interests where entities cease to be subsidiary members of consolidated groups 185
Guide to Division 711 185
711‑1..... What this Division is about............................................................. 185
Application and object of this Division 186
711‑5..... Application and object of this Division........................................... 186
Tax cost setting amount for membership interests etc. 187
711‑10... Tax cost setting amount worked out under this Division................ 187
711‑15... Tax cost setting amount where no multiple exit............................... 187
711‑20... What is the old group’s allocable cost amount for the leaving entity? 188
711‑25... Terminating values of the leaving entity’s assets—step 1 in working out allocable cost amount 190
711‑30... What is the head company’s terminating value for an asset?.......... 191
711‑35... If head company becomes entitled to certain deductions—step 2 in working out allocable cost amount 192
711‑40... Liabilities owed to the leaving entity by members of the old group—step 3 in working out allocable cost amount 192
711‑45... Liabilities etc. owed by the leaving entity—step 4 in working out allocable cost amount 193
711‑55... Tax cost setting amount for membership interests where multiple exit 197
711‑65... Membership interests treated as having been acquired before 20 September 1985 199
711‑70... Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711‑65—application of Division 149 to head company...... 201
711‑75... Additional integrity rule if membership interests treated as having been acquired before 20 September 1985 under section 711‑65—application of CGT event K6............................... 202
Division 713—Rules for particular kinds of entities 204
Subdivision 713‑A—Trusts 204
Working out a joined group’s allocable cost amount for a joining trust 204
713‑20... Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests........................................................................................................ 204
713‑25... Undistributed, realised profits that accrue to joined group before joining time and could be distributed tax free—step 3 in working out allocable cost amount.................................................. 208
Determining destination of distribution by non‑fixed trust 209
713‑50... Factors to consider.......................................................................... 209
Subdivision 713‑C—Some unit trusts treated like head companies of consolidated groups 209
Guide to Subdivision 713‑C 209
713‑120. What this Subdivision is about........................................................ 209
Object of this Subdivision 210
713‑125. Object of this Subdivision............................................................... 210
Choice to form a consolidated group 211
713‑130. Choosing to form a consolidated group.......................................... 211
Effects of choice 211
713‑135. Effects of choice.............................................................................. 211
713‑140. Modifications of the applied law..................................................... 213
Subdivision 713‑E—Partnerships 215
Guide to Subdivision 713‑E 215
713‑200. What this Subdivision is about........................................................ 215
Objects 216
713‑205. Objects of this Subdivision............................................................. 216
Partnership cost setting interests etc. 217
713‑210. Partnership cost setting interests..................................................... 217
713‑215. Terminating value for partnership cost setting interest.................... 218
Setting tax cost of partnership cost setting interests 218
713‑220. Set tax cost of partnership cost setting interests if partner joins consolidated group 218
713‑225. Tax cost setting amount for partnership cost setting interest........... 219
Special rules where partnership joins consolidated group 221
713‑235. Partnership joins group—set tax cost of partnership assets............ 221
713‑240. Partnership joins group—tax cost setting amount for partnership asset 222
Special rules where partnership leaves consolidated group 223
713‑250. Partnership leaves group—standard provisions modified............... 223
713‑255. Partnership leaves group—tax cost setting amount for partnership cost setting interests 224
713‑260. Partnership leaves group—tax cost setting amount for assets consisting of being owed certain liabilities 225
713‑265. Partnership leaves group—adjustments to leaving partner’s allocable cost amount 226
Subdivision 713‑L—Life insurance companies 227
Guide to Subdivision 713‑L 227
713‑500. What this Subdivision is about........................................................ 227
General modifications for life insurance companies 228
713‑505. Head company treated as a life insurance company......................... 228
713‑510. Certain subsidiaries of life insurance companies cannot be members of consolidated group 229
713‑510ADisregard single entity rule in working out certain amounts
in respect of life insurance company............................................... 230
Life insurance companies’ liabilities on joining consolidated group 231
713‑511. Treatment of certain liabilities for income year when life insurance company joins consolidated group 231
Tax cost setting rules for life insurance companies joining consolidated group 232
713‑515. Certain assets taken to be retained cost base assets where life insurance company joins group 232
713‑520. Valuing certain liabilities where life insurance company joins group 233
713‑525. Obligation to value certain assets and liabilities at joining time....... 234
Losses of life insurance companies joining consolidated group 234
713‑530. Treatment of certain losses of life insurance company.................... 234
Losses of life insurance companies’ subsidiaries joining consolidated group 235
713‑535. Losses of entities whose membership interests are complying superannuation/FHSA assets of life insurance company........................................................................................................ 235
713‑540. Losses of entities whose membership interests are segregated exempt assets of life insurance company 236
Imputation rules for life insurance companies joining consolidated group 237
713‑545. Treatment of franking surplus in franking account of life insurance subsidiary joining group 237
713‑550. Treatment of head company’s franking account after joining.......... 238
Liabilities for life insurance companies leaving consolidated group 239
713‑565. Treatment of certain liabilities for income year when life insurance company leaves consolidated group 239
Losses for life insurance companies leaving consolidated group 240
713‑570. Certain losses transferred to leaving company................................ 240
Tax cost setting rules for life insurance companies leaving consolidated group 241
713‑575. Terminating value of certain assets where life insurance company leaves group 241
713‑580. Valuing certain liabilities where life insurance company leaves group 242
713‑585. Obligation to value certain assets and liabilities at leaving time....... 243
Subdivision 713‑M—General insurance companies 243
Guide to Subdivision 713‑M 243
713‑700. What this Subdivision is about........................................................ 243
Tax cost setting rules for general insurance companies joining consolidated group 244
713‑705. Certain assets taken to be retained cost base assets where general insurance company joins group 244
Liabilities and reserves of general insurance companies joining and leaving consolidated groups 244
713‑710. Treatment of liabilities and reserves for income year when general insurance company joins or leaves group 244
713‑715. If general insurance company joins consolidated group.................. 245
713‑720. If general insurance company leaves consolidated group................ 246
713‑725. Treatment of certain assets and liabilities of general insurance companies 247
Division 715—Interactions between this Part and other areas of the income tax law 248
Subdivision 715‑A—Treatment of unrealised losses existing when ownership or control of a company changes before or during consolidation 249
715‑15... Object of this Subdivision............................................................... 250
Effect on Subdivision 165‑CC of a company becoming a member of a consolidated group 251
715‑25... Subdivision 165‑CC stops applying to earlier changeover time...... 251
715‑30... Meaning of 165‑CC tagged asset................................................... 252
715‑35... Meaning of final RUNL.................................................................. 252
165‑CC tagged assets that affect tax cost setting amounts 253
715‑50... Step 1 amount is reduced if membership interest in subsidiary member is 165‑CC tagged asset and same business test is failed............................................................................................... 253
715‑55... Step 2 amount is affected if liability of subsidiary member is 165‑CC tagged asset of another group member and same business test is failed....................................................................... 254
165‑CC tagged assets that form loss denial pools of head company when consolidated group is formed 256
715‑60... Assets that the head company already owns................................... 256
715‑70... Assets of subsidiary member that become those of head company. 257
How Subdivision 165‑CC applies to consolidated groups 259
715‑75... Extension of single entity rule and entry history rule...................... 259
Effect on Subdivision 165‑CC of entity leaving consolidated group 259
715‑80... Application of sections 715‑85 to 715‑110..................................... 259
715‑85... First changeover time for leaving company at or after leaving time. 259
715‑90... How same business test applies if leaving time is changeover time for leaving company 260
715‑95... If ownership and control of leaving entity have not changed since head company’s last changeover time 260
715‑100. First choice: adjustable values of leaving assets reduced to nil........ 261
715‑105. Second choice: head company’s final RUNL applied in reducing adjustable values of leaving assets that are loss assets........................................................................................................ 261
715‑110. Third choice: loss denial pool of leaving entity created................... 262
Effect of assets in loss denial pool of head company becoming assets of leaving entity 263
715‑120. What happens.................................................................................. 263
715‑125. First choice: adjustable values of leaving assets reduced to nil........ 264
715‑130. Second choice: pool’s loss denial balance applied in reducing adjustable values of leaving assets that are loss assets........................................................................................................ 264
715‑135. Third choice: loss denial pool of leaving entity created................... 265
Effect of first and second choices on various kinds of assets 266
715‑145. Effect of choice on adjustable value of leaving asset....................... 266
General provisions about loss denial pools 267
715‑155. When asset leaves pool................................................................... 267
715‑160. How loss denial balance is applied to losses realised on assets in pool 267
715‑165. When pool ceases to exist............................................................... 268
Choices under this Subdivision 268
715‑175. When choice must be made............................................................. 268
715‑180. Head company to notify leaving entity of choice............................. 269
715‑185. Leaving entity may choose to cancel loss denial pool by reducing adjustable values of assets in the pool 269
Subdivision 715‑B—How Subdivision 165‑CD applies to consolidated groups and leaving entities 270
How Subdivision 165‑CD applies to consolidated groups 270
715‑215. Extension of single entity rule and entry history rule...................... 270
715‑225. Working out adjusted unrealised loss using individual asset method 271
715‑230. No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H 272
How Subdivision 165‑CD applies to leaving entity that is a company 272
715‑240. Application of sections 715‑245 to 715‑260................................... 272
715‑245. If ownership or control of leaving entity has altered since head company’s last alteration time or formation of group........................................................................................................ 273
715‑250. If head company has had an alteration time but ownership and control of leaving entity have not altered since 274
715‑255. Consequences if leaving entity is a loss company at the leaving time 275
715‑260. If neither of sections 715‑245 and 715‑250 applies........................ 276
715‑265. Head company does not have relevant equity or debt interest in a loss company if widely held top company does not have such an interest....................................................................... 277
How Subdivision 165‑CD applies to leaving entity that is a trust 278
715‑270. Subdivision 165‑CD applies........................................................... 278
Subdivision 715‑C—Common rules for the purposes of Subdivisions 715‑A and 715‑B 280
715‑290. Additional assumptions to be made when using reference time...... 280
Subdivision 715‑D—Treatment of company’s deferred losses under Subdivision 170‑D on joining a consolidated group 280
Key terminology 281
715‑310. What is a 170‑D deferred loss, and when it revives........................ 281
Deferred loss on 165‑CC tagged asset 281
715‑355. Head company’s own deferred losses at formation time................. 281
715‑360. Deferred losses brought in by subsidiary member.......................... 282
715‑365. How loss denial balance is applied when 170‑D deferred loss revives 283
Subdivision 715‑E—Interactions with Division 775 (Foreign currency gains and losses) 284
715‑370. Cost setting—reference time for determining currency exchange rate effect 284
Subdivision 715‑F—Interactions with Division 230 (financial arrangements) 285
715‑375. Cost setting—amount of liability that is Division 230 financial arrangement 285
715‑380. Exit history rule not to affect certain matters related to Division 230 financial arrangements 286
715‑385. Exit history rule and elective methods applying to Division 230 financial arrangements 287
Subdivision 715‑G—How value shifting rules apply to a consolidated group 287
715‑410. Extension of single entity rule and entry history rule...................... 287
715‑450. No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H 288
Subdivision 715‑H—Cancelling loss on realisation event for direct or indirect interest in a member of a consolidated group 289
715‑610. Cancellation of loss......................................................................... 289
715‑615. Exception for interests in entity leaving consolidated group............ 290
715‑620. Exception if loss attributable to certain matters................................ 291
Subdivision 715‑J—Entry history rule and choices 292
Head company’s choice overriding entry history rule 292
715‑660. Head company’s choice overriding entry history rule..................... 292
Choices head company can make ignoring entry history rule to override inconsistencies 295
715‑665. Head company’s choice to override inconsistency.......................... 295
Choices with ongoing effect 299
715‑670. Ongoing effect of choices made by entities before joining group.... 299
715‑675. Head company adopting choice with ongoing effect....................... 300
Subdivision 715‑K—Exit history rule and choices 300
Choices leaving entity can make ignoring exit history rule 301
715‑700. Choices leaving entity can make ignoring exit history rule.............. 301
Choices leaving entity can make ignoring exit history rule to overcome inconsistencies 303
715‑705. Choices leaving entity can make ignoring exit history rule to overcome inconsistencies 303
Subdivision 715‑U—Effect on conduit foreign income 306
715‑875. Extension of single entity rule and entry history rule...................... 306
715‑880. No CFI for leaving entity................................................................ 306
Subdivision 715‑V—Entity ceasing to be exempt from income tax on becoming subsidiary member of consolidated group 306
715‑900. Transition time taken to be just before joining time......................... 306
Subdivision 715‑W—Effect on arrangements where CGT roll‑overs are obtained 307
715‑910. Effect on restructures—original entity becomes a subsidiary member 307
715‑915. Effect on restructures—original entity is a head company............... 308
715‑920. Effect on restructures—original entity is a head company that becomes a subsidiary member of another group 308
715‑925. Effect on restructures—original entity ceases being a subsidiary member 310
Division 716—Miscellaneous special rules 311
Subdivision 716‑A—Assessable income and deductions spread over several membership or non‑membership periods 311
Guide to Subdivision 716‑A 311
716‑1..... What this Division is about............................................................. 311
716‑15... Assessable income spread over 2 or more income years................. 312
716‑25... Deductions spread over 2 or more income years............................. 314
716‑70... Capital expenditure that is fully deductible in one income year....... 316
Assessable income and deductions arising from share of net income of a partnership or trust, or from share of partnership loss 318
716‑75... Application...................................................................................... 318
716‑80... Head company’s assessable income and deductions....................... 319
716‑85... Entity’s assessable income and deductions for a non‑membership period 320
716‑90... Entity’s share of assessable income or deductions of partnership or trust 321
716‑95... Special rule if not all partnership or trust’s assessable income or deductions taken into account in working out amount........................................................................................................ 322
716‑100. Spreading period............................................................................. 322
Subdivision 716‑E—Tax cost setting for exploration and prospecting assets 323
716‑300. Prime cost method of working out decline in value......................... 323
Subdivision 716‑G—Low‑value and software development pools 324
Assets in joining entity’s low‑value pool 324
716‑330. Head company’s deductions for decline in value of assets in joining entity’s low‑value pool 324
Entity leaving group with asset allocated to head company’s low‑value pool 327
716‑335. Entity leaving group with asset allocated to head company’s low‑value pool 327
Depreciating assets arising from expenditure in joining entity’s software development pool 329
716‑340. Depreciating assets arising from expenditure in joining entity’s software development pool 329
Software development pools if entity leaves consolidated group 332
716‑345. Head company taken not to have incurred expenditure................... 332
Subdivision 716‑S—Miscellenous consequences of tax cost setting 332
716‑400. Tax cost setting and bad debts......................................................... 332
716‑405. Tax cost setting and rights to future income—deduction................. 334
716‑410. Rights to amounts that are expected to be included in assessable income after joining time 336
Subdivision 716‑V—Research and Development 336
716‑500. Head company bound by agreements binding on subsidiary members 336
716‑505. History for entitlement to tax offset: joining entity.......................... 337
716‑510. History for entitlement to tax offset: leaving entity.......................... 337
Subdivision 716‑Z—Other 338
716‑800. Allocating amounts to periods if head company and subsidiary member have different income years 338
716‑850. Grossing up threshold amounts for periods of less than 365 days.. 339
716‑855. Working out the cost base or reduced cost base of a pre‑CGT asset after certain roll‑overs 339
716‑860. CGT event straddling joining or leaving time.................................. 340
Division 717—International tax rules 342
Subdivision 717‑A—Foreign income tax offsets 342
717‑1..... What this Subdivision is about........................................................ 342
Object 342
717‑5..... Object of this Subdivision............................................................... 342
Foreign income tax on amounts in head company’s assessable income 343
717‑10... Head company taken to be liable for subsidiary member’s foreign income tax 343
Subdivision 717‑D—Transfer of certain surpluses under CFC provisions and former FIF and FLP provisions: entry rules 343
Guide to Subdivision 717‑D 343
717‑200. What this Subdivision is about........................................................ 343
Object 344
717‑205. Object of this Subdivision............................................................... 344
Transfers 344
717‑210. Attribution surpluses....................................................................... 344
717‑220. FIF surpluses.................................................................................. 345
717‑227. Deferred attribution credits.............................................................. 346
Subdivision 717‑E—Transfer of certain surpluses under CFC provisions and former FIF and FLP provisions: exit rules 347
Guide to Subdivision 717‑E 347
717‑235. What this Subdivision is about........................................................ 347
Object 347
717‑240. Object of this Subdivision............................................................... 347
Transfers 348
717‑245. Attribution surpluses....................................................................... 348
717‑255. FIF surpluses.................................................................................. 349
717‑262. Deferred attribution credits.............................................................. 350
Subdivision 717‑O—Offshore banking units 351
Guide to Subdivision 717‑O 351
717‑700. What this Subdivision is about........................................................ 351
717‑705. Object of this Subdivision............................................................... 352
717‑710. Head company treated as OBU....................................................... 352
Division 719—MEC groups 353
Subdivision 719‑A—Modified application of Part 3‑90 to MEC groups 353
719‑2..... Modified application of Part 3‑90 to MEC groups.......................... 353
Subdivision 719‑B—MEC groups and their members 353
719‑4..... What this Subdivision is about........................................................ 353
719‑5..... What is a MEC group?.................................................................... 355
719‑10... What is a potential MEC group?..................................................... 358
719‑15... What is an eligible tier‑1 company?................................................ 361
719‑20... What is a top company and a tier‑1 company?................................ 362
719‑25... Head company, subsidiary members and members of a MEC group 364
719‑30... Treating entities as wholly‑owned subsidiaries by disregarding employee shares 364
719‑35... Treating entities held through non‑fixed trusts as wholly‑owned subsidiaries 365
719‑40... Special conversion event—potential MEC group............................ 365
719‑45... Application of sections 703‑20 and 703‑25.................................... 366
Choice to consolidate a potential MEC group 367
719‑50... Eligible tier‑1 companies may choose to consolidate a potential MEC group 367
719‑55... When choice starts to have effect.................................................... 369
Provisional head company 369
719‑60... Appointment of provisional head company..................................... 369
719‑65... Qualifications for the provisional head company of a MEC group. 370
719‑70... Income year of new provisional head company to be the same as that of former provisional head company 371
Head company 372
719‑75... Head company................................................................................ 372
Notice of events affecting group 373
719‑76... Notice of choice to consolidate........................................................ 373
719‑77... Notice in relation to new eligible tier‑1 members etc....................... 374
719‑78... Notice of special conversion event.................................................. 375
719‑79... Notice of appointment of provisional head company after formation of group 376
719‑80... Notice of events affecting MEC group............................................ 377
Effects of change of head company 378
719‑85... Application...................................................................................... 378
719‑90... New head company treated as substituted for old head company at all times before the transition time 378
719‑95... No consequences of old head company becoming, and new head company ceasing to be, subsidiary member of the group............................................................................................... 379
Subdivision 719‑BA—Group conversions involving MEC groups 380
719‑120. Application...................................................................................... 380
719‑125. Head company of new group retains history of head company of old group 381
719‑130. Provisions of this Part not to apply to conversion........................... 382
719‑135. Provisions of this Part applying to conversion despite section 719‑130.. 383
719‑140. Other provisions of this Part not applying to conversion................ 383
Subdivision 719‑C—MEC group cost setting rules: joining cases 384
Guide to Subdivision 719‑C 384
719‑150. What this Subdivision is about........................................................ 384
Application and object 384
719‑155. Object of this Subdivision............................................................... 384
Modified application of tax cost setting rules for joining 385
719‑160. Tax cost setting rules for joining have effect with modifications..... 385
719‑165. Trading stock value not set for assets of eligible tier‑1 companies.. 386
719‑170. Modified effect of subsections 705‑175(1) and 705‑185(1)........... 386
Subdivision 719‑F—Losses 387
Guide to Subdivision 719‑F 387
719‑250. What this Subdivision is about........................................................ 387
Maintaining the same ownership to be able to utilise loss 388
719‑255. Special rules.................................................................................... 388
719‑260. Special test for utilising a loss because a company maintains the same owners 389
719‑265. What is the test company?............................................................... 390
719‑270. Assumptions about the test company having made the loss for an income year 394
719‑275. Assumptions about nothing happening to affect direct and indirect ownership of the test company 396
719‑280. Assumptions about the test company failing to meet the conditions in section 165‑12 398
Same business test and change of head company 399
719‑285. Same business test and change of head company............................ 399
Bundles of losses and their available fractions 400
719‑300. Application...................................................................................... 400
719‑305. Subdivision 707‑C affects utilisation of losses made by ongoing head company while it was head company 401
719‑310. Adjustment of available fractions for bundles of losses previously transferred to ongoing head company 402
719‑315. Further adjustment of available fractions for all bundles................. 402
719‑320. Limit on utilising losses other than the prior group losses.............. 403
719‑325. Cancellation of all losses in a bundle............................................... 404
Subdivision 719‑H—Imputation issues 405
719‑425. Guide to Subdivision 719‑H........................................................... 405
Operative provisions 405
719‑430. Transfer of franking account balance on cessation event................. 405
719‑435. Distributions by subsidiary members of MEC group taken to be distributions by head company 406
Subdivision 719‑I—Bad debts 406
Guide to Subdivision 719‑I 406
719‑450. What this Subdivision is about........................................................ 406
Maintaining the same ownership to be able to deduct bad debt 407
719‑455. Special test for deducting a bad debt because a company maintains the same owners 407
719‑460. Assumptions about nothing happening to affect direct and indirect ownership of the test company 409
719‑465. Assumptions about the test company failing to meet the conditions in section 165‑123 409
Subdivision 719‑J—MEC group cost setting rules: leaving cases 410
Guide to Subdivision 719‑J 410
719‑500. What this Subdivision is about........................................................ 410
719‑505. Application and object of this Subdivision...................................... 411
719‑510. Modified operation of paragraphs 711‑15(1)(b) and (c)................. 411
Subdivision 719‑K—MEC group cost setting rules: pooling cases 412
Guide to Subdivision 719‑K 412
719‑550. What this Subdivision is about........................................................ 412
719‑555. Application and object of this Subdivision...................................... 412
719‑560. Pooled interests............................................................................... 413
719‑565. Setting cost of reset interests........................................................... 413
719‑570. Cost setting amount......................................................................... 414
Subdivision 719‑T—Interactions between this Part and other areas of the income tax law: special rules for MEC groups 415
How Subdivision 165‑CC applies to MEC groups 416
719‑700. Changeover times under section 165‑115C or 165‑115D............... 416
719‑705. Additional changeover times for head company of MEC group..... 417
How Subdivision 165‑CD applies to MEC groups 418
719‑720. Alteration times under section 165‑115L or 165‑115M.................. 418
719‑725. Additional alteration times for head company of MEC group......... 419
719‑730. Some alteration times only affect interests in top company............. 420
719‑735. Some alteration times affect only pooled interests........................... 420
719‑740. Head company does not have relevant equity or debt interest in a loss company if widely held top company does not have such an interest....................................................................... 421
How indirect value shifting rules apply to a MEC group 421
719‑755. Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift 421
Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group 422
719‑775. Cancellation of loss......................................................................... 422
719‑780. Exception for pooled interests in eligible tier‑1 companies.............. 423
719‑785. Exception for interests in top company........................................... 424
719‑790. Exception for interests in entity leaving MEC group....................... 424
719‑795. Exception if loss attributable to certain matters................................ 425
Division 721—Liability for payment of tax where head company fails to pay on time 426
Guide to Division 721 426
721‑1..... What this Division is about............................................................. 426
Object 427
721‑5..... Object of this Division.................................................................... 427
When this Division operates 427
721‑10... When this Division operates........................................................... 427
Joint and several liability of contributing member 430
721‑15... Head company and contributing members jointly and severally liable to pay group liability 430
721‑17... Notice of joint and several liability for general interest charge........ 432
721‑20... Limit on liability where group first comes into existence................ 432
Tax sharing agreements 433
721‑25... When a group liability is covered by a tax sharing agreement......... 433
721‑30... TSA contributing members liable for contribution amounts............ 434
721‑32... Notice of general interest charge liability under TSA...................... 435
721‑35... When a TSA contributing member has left the group clear of the group liability 436
721‑40... TSA liability and group liability are linked...................................... 436
Part 3‑95—Value shifting 438
Division 723—Direct value shifting by creating right over non‑depreciating asset 438
Subdivision 723‑A—Reduction in loss from realising non‑depreciating asset 438
723‑1..... Object.............................................................................................. 438
723‑10... Reduction in loss from realising non‑depreciating asset over which right has been created 439
723‑15... Reduction in loss from realising non‑depreciating asset at the same time as right is created over it 441
723‑20... Exceptions....................................................................................... 442
723‑25... Realisation event that is only a partial realisation............................. 443
723‑35... Multiple rights created to take advantage of the $50,000 threshold. 443
723‑40... Application to CGT asset that is also trading stock or revenue asset 444
723‑50... Effects if right created over underlying asset is also trading stock or a revenue asset 444
Subdivision 723‑B—Reducing reduced cost base of interests in entity that acquires non‑depreciating asset under roll‑over 445
723‑105. Reduced cost base of interest reduced when interest realised at a loss 445
723‑110. Direct and indirect roll‑over replacement for underlying asset........ 446
Division 725—Direct value shifting affecting interests in companies and trusts 448
Guide to Division 725 448
725‑1..... What this Division is about............................................................. 448
Subdivision 725‑A—Scope of the direct value shifting rules 449
725‑45... Main object..................................................................................... 449
725‑50... When a direct value shift has consequences under this Division..... 450
725‑55... Controlling entity test...................................................................... 450
725‑65... Cause of the value shift................................................................... 450
725‑70... Consequences for down interest only if there is a material decrease in its market value 451
725‑80... Who is an affected owner of a down interest?................................. 452
725‑85... Who is an affected owner of an up interest?.................................... 452
725‑90... Direct value shift that will be reversed............................................ 453
725‑95... Direct value shift resulting from reversal........................................ 453
Subdivision 725‑B—What is a direct value shift 454
725‑145. When there is a direct value shift..................................................... 454
725‑150. Issue of equity or loan interests at a discount.................................. 455
725‑155. Meaning of down interests, decrease time, up interests and increase time 456
725‑160. What is the nature of a direct value shift?........................................ 457
725‑165. If market value decrease or increase is only partly attributable to the scheme 457
Subdivision 725‑C—Consequences of a direct value shift 457
725‑205. Consequences depend on character of down interests and up interests 458
725‑210. Consequences for down interests depend on pre‑shift gains and losses.. 458
Special cases 459
725‑220. Neutral direct value shifts................................................................ 459
725‑225. Issue of bonus shares or units......................................................... 459
725‑230. Off‑market buy‑backs..................................................................... 461
Subdivision 725‑D—Consequences for down interest or up interest as CGT asset 461
725‑240. CGT consequences; meaning of adjustable value........................... 462
725‑245. Table of taxing events generating a gain for interests as CGT assets 463
725‑250. Table of consequences for adjustable values of interests as CGT assets 464
725‑255. Multiple CGT consequences for the same down interest or up interest 467
Subdivision 725‑E—Consequences for down interest or up interest as trading stock or a revenue asset 467
725‑310. Consequences for down interest or up interest as trading stock...... 467
725‑315. Adjustable value of trading stock.................................................... 469
725‑320. Consequences for down interest or up interest as a revenue asset... 469
725‑325. Adjustable value of revenue asset.................................................... 471
725‑335. How to work out those consequences............................................. 471
725‑340. Multiple trading stock or revenue asset consequences for the same down interest or up interest 474
Subdivision 725‑F—Value adjustments and taxed gains 475
725‑365. Decreases in adjustable values of down interests (with pre‑shift gains), and taxing events generating a gain 475
725‑370. Uplifts in adjustable values of up interests under certain table items 477
725‑375. Uplifts in adjustable values of up interests under other table items. 478
725‑380. Decreases in adjustable value of down interests (with pre‑shift losses) 480
Division 727—Indirect value shifting affecting interests in companies and trusts, and arising from non‑arm’s length dealings 482
Guide to Division 727 482
727‑1..... What this Division is about............................................................. 482
727‑5..... What is an indirect value shift?........................................................ 483
727‑10... How does this Division deal with indirect value shifts?.................. 485
727‑15... When does an indirect value shift have consequences under this Division? 485
727‑25... Effect of this Division on realisations at a loss that occur before the nature or extent of an indirect value shift can be fully determined....................................................................................... 486
Subdivision 727‑A—Scope of the indirect value shifting rules 486
727‑95... Main object..................................................................................... 486
727‑100. When an indirect value shift has consequences under this Division 487
727‑105. Ultimate controller test.................................................................... 488
727‑110. Common‑ownership nexus test (if both losing and gaining entities are closely held) 488
727‑125. No consequences if losing entity is a superannuation entity............ 489
Subdivision 727‑B—What is an indirect value shift 489
727‑150. How to determine whether a scheme results in an indirect value shift 489
727‑155. Providing economic benefits........................................................... 491
727‑160. When an economic benefit is provided in connection with a scheme 492
727‑165. Preventing double‑counting of economic benefits........................... 492
Subdivision 727‑C—Exclusions 493
Guide to Subdivision 727‑C 493
727‑200. What this Subdivision is about........................................................ 493
727‑215. Amount does not exceed $50,000................................................... 494
727‑220. Disposal of asset at cost, or at undervalue if full value is not reflected in adjustable values of equity or loan interests in the losing entity............................................................................... 494
Indirect value shifts involving services 495
727‑230. Services provided by losing entity to gaining entity for at least their direct cost 495
727‑235. Services provided by gaining entity to losing entity for no more than a commercially realistic price 496
727‑240. What services certain provisions apply to....................................... 497
727‑245. How to work out certain amounts for the purposes of sections 727‑230 and 727‑235 498
Anti‑overlap provisions 499
727‑250. Distribution by an entity to a member or beneficiary....................... 499
727‑260. Shift down a wholly‑owned chain of entities.................................. 500
Subdivision 727‑D—Working out the market value of economic benefits 501
727‑300. What the rules in this Subdivision are for....................................... 501
727‑315. Transfer, for its adjustable value, of depreciating asset acquired for less than $1,500,000 501
Subdivision 727‑E—Key concepts 502
Ultimate controller 503
727‑350. Ultimate controller.......................................................................... 503
727‑355. Control (for value shifting purposes) of a company....................... 503
727‑360. Control (for value shifting purposes) of a fixed trust...................... 504
727‑365. Control (for value shifting purposes) of a non‑fixed trust.............. 505
727‑370. Preventing double counting for percentage stake tests.................... 506
727‑375. Tests in this Subdivision are exhaustive.......................................... 506
Common‑ownership nexus and ultimate stake of a particular percentage 506
727‑400. When 2 entities have a common‑ownership nexus within a period. 506
727‑405. Ultimate stake of a particular percentage in a company................... 508
727‑410. Ultimate stake of a particular percentage in a fixed trust................. 509
727‑415. Rules for tracing.............................................................................. 510
Subdivision 727‑F—Consequences of an indirect value shift 511
Guide to Subdivision 727‑F 511
727‑450. What this Subdivision is about........................................................ 511
Operative provisions 512
727‑455. Consequences of the indirect value shift......................................... 512
Affected interests 512
727‑460. Affected interests in the losing entity............................................... 512
727‑465. Affected interests in the gaining entity............................................. 513
727‑470. Exceptions....................................................................................... 513
727‑520. Equity or loan interest and related terms......................................... 514
727‑525. Indirect equity or loan interest........................................................ 515
Affected owners 515
727‑530. Who are the affected owners........................................................... 515
Choices about method to be used 517
727‑550. Choosing the adjustable value method............................................ 517
727‑555. Giving other affected owners information about the choice............ 519
Subdivision 727‑G—The realisation time method 520
727‑600. What this Subdivision is about........................................................ 520
727‑610. Consequences of indirect value shift............................................... 521
727‑615. Reduction of loss on realisation event for affected interest in losing entity 522
727‑620. Reduction of gain on realisation event for affected interest in gaining entity 523
727‑625. Total gain reductions not to exceed total loss reductions................. 523
727‑630. How cap in section 727‑625 applies if affected interest is also trading stock or a revenue asset 524
727‑635. Splitting an equity or loan interest................................................... 526
727‑640. Merging equity or loan interests...................................................... 526
727‑645. Effect of CGT roll‑over................................................................... 527
Further exclusion for certain 95% services indirect value shifts if realisation time method must be used 528
727‑700. When 95% services indirect value shift is excluded........................ 528
95% services indirect value shifts that are not excluded 529
727‑705. Another provision of the income tax law affects amount related to services by at least $100,000 529
727‑710. Ongoing or recent service arrangement reduces value of losing entity by at least $100,000 530
727‑715. Service arrangements reduce value of losing entity that is a group service provider by at least $500,000 531
727‑720. Abnormal service arrangement reduces value of losing entity that is not a group service provider by at least $500,000........................................................................................................ 533
727‑725. Meaning of predominantly‑services indirect value shift.................. 534
Subdivision 727‑H—The adjustable value method 534
Guide to Subdivision 727‑H 534
727‑750. What this Subdivision is about........................................................ 534
727‑755. Consequences of indirect value shift............................................... 535
Reductions of adjustable value 536
727‑770. Reduction under the adjustable value method.................................. 536
727‑775. Has there been a disaggregated attributable decrease?..................... 537
727‑780. Working out the reduction on a loss‑focussed basis....................... 538
Uplifts of adjustable value 539
727‑800. Uplift under the attributable increase method.................................. 539
727‑805. Has there been a disaggregated attributable increase?...................... 541
727‑810. Scaling‑down formula..................................................................... 542
Consequences of the method for various kinds of assets 543
727‑830. CGT assets...................................................................................... 543
727‑835. Trading stock.................................................................................. 544
727‑840. Revenue assets................................................................................ 545
Subdivision 727‑K—Reduction of loss on equity or loan interests realised before the IVS time 546
727‑850. Consequences of scheme under this Subdivision............................ 547
727‑855. Presumed indirect value shift.......................................................... 548
727‑860. Conditions about the prospective gaining entity.............................. 549
727‑865. How other provisions of this Division apply to support this Subdivision 551
727‑870. Effect of CGT roll‑over................................................................... 553
727‑875. Application to CGT asset that is also trading stock or revenue asset 553
Subdivision 727‑L—Indirect value shift resulting from a direct value shift 553
727‑905. How this Subdivision affects the rest of this Division.................... 554
727‑910. Treatment of value shifted under the direct value shift.................... 555
Part 3‑90—Consolidated groups
Division 700—Guide and objects
700‑1 What this Part is about
700‑5 Overview of this Part
700‑10 Objects of this Part
This Part allows certain groups of entities to be treated as single entities for income tax purposes.
Following a choice to consolidate, subsidiary members are treated as part of the head company of the group rather than as separate income tax identities. The head company inherits their income tax history when they become subsidiary members of the group. On ceasing to be subsidiary members, they take with them an income tax history that recognises that they are different from when they became subsidiary members.
This is supported by rules that:
(a) set the cost for income tax purposes of assets that subsidiary members bring into the group; and
(b) determine the income tax history that is taken into account when entities become, or cease to be, subsidiary members of the group; and
(c) deal with the transfer of tax attributes such as losses and franking credits to the head company when entities become subsidiary members of the group.
(1) The single entity rule determines how the income tax liability of a consolidated group will be ascertained. The basic principle is contained in the Core Rules in Division 701.
(2) Essentially, a consolidated group consists of an Australian resident head company and all of its Australian resident wholly‑owned subsidiaries (which may be companies, trusts or partnerships). Special rules apply to foreign‑owned groups with no single Australian resident head company.
(3) An eligible wholly‑owned group becomes a consolidated group after notice of a choice to consolidate is given to the Commissioner.
(4) This Part also contains rules which set the cost for income tax purposes of assets of entities when they become subsidiary members of a consolidated group and of membership interests in those entities when they cease to be subsidiary members of the group.
(5) Certain tax attributes (such as losses and franking credits) of entities that become subsidiary members of a consolidated group are transferred under this Part to the head company of the group. These tax attributes remain with the group after an entity ceases to be a subsidiary member.
(a) to prevent double taxation of the same economic gain realised by a consolidated group; and
(b) to prevent a double tax benefit being obtained from an economic loss realised by a consolidated group; and
(c) to provide a systematic solution to the prevention of such double taxation and double tax benefits that will:
(i) reduce the cost of complying with this Act; and
(ii) improve business efficiency by removing complexities and promoting simplicity in the taxation of wholly‑owned groups.
Division 701—Core rules
701‑1 Single entity rule
701‑5 Entry history rule
701‑10 Cost to head company of assets of joining entity
701‑15 Cost to head company of membership interests in entity that leaves group
701‑20 Cost to head company of assets consisting of certain liabilities owed by entity that leaves group
701‑25 Tax‑neutral consequence for head company of ceasing to hold assets when entity leaves group
701‑30 Where entity not subsidiary member for whole of income year
701‑35 Tax‑neutral consequence for entity of ceasing to hold assets when it joins group
701‑40 Exit history rule
701‑45 Cost of assets consisting of liabilities owed to entity by members of the group
701‑50 Cost of certain membership interests of which entity becomes holder on leaving group
701‑55 Setting the tax cost of an asset
701‑56 Setting the tax cost of an asset—subsection 701‑55(6)
701‑58 Effect of setting the tax cost of an asset that the head company does not hold under the single entity rule
701‑60 Tax cost setting amount
701‑61 Assets in relation to Division 230 financial arrangement—head company’s assessable income or deduction
701‑65 Net income and losses for trusts and partnerships
701‑70 Adjustments to taxable income where identities of parties to arrangement merge on joining group
701‑75 Adjustments to taxable income where identities of parties to arrangement re‑emerge on leaving group
701‑80 Accelerated depreciation
701‑85 Other exceptions etc. to the rules
701‑90 Valuable right to future income treated as separate asset
(1) If an entity is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes covered by subsections (2) and (3) to be parts of the *head company of the group, rather than separate entities, during that period.
(2) The purposes covered by this subsection (the head company core purposes) are:
(a) working out the amount of the *head company’s liability (if any) for income tax calculated by reference to any income year in which any of the period occurs or any later income year; and
(b) working out the amount of the head company’s loss (if any) of a particular *sort for any such income year.
Note: The single entity rule would affect the head company’s income tax liability calculated by reference to income years after the entity ceased to be a member of the group if, for example, assets that the entity held when it became a subsidiary member remained with the head company after the entity ceased to be a subsidiary member.
(3) The purposes covered by this subsection (the entity core purposes) are:
(a) working out the amount of the entity’s liability (if any) for income tax calculated by reference to any income year in which any of the period occurs or any later income year; and
(b) working out the amount of the entity’s loss (if any) of a particular *sort for any such income year.
Note: An assessment of the entity’s liability calculated by reference to income tax for a period when it was not a subsidiary member of the group may be made, and that tax recovered from it, even while it is a subsidiary member.
What is a sort of loss?
(4) Each of these paragraphs identifies a sort of loss:
(a) *tax loss;
(b) *film loss;
(c) *net capital loss.
This subsection lists all the sorts of loss.
For the head company core purposes in relation to the period after the entity becomes a *subsidiary member of the group, everything that happened in relation to it before it became a subsidiary member is taken to have happened in relation to the *head company.
Note 1: Other provisions of this Part may affect the tax history that is inherited (e.g. asset cost base history is affected by section 701‑10 and tax loss history is affected by Division 707).
Note 3: Section 165‑212E overrides this rule for the purposes of the same business test.
(1) This section has effect for the head company core purposes when the entity becomes a *subsidiary member of the group.
(2) This section applies in relation to each asset that would be an asset of the entity at the time it becomes a *subsidiary member of the group, assuming that subsection 701‑1(1) (the single entity rule) did not apply.
Note: See subsection 705‑35(3) for the treatment of a goodwill asset resulting from the head company’s ownership and control of the joining entity.
(3) The object of this section (and Division 705 which relates to it) is to recognise the cost to the *head company of such assets as an amount reflecting the group’s cost of acquiring the entity.
(4) Each asset’s *tax cost is set at the time the entity becomes a *subsidiary member of the group at the asset’s *tax cost setting amount.
Multiple setting of tax cost for same trading stock
(a) the asset is *trading stock; and
(b) the asset’s *tax cost is set by this section at more than one time (each of which is a setting time) for the same income year;
(a) the *head company’s *terminating value for the asset; or
(b) the *value of the asset at the start of the income year;
is required to be worked out for one or more occasions when an entity (whether or not the same entity) ceases to be a *subsidiary member of the group in the income year, then the amount at which the asset’s *tax cost is set by this section at a particular setting time is only taken into account in working out the head company’s terminating value for a particular occasion if:
(7) If an asset is an excluded asset under subsection 705‑35(2), its *tax cost is not set.
Note: Excluded assets are assets such as entitlements to tax deductions.
(1) If the entity ceases to be a *subsidiary member of the group, this section has effect for the head company core purposes, so far as they relate to the income year in which the entity ceases to be a subsidiary member or any later income year.
Note: This section could have effect, for example, if an entity ceases to be a subsidiary member of the group because:
(2) The object of this section is to preserve the alignment of the *head company’s costs for *membership interests in each entity and its assets by recognising, when an entity ceases to be a *subsidiary member of the group, the cost of those interests as an amount equal to the cost of the entity’s assets at that time reduced by the amount of its liabilities.
Note: The head company’s costs for membership interests in entities was aligned with the costs of their assets when the entities became subsidiary members of the group.
(3) For each *membership interest that the *head company of the group holds in an entity that ceases to be a *subsidiary member, the interest’s *tax cost is set just before the entity ceases to be a subsidiary member at the interest’s *tax cost setting amount.
Note 1: The membership interests would include those that are actually held by subsidiary members of the group, but which are treated as those of the head company under the single entity rule.
Note 2: If the entity is a partnership, Subdivision 713‑E sets the tax cost of interests in partnership assets, rather than membership interests in the partnership.
(2) This section applies in relation to each asset, consisting of a liability owed by the entity, that becomes an asset of the *head company because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity when it ceases to be a *subsidiary member. This is a liability that, ignoring that subsection, is owed to a *member of the group.
(3) The object of this section is to set a cost for the asset to enable income tax consequences for the *head company in respect of the asset to be determined.
(4) The asset’s *tax cost is set at the time the entity ceases to be a *subsidiary member of the group at the asset’s *tax cost setting amount.
Note: If the entity is a partnership, Subdivision 713‑E sets the tax cost of assets consisting of a partner’s share of a liability owed by the partnership to a member of the group.
(2) This section applies in relation to an asset if:
(a) the asset is *trading stock of the *head company; and
(b) the asset becomes an asset of the entity because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity when it ceases to be a *subsidiary member of the group; and
(c) the asset is not again an asset of the head company at or before the end of the income year.
(3) The object of this section is to ensure that there is no income tax consequence for the *head company in respect of the asset.
Note: In the case of assets other than trading stock, the fact that the head company ceases to hold them when the single entity rules ceases to apply to them would not constitute a disposal or other event having tax consequences for the head company.
Setting value of trading stock at tax‑neutral amount
(4) The asset is taken to be *trading stock of the *head company at the end of the income year (but not at the start of the next income year) and its *value at that time is taken to be equal to:
(a) if the asset was trading stock of the head company at the start of the income year (including as a result of its *tax cost being set)—the asset’s value at that time; or
(b) if paragraph (a) does not apply and the asset is *livestock that was acquired by natural increase—the *cost of the asset; or
(c) in any other case—the amount of the outgoing incurred by the head company in connection with the acquisition of the asset;
increased by the amount of any outgoing forming part of the cost of the asset that was incurred by the head company during its current holding of the asset.
Note: As a consequence of fixing the trading stock’s value at the end of the income year under this subsection, no election would be available under section 70‑45 to value the trading stock at that time.
(1) The object of this section is to provide for a method of working out how the entity core rules apply to the entity for periods in the income year when the entity is not part of the group. The method involves treating each period separately with no netting off between them.
When section has effect
(2) This section has effect for the entity core purposes if:
(a) the entity is a *subsidiary member of the group for some but not all of an income year; and
(b) there are one or more periods in the income year (each of which is a non‑membership period) during which the entity is not a subsidiary member of any *consolidated group.
Tax position of each non‑membership period to be worked out
(3) For every non‑membership period, work out the entity’s taxable income (if any) for the period, the income tax (if any) payable on that taxable income and the entity’s loss (if any) (a non‑membership period loss) of each *sort for the period. Work them out:
(b) ignoring the operation of this section in relation to each other non‑membership period (if any); and
(i) allocated to only one of the non‑membership periods or to a period that is all or part of the rest of the income year; or
(ii) apportioned among such periods (for example, by Subdivision 716‑A (see note to this subsection)).
Note: Other provisions of this Part are to be applied in working out the taxable income or loss, for example:
· section 701‑40 (Exit history rule); and
· Subdivision 716‑A (about assessable income and deductions spread over several membership or non‑membership periods); and
· section 716‑850 (about grossing up threshold amounts for periods of less than 365 days).
(3A) For the purposes of working out the entity’s taxable income (if any) for the non‑membership period, determine:
(a) whether the entity can *utilise a loss of any *sort transferred to the entity in the period; and
(b) if the period started at the start of the income year—whether the entity can utilise a loss of any sort:
Note: This means that things that happen in relation to the entity at the time it becomes a subsidiary member of the group are taken into account in determining whether the entity can utilise such a loss to affect its taxable income for the non‑membership period.
(4) The entity’s income tax (if any) for the *financial year concerned is the total of every amount of income tax worked out for the entity under subsection (3).
Taxable income for the income year
(5) The entity’s taxable income for the income year is the total of every amount of taxable income worked out for the entity under subsection (3).
(6) The entity’s income tax worked out under subsection (4) is taken to be payable on the entity’s taxable income for the income year worked out under subsection (5), even if the amount of the tax differs from the amount that would be worked out by reference to that taxable income apart from subsection (5).
Loss for the income year
(7) The entity has a loss of a particular *sort for the income year if and only if it has a non‑membership period loss of that sort for the non‑membership period (if any) ending at the end of the income year. The amount of the loss for the income year is the amount of the non‑membership period loss.
Utilisation and transfer of non‑membership period loss
(8) However, the provisions of this Act relating to transfer or *utilisation of a loss of any *sort have effect in relation to a non‑membership period loss of that sort for any non‑membership period as if the non‑membership period loss were the entity’s loss for an income year that:
(9) Subsection (8) has effect not only for the entity core purposes, but also (despite subsection (2)) for other purposes.
(10) For the purposes of applying section 205‑70 in relation to an income year after the income year (the current income year) to which this section applies, the entity has an excess mentioned in paragraph 205‑70(1)(c) (about excess franking deficit tax offsets) for the current income year only if it has such an excess for the non‑membership period (if any) ending at the end of the current income year. The amount of the excess for the current income year is the amount of the excess for the non‑membership period.
(1) When the entity becomes a *subsidiary member of the group, this section has effect for the entity core purposes.
(2) This section applies in relation to an asset if the asset is *trading stock of the entity just before it becomes a *subsidiary member of the group.
(3) The object of this section is to ensure that there is no income tax consequence for the entity in respect of the asset.
(4) The *value of the *trading stock at the end of the income year that ends, or, if section 701‑30 applies, of the income year that is taken by subsection (3) of that section to end, when the entity becomes a *subsidiary member is taken to be equal to:
(a) if the asset was trading stock of the entity at the start of the income year—the asset’s value at that time; or
(c) in any other case—the amount of the outgoing incurred by the entity in connection with the acquisition of the asset;
(1) If the entity ceases to be a *subsidiary member of the group, this section has effect for the entity core purposes, so far as they relate to any thing covered by subsection (2) (an eligible asset etc.) after it becomes that of the entity because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity.
(b) any liability or other thing that, in accordance with *accounting principles, is a liability;
that becomes that of the entity because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity when it ceases to be a *subsidiary member of the group.
(3) Everything that happened in relation to any eligible asset etc. while it was that of the *head company, including because of any application of section 701‑5 (the entry history rule), is taken to have happened in relation to it as if it had been an eligible asset etc. of the entity.
Note 1: If the eligible asset etc. was brought into the group when an entity became a subsidiary member, section 701‑5 (the entry history rule) would have had the effect that things happening to the eligible asset etc. while it was that of the entity would be taken to have happened as if it was that of the head company. Such things will in turn be taken by this subsection to have happened in relation to the eligible asset etc. as if it were that of the entity that takes the asset out of the group.
Note 2: Other provisions of this Part may affect the tax history that is inherited (e.g. asset cost base history is affected by section 701‑45).
(1) If the entity ceases to be a *subsidiary member of the group, this section has effect for the entity core purposes, so far as they relate to the income year in which the entity ceases to be a subsidiary member or any later income year.
(a) it becomes an asset of the entity because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity when it ceases to be a *subsidiary member of the group; and
(b) the asset consists of a liability owed to the entity by a *member of the group.
(3) The object of this section is to set the cost of the asset to enable income tax consequences for the entity in respect of the asset to be determined.
Note: In the case of other assets, the fact that the entity inherits their history under section 701‑40 when the entity ceases to be a subsidiary member of the group means that the assets would be treated as having the same cost as they would for the head company at that time. However, assets consisting of liabilities do not have such a history because they are only recognised when the entity ceases to be a subsidiary member and the single entity rule ceases to apply.
Setting the asset’s tax cost
Note 1: If section 701‑30 (Where entity not subsidiary member for whole of income year) applies, the time the entity ceases to be a subsidiary member will be treated as the start of an income year.
Note 2: If the entity is a partnership, Subdivision 713‑E sets the tax cost of a partner’s interest in an asset consisting of a liability that a member of the group owes to the partnership.
(a) the entity and one or more other entities cease to be *subsidiary members of the group at the same time because of an event happening in relation to one of them; and
(b) when the entity ceases to be a subsidiary member, it holds an asset consisting of a *membership interest in any of the other entities;
this section has effect for the entity core purposes.
(2) The cost of any *membership interest that one of the entities holds in another is to be treated in the same way as membership interests held by the *head company. In both cases the object is to preserve the alignment of costs for membership interests and assets (that was established when each entity became a *subsidiary member) by recognising the cost of those interests, when it ceases to be a subsidiary member, as an amount equal to the cost of the entity’s assets at that time reduced by the amount of its liabilities.
(3) The asset’s *tax cost is set just before the entity ceases to be a *subsidiary member of the group at the asset’s *tax cost setting amount.
Note: If the asset consists of a membership interest in a partnership, Subdivision 713‑E sets the tax cost of interests in partnership assets, rather than membership interests in the partnership.
(1) This section states the meaning of the expression an asset’s tax cost is set at a particular time at the asset’s *tax cost setting amount.
(2) If any of Subdivisions 40‑A to 40‑D, sections 40‑425 to 40‑445 and Subdivisions 328‑D and 355‑E is to apply in relation to the asset, the expression means that the provisions apply as if:
(a) the asset were *acquired at the particular time for a payment equal to its *tax cost setting amount; and
(c) where just before that time the prime cost method applied for working out the asset’s decline in value and the asset’s tax cost setting amount does not exceed the joining entity’s *terminating value for the asset—at that time an *effective life were chosen for the asset equal to the remainder of the effective life of the asset just before that time; and
(d) where just before that time the prime cost method applied for working out the asset’s decline in value and the asset’s *tax cost setting amount exceeds the joining entity’s terminating value for the asset—the *head company were required to choose at that time an effective life for the asset in accordance with subsections 40‑95(1) and (3) and any choice of an effective life determined by the Commissioner were limited to one in force at that time; and
(e) where neither paragraph (c) nor (d) applies—at that time an effective life were chosen for the asset equal to the asset’s effective life just before that time.
(3) If Division 70 (other than Subdivision 70‑E) is to apply in relation to the asset, the expression means that the Division applies as if the asset were *trading stock at the start of the income year in which the particular time occurs and its *value at that time were equal to its *tax cost setting amount.
(4) If Division 16E of Part III of the Income Tax Assessment Act 1936 is to apply in relation to the asset, the expression means that the Division applies as if the asset were acquired at the particular time for a payment equal to the asset’s *tax cost setting amount.
(5) If Part 3‑1 or 3‑3 is to apply in relation to the asset, the expression means that the Part applies as if the asset’s *cost base or *reduced cost base were increased or reduced so that the cost base or reduced cost base at the particular time equals the asset’s *tax cost setting amount.
(5A) If Division 230 is to apply in relation to the asset, the expression means that the Division applies as if the asset were acquired at the particular time for a payment equal to:
(a) unless paragraph (b) applies—the asset’s *tax cost setting amount; or
(b) if the asset’s tax cost is set because an entity becomes a *subsidiary member of a *consolidated group, and Subdivision 230‑C (fair value method), Subdivision 230‑D (foreign exchange retranslation method) or Subdivision 230‑F (reliance on financial reports method) is to apply in relation to the asset—the asset’s *Division 230 starting value at the particular time.
(5B) To avoid doubt, for the purposes of paragraph (5A)(b), determine the asset’s *Division 230 starting value by reference to the relevant standards (as mentioned in section 230‑230, 230‑280 or 230‑420) that apply in relation to the *head company’s financial report for the income year in which the entity becomes a subsidiary member of the group.
(5C) If section 716‑410 (rights to future amounts that are expected to be included in assessable income) covers the asset at the particular time, the expression means that section 716‑405 may apply in relation to the asset after the particular time.
(6) If any provision of this Act that is not mentioned above is to apply in relation to the asset by including an amount in assessable income, or by allowing an amount as a deduction, in a way that brings into account (directly or indirectly) any of the following amounts:
Note 1: This subsection modifies the application of the provision only for the purpose of determining the amount included in assessable income or the amount of the deduction. Therefore:
(b) apart from the things mentioned in subsection 701‑56(1), that acquisition does not affect the operation of section 701‑5 (the entry history rule) in relation to the asset for other purposes.
Note 2: For specific clarifications of the operation of this subsection in relation to bad debts, see Subdivision 716‑S.
(1) To avoid doubt, if subsection 701‑55(6) applies in relation to an asset at the time (the joining time) an entity (the joining entity) became a *subsidiary member of a *consolidated group, the things that are taken to have happened in relation to the *head company of the group under section 701‑5 (entry history rule) do not include:
(a) the cost, outgoing, expenditure or other amount incurred or paid to acquire the asset by the joining entity; and
(b) whether the cost, outgoing, expenditure or other amount incurred or paid by the joining entity to acquire the asset has been deducted by the joining entity before the joining time.
(2) Subsection 701‑55(6) does not apply in relation to an asset if it is *trading stock.
Certain depreciating assets etc.
(3) Subsection 701‑55(6) does not apply in relation to an asset if any of the following provisions are to apply in relation to the asset:
(a) Subdivision 40‑F (Primary production depreciating assets);
(b) Subdivision 40‑G (Capital expenditure of primary producers and other landholders);
(c) Subdivision 40‑H (Capital expenditure that is immediately deductible);
(d) Subdivision 40‑I (Capital expenditure that is deductible over time), other than section 40‑880 (Business related costs);
(e) Subdivision 40‑J (Capital expenditure for the establishment of trees in carbon sink forests);
(f) Division 41 (Additional deduction for certain new business investment);
(g) Division 43 (Deductions for capital works).
(a) the *tax cost of an asset was set at the time (the joining time) an entity became a *subsidiary member of a *consolidated group, at the asset’s *tax cost setting amount; and
(b) ignoring the operation of subsection 701‑1(1) (the single entity rule), the entity held the asset at the joining time; and
(c) taking into account the operation of subsection 701‑1(1) (the single entity rule), the *head company of the group did not hold the asset at the joining time.
Example: A debt owed by a member of the group to the joining entity at the joining time.
(2) To avoid doubt, the asset’s *tax cost setting amount mentioned in paragraph (1)(a) is not to be taken into account in applying the provisions mentioned in subsections 701‑55(2), (3), (4), (5), (5A), (5C) and (6) in relation to the asset at and after the joining time.
The asset’s tax cost setting amount is worked out using this table.
If the asset’s tax cost is set by:
The asset’s tax cost setting amount is:
section 701‑10 (Cost to head company of assets of joining entity)
the amount worked out in accordance with Division 705
section 701‑15 (Cost to head company of membership interests in entity that leaves group)
the amount worked out in accordance with section 711‑15 or 711‑55
section 701‑20 (Cost to head company of assets consisting of certain liabilities owed by entity that leaves group) or section 701‑45 (Cost of assets consisting of liabilities owed to entity by members of the group)
the *market value of the asset
section 701‑50 (Cost of certain membership interests of which entity becomes holder on leaving group)
the amount worked out in accordance with section 711‑55
Note 1: The tax cost setting amount of certain interests in partnership assets is worked out under Subdivision 713‑E.
Note 2: The tax cost setting amount of certain assets of a life insurance company is worked out under Subdivision 713‑L.
(a) an entity (the joining entity) becomes a *subsidiary member of a *consolidated group; and
(b) paragraph 701‑55(5A)(b) applies in relation to one or more assets of the joining entity.
(2) Work out if the total of the *Division 230 starting values for those assets exceeds or falls short of the total of their *tax cost setting amounts.
(3) If there is an excess, an amount equal to 25% of that excess is included in the *head company’s assessable income for:
(a) the income year in which the particular time mentioned in subsection 701‑55(5A) occurs; and
(4) If there is a shortfall, the *head company is entitled to a deduction equal to 25% of that shortfall for:
Net income of partnerships and trusts
(a) another provision of this Division applies for the purpose of:
(i) working out the amount of the entity’s liability (if any) for income tax calculated by reference to an income year; or
(ii) working out the amount of the entity’s taxable income for an income year; and
(b) the entity is a trust or partnership;
the provision instead applies in a corresponding way for the purpose of working out the amount of the entity’s net income, as defined in the Income Tax Assessment Act 1936, (if any) for the income year.
Note: Subsection 701‑30(3) requires non‑membership periods mentioned in that subsection to be treated as the start and end of an income year. This section would therefore also apply to those periods.
(a) another provision of this Division applies for the purpose of working out the amount of the entity’s loss (if any) of a particular *sort for an income year; and
(b) the entity is a partnership;
the provision instead applies in a corresponding way for the purpose of working out the amount of an entity’s partnership loss, as defined in section 90 of the Income Tax Assessment Act 1936, (if any) for the income year.
Note: The provision applies normally to a trust, as it can have a loss of any sort worked out in the same way as a loss of the same sort for an entity of another kind.
Section applies to certain arrangements
(1) This section applies for the head company core purposes and the entity core purposes if, just before the time (the joining time) when the entity becomes a *subsidiary member of the group, an *arrangement is in force under which:
(a) expenditure is to be, or has been, incurred in return for the doing of some thing; and
(b) the persons incurring the expenditure and *deriving the corresponding amount (each of which is a combining entity) are the entity and either:
(i) another entity that became a subsidiary member at the same time; or
(ii) the *head company.
Note 1: If expenditure incurred under an arrangement consists of a payment of loan interest or a payment of a similar kind, the expenditure would be incurred in return for the making available or continued making available of the loan principal, or other amount of a similar kind, under the arrangement.
Note 2: If expenditure incurred under an arrangement consists of a payment of rent, a lease payment or a payment of a similar kind, the expenditure would be incurred in return for the making available or continued making available of the thing rented or leased, or other thing of a similar kind, under the arrangement.
Note 3: If expenditure incurred under an arrangement consists of a payment of an insurance premium or a payment of a similar kind, the expenditure would be incurred in return for the provision or continued provision of insurance against the risk concerned, or of a thing of a similar kind, under the arrangement.
(2) The object of this section is to align the income tax position of the combining entities at the joining time, because after that time they lose their separate tax identities under the single entity rule in subsection 701‑1(1) and this would preserve any imbalance.
Adjustment for disproportionate deductibility
(3) If the total of a combining entity’s deductions that are allowable for:
(a) the following income year (the joining adjustment year):
(i) if the combining entity is the *head company and the joining time occurs at the start of an income year—the income year before that income year;
(ii) if the combining entity is the head company and subparagraph (i) does not apply—the income year in which the joining time occurs;
(iii) in any other case—the income year that ends, or, if section 701‑30 applies, the income year that is taken by subsection (3) of that section to end, at the joining time; and
(b) all earlier income years;
is not equal to the amount worked out under subsection (4), then:
(c) if the total is less—the entity is entitled to deduct the difference for the joining adjustment year; and
(d) if it is more—the entity’s assessable income for the joining adjustment year includes the difference.
Pre‑joining time proportion of total arrangement deductions
(4) The amount is worked out using the formula:
pre‑joining time services proportion means the proportion of all things to be done under the arrangement in return for the incurring of the expenditure represented by those things that were done before the joining time.
total arrangement deductions means the total of the deductions that, ignoring this Part (other than subsection (7) of this section), would be allowable for expenditure incurred by the combining entity under the arrangement for all income years.
Adjustment for disproportionate assessability
(5) If the total of the amounts included in a combining entity’s assessable income in respect of amounts *derived under the arrangement for the joining adjustment year and all earlier income years is not equal to the amount worked out under subsection (6):
(a) if the total is less—the entity’s assessable income for the joining adjustment year includes the difference; and
(b) if it is more—the entity is entitled to deduct the difference for the joining adjustment year.
Pre‑joining time proportion of total arrangement assessable income
(6) The amount is worked out using the formula:
pre‑joining time services proportion has the same meaning as in subsection (4).
total arrangement assessable income means the total of the amounts that, ignoring this Part (other than subsection (7) of this section), would be included in the combining entity’s assessable income for amounts *derived by it under the arrangement for all income years.
Modified application of section if combining entities previously members of same group
(7) If the combining entities were *members of the same *consolidated group (whether or not the group to which this section applies) on one or more previous occasions, this section applies in relation to the entities as if:
(a) the only things to be done under the arrangement in return for the incurring of the expenditure were those things to be done after the entities ceased to be members of the same group on the previous occasion or the last of the previous occasions; and
(b) the only deductions allowable to an entity for expenditure incurred by it under the arrangement, and the only amounts included in an entity’s assessable income in respect of amounts *derived under the arrangement, were:
(i) if the entity was the *head company of the consolidated group of which the combining entities were members on the previous occasion or last of the previous occasions—those for the income year, in which the previous occasion or the last of the previous occasions occurred, that are attributable to the period after that occasion and those for all later income years; and
(ii) in any other case—those for the income year that started, or, if section 701‑30 applies, the income year that is taken by subsection (3) of that section to have started, when the entity ceased to be a *subsidiary member of the group on the previous occasion or the last of the previous occasions and those for all later income years.
(1) This section applies for the head company core purposes and the entity core purposes if the entity ceases to be a *subsidiary member of the group and, just before the time (the leaving time) when it does so, an *arrangement is in force under which:
(b) the persons incurring the expenditure and *deriving the corresponding amount (each of which is a separating entity) are the entity and either:
(i) another entity that ceases to be a subsidiary member at the same time; or
Note: The notes to subsection 701‑70(1) on the application of that subsection to expenditure under certain kinds of arrangements are equally applicable for the purposes of this subsection.
(2) The object of this section is to align the income tax position of the separating entities at the leaving time, because from that time they have separate tax identities as a result of the single entity rule in subsection 701‑1(1) ceasing to apply, and this may create an imbalance.
(3) If the total of the deductions that are or will be allowable for expenditure incurred by the separating entity under the arrangement for:
(a) the following income year (the leaving adjustment year):
(i) if the separating entity is the *head company—the income year in which the leaving time occurs;
(ii) in any other case—the income year that starts, or, if section 701‑30 applies, the income year that is taken by subsection (3) of that section to start, at the leaving time; and
(b) all later income years;
is not equal to the amount worked out under subsection (4), the deductions are adjusted so that they do equal the amount.
Post‑leaving time proportion of total arrangement deductions
post‑leaving time services proportion means the proportion of all things to be done under the arrangement in return for the incurring of the expenditure represented by those things that are to be done after the leaving time.
total arrangement deductions means the total of the deductions that, ignoring this Part, would be allowable for expenditure incurred by the separating entity under the arrangement for all income years.
(5) If the total of the amounts that are or will be included in its assessable income in respect of amounts *derived under the arrangement for the leaving adjustment year and all later income years is not equal to the amount worked out under subsection (6), the amounts that are or will be included in its assessable income are adjusted so that they do equal the amount worked out under subsection (6).
Post‑leaving time proportion of total arrangement assessable income
post‑leaving time services proportion has the same meaning as in subsection (4).
total arrangement assessable income means the total of the amounts that, ignoring this Part, would be included in the separating entity’s assessable income for amounts *derived by it under the arrangement for all income years.
(2) The object of this section is to preserve any entitlement to accelerated depreciation for assets that become those of the *head company because subsection 701‑1(1) (the single entity rule) applies when the entity becomes a *subsidiary member of the group. This is only to apply where the asset’s *tax cost setting amount is not more than the entity’s *terminating value for the asset.
Section applies to certain depreciating assets
(3) This section applies if:
(a) a *depreciating asset to which Division 40 applies becomes that of the *head company because subsection 701‑1(1) (the single entity rule) applies when the entity becomes a *subsidiary member of the group; and
(b) just before the entity became a subsidiary member, subsection 40‑10(3) or 40‑12(3) of the Income Tax (Transitional Provisions) Act 1997 applied for the purpose of the entity working out the asset’s decline in value under Division 40; and
Note: The effect of those subsections was to preserve an entitlement to accelerated depreciation.
(c) the *tax cost setting amount that applies in relation to the asset for the purposes of section 701‑10 when it becomes an asset of the head company is not more than the entity’s *terminating value for the asset.
Preservation of accelerated depreciation
(4) While the asset is held by the *head company under subsection 701‑1(1) (the single entity rule), the decline in its value under Division 40 is worked out by replacing the component in the formula in subsection 40‑70(1) or 40‑75(1) that includes the asset’s *effective life with the rate that would apply under subsection 42‑160(1) or 42‑165(1) of this Act if it had not been amended by the New Business Tax System (Capital Allowances) Act 2001.
The operation of each provision of this Division is subject to any provision of this Act that so requires, either expressly or impliedly.
Note: An example of such a provision is Division 707 (about the transfer of certain losses to the head company of a consolidated group). That Division modifies the effect that the inheritance of history rule in section 701‑5 would otherwise have.
(1) This subsection covers a valuable right (including a contingent right) to receive an amount for the performance of work or services or the provision of goods (other than *trading stock) if:
(a) the valuable right forms part of a contract or agreement; and
(b) the *market value of the valuable right (taking into account all the obligations and conditions relating to the right) is greater than nil.
(2) For the purposes of this Part, treat a valuable right covered by subsection (1) as a separate asset.
(a) a valuable right is treated as a separate asset under subsection (2); and
(b) the contract or agreement mentioned in paragraph (1)(a) also includes one or more other rights;
for the purposes of this Part, treat the contract or agreement (excluding the valuable right) as a separate asset.
(4) For the purposes of this Part:
(a) take into account all the obligations and conditions relating to a valuable right treated as a separate asset under subsection (2) in working out the *market value of that separate asset; and
(b) if a contract or agreement (excluding the valuable right) is treated as a separate asset under subsection (3)—take into account all the obligations and conditions relating to each right (other than the valuable right) that forms part of the contract or agreement in working out the market value of that separate asset.
Division 703—Consolidated groups and their members
Guide to Division 703
703‑1 What this Division is about
A consolidated group and a consolidatable group each consists of a head company and all the companies, trusts and partnerships that:
(a) are resident in Australia; and
(b) are wholly‑owned subsidiaries of the head company (either directly or through other companies, trusts and partnerships).
A consolidatable group becomes consolidated at a time chosen by the company that was the head company at the time.
703‑5 What is a consolidated group?
703‑10 What is a consolidatable group?
703‑15 Members of a consolidated group or consolidatable group
703‑20 Certain entities that cannot be members of a consolidated group or consolidatable group
703‑25 Australian residence requirements for trusts
703‑30 When is one entity a wholly‑owned subsidiary of another?
703‑33 Transfer time for sale of shares in company
703‑35 Treating entities as wholly‑owned subsidiaries by disregarding employee shares
703‑37 Disregarding certain preference shares following an ADI restructure
703‑40 Treating entities held through non‑fixed trusts as wholly‑owned subsidiaries
703‑45 Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group
703‑50 Choice to consolidate a consolidatable group
Consolidated group created when MEC group ceases to exist
703‑55 Creating consolidated groups from certain MEC groups
703‑58 Notice of choice to consolidate
703‑60 Notice of events affecting consolidated group
703‑65 Application
703‑70 Consolidated group continues in existence with interposed company as head company and original company as a subsidiary member
703‑75 Interposed company treated as substituted for original company at all times before the completion time
703‑80 Effects on the original company’s tax position
(1) A consolidated group comes into existence:
(a) on the day specified in a choice by a company under section 703‑50 as the day on and after which a *consolidatable group is taken to be consolidated; or
(b) as described in section 703‑55 (about creating a consolidated group from a *MEC group).
Note: The day specified in a choice under section 703‑50 as the day on and after which a consolidatable group is taken to be consolidated may be a day before the choice is made.
(2) The consolidated group continues to exist until the *head company of the group:
Note: The group does not cease to exist in some cases where a shelf company is interposed between the head company and its former members: see subsection 124‑380(5) and section 703‑70.
(3) At any time while it is in existence, the consolidated group consists of the *head company and all of the *subsidiary members (if any) of the group at the time.
Note: A consolidated group continues to exist despite one or more entities ceasing to be subsidiary members of the group or becoming subsidiaries of the group, as long as the events described in subsection (2) do not happen to the head company. Thus a consolidated group may come to consist of a head company alone at various times.
(1) A consolidatable group consists of:
(a) a single *head company; and
(b) all the *subsidiary members of the group.
(2) To avoid doubt, a consolidatable group cannot consist of a *head company alone.
(1) An entity is a member of a *consolidated group or *consolidatable group while the entity is:
(a) the *head company of the group; or
(b) a *subsidiary member of the group.
(2) At a particular time in an income year, an entity is:
(b) a subsidiary member of a *consolidated group or *consolidatable group if all the requirements in item 2 of the table are met in relation to the entity:
Entity’s role in relation to group
Income tax treatment requirements
Australian residence requirements
1 Head company
The entity must be a company (but not one covered by section 703‑20) that has all or some of its taxable income (if any) taxed at a rate that is or equals the *corporate tax rate
The entity must be an Australian resident (but not a *prescribed dual resident)
The entity must not be a *wholly‑owned subsidiary of another entity that meets the requirements in columns 2 and 3 of this item or, if it is, it must not be a subsidiary member of a *consolidatable group or *consolidated group
2 Subsidiary member
(a) the entity must be a company, trust or partnership (but not one covered by section 703‑20); and
(b) if the entity is a company—all or some of its taxable income (if any) must be taxable apart from this Part at a rate that is or equals the *corporate tax rate; and
(c) the entity must not be a non‑profit company (as defined in the Income Tax Rates Act 1986)
(b) comply with section 703‑25, if it is a trust; or
(c) be a partnership
The entity must be a *wholly‑owned subsidiary of the head company of the group and, if there are interposed between them any entities, the set of requirements in section 703‑45, section 701C‑10 of the Income Tax (Transitional Provisions) Act 1997 or section 701C‑15 of that Act must be met
(1) The object of this section is to specify certain entities that cannot be *members of a *consolidated group because of the way their income is treated for income tax purposes.
(2) An entity of a kind specified in an item of the table cannot be a *member of a *consolidated group or a *consolidatable group at a time in an income year if the conditions specified in the item exist:
Certain entities that cannot be members of a consolidated or consolidatable group
An entity of this kind:
Cannot be a member of a consolidated group or consolidatable group if:
An entity of any kind
At the time, the total *ordinary income and *statutory income of the entity is exempt from income tax under Division 50
The company is a recognised medium credit union (as defined in section 6H of the Income Tax Assessment Act 1936) for the income year
(a) is an approved credit union for the income year for the purposes of section 23G of the Income Tax Assessment Act 1936; and
(b) is not a recognised medium credit union (as defined in section 6H of that Act) or a recognised large credit union (as defined in that section) for the income year
The company is a *PDF at the end of the income year
The company is a *film licensed investment company at the time
(a) a *complying superannuation entity for the income year; or
(b) a *non‑complying approved deposit fund or a *non‑complying superannuation fund for the income year
Note: A subsidiary of a life insurance company cannot be a member of a consolidated group or consolidatable group in certain circumstances: see section 713‑510.
A trust described in an item of the table must meet the requirements specified in the item to be able to be a *subsidiary member of a *consolidated group or a *consolidatable group at a time in an income year:
Australian residence requirements for trusts
A trust of this kind:
Can be a member of a consolidated group or consolidatable group only if these requirements are met:
A trust (except a unit trust)
The trust must be a resident trust estate for the income year for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936
A unit trust (except a *corporate unit trust or a *public trading trust for the income year)
The trust must be:
(a) a resident trust estate for the income year for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936; and
(b) a *resident trust for CGT purposes for the income year
A *corporate unit trust or a *public trading trust for the income year
The trust must be a *resident unit trust for the income year
(1) One entity (the subsidiary entity) is a wholly‑owned subsidiary of another entity (the holding entity) if all the *membership interests in the subsidiary entity are beneficially owned by:
(a) the holding entity; or
(b) one or more wholly‑owned subsidiaries of the holding entity; or
(c) the holding entity and one or more wholly‑owned subsidiaries of the holding entity.
(2) An entity (other than the subsidiary entity) is a wholly‑owned subsidiary of the holding entity if, and only if:
(a) it is a wholly‑owned subsidiary of the holding entity; or
(b) it is a wholly‑owned subsidiary of a wholly‑owned subsidiary of the holding entity;
because of any other application or applications of this section.
Note: This Part also operates in some cases as if an entity were a wholly‑owned subsidiary of another entity, even though the entity is not covered by the definition in this section because of:
(a) ownership of shares under certain arrangements for employee shareholding (see section 703‑35); or
(aa) ownership of certain preference shares following an ADI restructure (see section 703‑37); or
(b) interposed trusts that are not fixed trusts (see section 703‑40).
(3) For the purposes of this section, one entity is not prevented from being the beneficial owner of a *membership interest in another entity merely because the first entity is or becomes:
(a) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or
(b) an entity with a status under a *foreign law similar to the status of an externally‑administered body corporate under the Corporations Act 2001.
(a) under a contract:
(i) a person (the seller) stops being entitled to be registered as the holder of a *share in a company at a time (the transfer time); and
(ii) another person (the buyer) becomes entitled to be registered as the holder of the share in the company at the transfer time; and
(b) as a result of the contract, the seller stops being the beneficial owner of the share, and the buyer becomes the beneficial owner of the share; and
(c) the seller and the buyer dealt with each other at *arm’s length in relation to the contract; and
(d) the seller and the buyer were not *associates of one another at any time during the period:
(i) starting when the contract was entered into; and
(ii) ending at the transfer time.
(2) For the purposes of subsection 703‑30(1):
(a) the seller is taken to have stopped being the beneficial owner of the share at the transfer time; and
(b) the buyer is taken to have become the beneficial owner of the share at the transfer time.
(1) The object of this section is to ensure that an entity (the first entity) is not prevented from being a *subsidiary member of a *consolidated group or *consolidatable group just because there are minor holdings of *membership interests in an entity (the employee share scheme entity) issued under *arrangements for employee shareholdings. (It does not matter whether the employee share scheme entity is the first entity or is interposed between the first entity and a *member of the group.)
Note: A company that is prevented from being a subsidiary member of a consolidated group may be a head company (so there could be 2 consolidated or consolidatable groups, instead of the one that this section ensures exists).
(2) This Part (except Division 719) operates as if an entity that meets the requirement of subsection (3) at a particular time were a *wholly‑owned subsidiary of an entity (the holding entity) at the time.
(3) The entity must be one that would be a *wholly‑owned subsidiary of the holding entity at the time if the *membership interests in the entity that are to be disregarded under subsection (4) did not exist.
(1) The object of this section is to ensure that, following an *ADI restructure to which Part 4A of the Financial Sector (Business Transfer and Group Restructure) Act 1999 applies, a body corporate is not prevented from being a *subsidiary member of a *consolidated group or *consolidatable group just because the body (or another body corporate) has issued, or issues, certain preference *shares.
(2) This Part (except Division 719) operates as if a body corporate that meets the requirement of subsection (3) at a particular time were a *wholly‑owned subsidiary of another body corporate (the holding body) at the time.
(3) The body corporate (the preference‑share issuing body) must be one that would be a *wholly‑owned subsidiary of the holding body at the time if the *shares in the preference share‑issuing body that are to be disregarded under subsection (4) did not exist.
(4) Disregard a *share in the preference‑share issuing body if:
(a) a restructure instrument under Part 4A of the Financial Sector (Business Transfer and Group Restructure) Act 1999 is in force in relation to a non‑operating holding company within the meaning of that Act; and
(b) because of the restructure to which the instrument relates, an *ADI becomes a subsidiary (within the meaning of that Act) of the non‑operating holding company; and
(c) the preference share‑issuing body is:
(ii) part of an extended licensed entity (within the meaning of the *prudential standards) that includes the ADI; and
(5) A *share is covered by this subsection if:
(b) any *return on the share is fixed at the time of issue by reference to the amount subscribed; and
(c) the share is not a *voting share; and
(i) the share is Tier 1 capital (within the meaning of the *prudential standards); or
(b) in combination with one or more *schemes that are *related schemes in relation to a scheme under which a preference share is issued.
(7) If subsection (5) has covered a *share, but would (apart from this subsection) stop covering the share from a particular time, then for a period of 180 days after that time the subsection is taken to continue to cover the share.
(1) This section operates to ensure that an entity (the test entity) is not prevented from being a *subsidiary member of a *consolidated group or *consolidatable group just because there is a trust that is not a *fixed trust interposed between the test entity and the *head company of the group.
(2) This Part (except Division 719) operates as if the test entity were a *wholly‑owned subsidiary of the *head company if the test entity would have been a wholly‑owned subsidiary of the head company had the interposed trust been a *fixed trust and all its objects been beneficiaries.
(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703‑15(2), a set of requirements that must be met for an entity (the test entity) to be a *subsidiary member of a *consolidated group or a *consolidatable group at a particular time (the test time).
(2) At the test time, each of the interposed entities must either:
(a) be a *subsidiary member of the group; or
(b) hold *membership interests in:
(i) the test entity; or
(ii) a subsidiary member of the group interposed between the *head company of the group and the test entity;
only as a nominee of one or more entities each of which is a *member of the group.
(1) A company may make a choice in writing that a *consolidatable group is taken to be consolidated on and after a day that is specified in the choice and is after 30 June 2002, if the company was the *head company of the group on the day specified.
Note: The head company of the group must give the Commissioner a notice in the approved form containing information about the group (see sections 703‑58 and 703‑60).
(2) The choice cannot be revoked, and the specification of the day cannot be amended, after the choice is made under subsection (1).
(3) The choice can be made no later than:
(a) if the company is required to give the Commissioner its *income tax return for the income year during which the specified day mentioned in subsection (1) occurs—the day on which the company gives the Commissioner that income tax return; or
(b) otherwise—the last day in the period within which the company would be required to give the Commissioner such a return if it were required to give the Commissioner such a return.
(4) The choice does not have effect after the *consolidated group that came into existence because of the choice ceases to exist. To avoid doubt, this subsection does not prevent the choice from:
(7) The choice does not have effect (and is taken not to have had effect) if, on the day specified, the company was a member of a *MEC group.
(1) A *consolidated group comes into existence at the time a *MEC group ceases to exist if:
(a) the MEC group included only one *eligible tier‑1 company just before the time; and
(b) the MEC group ceases to exist only because the company ceases to be an eligible tier‑1 company; and
(c) the company is a *head company as defined in section 703‑15 at the time.
(2) To avoid doubt, the *consolidated group consists at the time of:
(a) the company (as the *head company of the consolidated group); and
(b) every entity (if any) that was a *subsidiary member of the *MEC group just before that time (as a subsidiary member of the consolidated group).
(1) If a *consolidated group comes into existence on the day specified in a choice under section 703‑50, the *head company of the group must give the Commissioner a notice in the *approved form containing the following information:
(2) The notice must be given no later than:
(a) if the *head company is required to give the Commissioner its *income tax return for the income year during which that day occurs—the day on which the company gives the Commissioner that income tax return; or
(b) otherwise—the last day in the period within which the head company would be required to give the Commissioner such a return if it were required to give the Commissioner such a return.
(1) Within 28 days of an event described in an item of the table, the entity described in column 3 of the item must give the Commissioner notice in the *approved form of the event.
If this event happens:
Notice must be given by:
An entity becomes a *member of a *consolidated group
The *head company of the consolidated group
An entity ceases to be a *subsidiary member of a *consolidated group
The *head company of the group, or the person who was its public officer just before it ceased to exist if the former subsidiary member ceases to be a *member of the group because the head company ceases to exist
A *consolidated group ceases to exist
The company that was the *head company of the group, or the person who was its public officer just before it ceased to exist if it ceases to be the head company of the group because it ceases to exist
(a) an event described in subsection (1) happens in relation to a *consolidated group that comes into existence on the day specified in a choice under section 703‑50; and
(b) the event happens before the relevant notice is given to the Commissioner under section 703‑58 (notice of choice to consolidate);
the *head company of the consolidated group must give the Commissioner notice in the *approved form of the event.
(2A) The notice must be given no later than:
(a) an event described in subsection (1) happens in relation to a *consolidated group that comes into existence at a time under subsection 703‑55(1) because a *MEC group ceased to exist at that time; and
(b) the *MEC group came into existence under paragraph 719‑5(1)(a) because a choice under section 719‑50 is made after that time; and
(c) the event happens before the relevant notice is given to the Commissioner under section 719‑76 (notice of choice to consolidate);
(4) The notice must be given no later than:
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.
(1) The *consolidated group is taken not 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 does not 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).
(1) Everything that happened in relation to the original company before the completion 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.
(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); or
(e) section 719‑125 (about the effects of a group conversion involving 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 rules in Part X of the Income Tax Assessment Act 1936).
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.
Division 705—Tax cost setting amount for assets where entities become subsidiary members of consolidated groups
Guide to Division 705
705‑1 What this Division is about
When an entity becomes a subsidiary member of a consolidated group, the tax cost of its assets is set at a tax cost setting amount that is worked out in accordance with this Division.
705‑A Basic case: a single entity joining an existing consolidated group
705‑B Case of group formation
705‑C Case where a consolidated group is acquired by another
705‑D Where multiple entities are linked by membership interests
705‑E Adjustments for errors etc.
Subdivision 705‑A—Basic case: a single entity joining an existing consolidated group
Guide to Subdivision 705‑A
705‑5 What this Subdivision is about
When an entity becomes a subsidiary member of an existing consolidated group, the tax cost setting amount for its assets reflects the cost to the group of acquiring the entity.
705‑10 Application and object of this Subdivision
705‑15 Cases where this Subdivision does not have effect
705‑20 Tax cost setting amount worked out under this Subdivision
705‑25 Tax cost setting amount for retained cost base assets
705‑27 Reduction in tax cost setting amount that exceeds market value of certain retained cost base assets
705‑30 What is the joining entity’s terminating value for an asset?
705‑35 Tax cost setting amount for reset cost base assets
705‑40 Tax cost setting amount for reset cost base assets held on revenue account
705‑45 Reduction in tax cost setting amount for accelerated depreciation assets
705‑47 Reduction in tax cost setting amount for some privatised assets
705‑55 Order of application of sections 705‑40, 705‑45 and 705‑47
705‑56 Modification for tax cost setting in relation to finance leases
705‑57 Adjustment to tax cost setting amount where loss of pre‑CGT status of membership interests in joining entity
705‑58 Assets and liabilities not set off against each other
705‑59 Exception: treatment of linked assets and liabilities
705‑60 What is the joined group’s allocable cost amount for the joining entity?
705‑62 No double counting of amounts in allocable cost amount
705‑65 Cost of membership interests in the joining entity—step 1 in working out allocable cost amount
705‑70 Liabilities of the joining entity—step 2 in working out allocable cost amount
705‑75 Liabilities of the joining entity—reductions for purposes of step 2 in working out allocable cost amount
705‑80 Liabilities of the joining entity—reductions/increases for purposes of step 2 in working out allocable cost amount
705‑85 Liabilities of the joining entity—increases for purposes of step 2 in working out allocable cost amount
705‑90 Undistributed, taxed profits accruing to joined group before joining time—step 3 in working out allocable cost amount
705‑93 If pre‑joining time roll‑over from foreign resident company or head company—step 3A in working out allocable cost amount
705‑95 Pre‑joining time distributions out of certain profits—step 4 in working out allocable cost amount
705‑100 Losses accruing to joined group before joining time—step 5 in working out allocable cost amount
705‑105 Continuity of holding membership interests—steps 3 to 5 in working out allocable cost amount
705‑110 If joining entity transfers a loss to the head company—step 6 in working out allocable cost amount
705‑115 If head company becomes entitled to certain deductions—step 7 in working out allocable cost amount
How to work out a pre‑CGT factor for assets of joining entity
705‑125 Pre‑CGT proportion for joining entity
(1) This Subdivision has effect, subject to section 705‑15, for the head company core purposes set out in subsection 701‑1(2) if an entity (the joining entity) becomes a *subsidiary member of a *consolidated group (the joined group) at a particular time (the joining time).
(2) The object of this Subdivision is to recognise the *head company’s cost of becoming the holder of the joining entity’s assets as an amount reflecting the group’s cost of acquiring the entity. That amount consists of the cost of the group’s *membership interests in the joining entity, increased by the joining entity’s liabilities and adjusted to take account of the joining entity’s retained profits, distributions of profits, deductions and losses.
(3) The reason for recognising the *head company’s cost in this way is to align the costs of assets with the costs of *membership interests, and to allow for the preservation of this alignment until the entity ceases to be a *subsidiary member, in order to:
(a) prevent double taxation of gains and duplication of losses; and
(b) remove the need to adjust costs of membership interests in response to transactions that shift value between them, as the required adjustments occur automatically.
Note: Under Division 711, the alignment is preserved by recognising the head company’s cost of membership interests in the entity if it ceases to be a subsidiary member of the group as the cost of its assets reduced by its liabilities.
This Subdivision does not have effect if any of the following exceptions applies:
(a) the first exception is where the joining entity becomes a *member of the joined group because it is a member of that group at the time it comes into existence as a *consolidated group;
Note: See Subdivision 705‑B for rules about the treatment of assets if entities become members in circumstances covered by this exception.
(b) the second exception is where all of the members of another consolidated group become members of the joined group as a result of the *acquisition of *membership interests in the *head company of the joining group;
Note: See Subdivision 705‑C for rules about the treatment of assets if entities become members in circumstances covered by this exception.
(c) the third exception is where:
(i) the joining entity and one or more other entities become members of the joined group at the same time as a result of an event that happens in relation to one of them; and
(ii) the case is not covered by the second exception;
Note: See Subdivision 705‑D for rules about the treatment of assets if entities become members in circumstances covered by this exception.
If this Subdivision has effect, for the purposes of item 1 in the table in section 701‑60 (Tax cost setting amount) the *tax cost setting amount for an asset whose *tax cost is set at the time the joining entity becomes a *subsidiary member of the joined group is worked out under this Subdivision.
(1) This section states what the *tax cost setting amount is for a *retained cost base asset.
(2) If the *retained cost base asset is covered by paragraph (a), (b) or (ba) of the definition of that expression and is not covered by another subsection of this section, its *tax cost setting amount is equal to the amount of the Australian currency concerned.
(3) If the *retained cost base asset is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936), the *tax cost setting amount for the qualifying security is instead equal to the joining entity’s *terminating value for the asset.
Entitlements to pre‑paid services etc.
(4) If the *retained cost base asset is covered by paragraph (c) of the definition of that expression, its *tax cost setting amount is equal to the amount of the deductions to which the *head company is entitled under section 701‑5 (the entry history rule) in respect of the expenditure that gave rise to the entitlement.
Note: If the total amount to be treated as tax cost setting amounts for retained cost base assets exceeds the joined group’s allocable cost amount for the joining entity, the head company makes a capital gain equal to the excess: see CGT event L3.
Financial arrangements to which Subdivision 250‑E applies
(4A) The *tax cost setting amount is instead equal to the joining entity’s *terminating value for the *retained cost base asset if the asset is a *financial arrangement to which Subdivision 250‑E applies immediately before the joining time.
Rights to payments in respect of uncompleted work etc.
(4B) If the *retained cost base asset is covered by paragraph (d) of the definition of that expression, its *tax cost setting amount is equal to the joining entity’s *terminating value for the asset.
(5) A retained cost base asset is:
(a) Australian currency, other than *trading stock or *collectables of the joining entity; or
(b) a right to receive a specified amount of such Australian currency, other than a right that is a marketable security within the meaning of section 70B of the Income Tax Assessment Act 1936; or
(ba) a unit in a *cash management trust, if:
(i) the redemption value of the unit is expressed in Australian dollars; and
(ii) the redemption value of the unit cannot increase; or
(c) a right to have something done under an *arrangement under which:
(i) expenditure has been incurred in return for the doing of the thing; and
(ii) the thing is required or permitted to be done, or to cease being done, after the expenditure is incurred; or
(d) a right that is an asset covered by section 716‑410 (rights to future amounts that are expected to be included in assessable income) if at the time the right was created:
(i) the *head company was the head company of a *consolidatable group; and
(ii) the joining entity was a *subsidiary member of the consolidatable group.
Note 1: There are some additional retained cost base assets for a joining entity that is a life insurance company: see Subdivision 713‑L. The tax cost setting amount for those assets is worked out under that Subdivision.
Note 2: The joining entity’s right to receive lease payments under a finance lease is treated as a retained cost base asset in some circumstances (see paragraph 705‑56(3)(b)).
(a) a *retained cost base asset of the joining entity is a right to receive a specified amount of such Australian currency, covered by paragraph 705‑25(5)(b); and
(b) the *market value of the asset is less than the *tax cost setting amount of the asset; and
(c) the head company makes a *capital gain under *CGT event L3 (disregarding this subsection) as a result of the joining entity becoming a *subsidiary member of the group;
reduce the tax cost setting amount of the asset by the amount of the gain (but not below zero).
Note: Reducing the tax cost setting amount of the asset will also reduce the amount of the capital gain (see paragraph 104‑510(1)(b)). The amount of the capital gain might be reduced to nil.
(a) the requirements in subsection 701‑58(1) (intra‑group assets) are satisfied in relation to the asset; and
(b) the joining entity has been entitled to a deduction for an income year ending on or before the joining time because of the *market value of the asset being less than the specified amount mentioned in paragraph (1)(a); and
(c) the accounting liability that corresponds to the asset has not been reduced under subsection 705‑75(2);
reduce the amount of the reduction under subsection (1) by the amount of the deduction (but not below zero).
(3) If the *tax cost setting amount of 2 or more of the joining entity’s assets could be reduced in accordance with subsections (1) and (2):
(a) subsections (1) and (2) apply sequentially to each of those assets; and
(b) the *head company may choose the sequence of assets to which subsections (1) and (2) apply; and
(c) if the head company does not make such a choice—subsections (1) and (2) apply sequentially to each of those assets according to the time at which they were created, from earliest to latest.
Note: Once the amount of the capital gain is reduced to nil as a result of the application of subsections (1) and (2), no further reductions of tax cost setting amount can be made under those subsections.
(4) A choice the *head company can make under paragraph (3)(b) must be made:
(a) by the day the head company lodges its *income tax return for the income year in which the *CGT event happened; or
(5) The way the *head company prepares its *income tax return is sufficient evidence of the making of the choice.
(1) If an asset of the joining entity is *trading stock, the joining entity’s terminating value for the asset is:
(a) if the asset was on hand at the start of the income year in which the joining time occurs (including because of the operation of Division 701)—its *value at that time; or
(c) in any other case—the amount of the outgoing incurred by the joining entity in connection with the acquisition of the asset;
increased by the amount of any outgoing forming part of the cost of the asset that is incurred by the joining entity during its current holding of the asset.
(2) If an asset of the joining entity is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936) that is not *trading stock, the joining entity’s terminating value for the asset is equal to the amount of consideration that the joining entity would need to receive, if it were to dispose of the asset just before the joining time, without an amount being assessable income of, or deductible to, the joining entity under section 159GS of the Income Tax Assessment Act 1936.
(3) If an asset of the joining entity is a *depreciating asset to which Division 40 applies, the joining entity’s terminating value for the asset is equal to the asset’s *adjustable value just before the joining time.
(3A) If an asset of the joining entity is a *financial arrangement to which Subdivision 250‑E applies, the joining entity’s terminating value for the asset is equal to the amount of consideration that the joining entity would need to receive, if it were to dispose of the asset just before the joining time, without an amount being assessable income of, or deductible to, the joining entity under Subdivision 250‑E.
Division 230 financial arrangements
(3B) If an asset of the joining entity is or is part of a *Division 230 financial arrangement, the joining entity’s terminating value for the asset is equal to the amount of consideration that the joining entity would need to receive, if it were to dispose of the asset just before the joining time, without an amount being assessable income of, or deductible to, the joining entity under Division 230.
Other CGT assets
(4) If an asset of the joining entity is a *CGT asset that is not covered by any of the above subsections, the joining entity’s terminating value for the asset is equal to the asset’s *cost base just before the joining time.
(5) The joining entity’s terminating value for any other asset that it holds is the amount that would be the asset’s *cost base just before the joining time if it were an asset covered by subsection (4).
(1) For each asset of the joining entity (a reset cost base asset) that is not a *retained cost base asset or an asset (an excluded asset) covered by subsection (2), the asset’s *tax cost setting amount is worked out by:
(a) first working out the joined group’s *allocable cost amount for the joining entity in accordance with section 705‑60; and
(b) then reducing that amount by the total of the *tax cost setting amounts for each retained cost base asset (but not below zero); and
(c) finally, allocating the result to each of the joining entity’s reset cost base assets (other than excluded assets) in proportion to their *market values.
Note 1: For an asset consisting of an entitlement to receive an amount that will be included in assessable income, the market value of the asset would take into account the tax payable on the amount.
Note 1A: If a set of linked assets and liabilities includes one or more reset cost base assets, section 705‑59 may affect how this section applies. In particular, that section may exclude the application of paragraph 705‑35(1)(b) to retained cost base assets in the set; this in turn may affect the application of CGT event L3.
Note 2: If there are no reset cost base assets, the result is instead treated as a capital loss of the head company: see CGT event L4.
(2) An asset is covered by this subsection if, under any of the steps in the table in section 705‑60, the joined group’s *allocable cost amount for the joining entity is reduced by an amount in respect of the asset.
Note: An example is an entitlement to a deduction, for which there is a reduction under step 2 in the table.
(3) If, just after the joining time, the *head company has, because of its ownership and control of the joining entity, a goodwill asset associated with assets or businesses of the joined group:
(a) for the head company core purposes, the asset’s *tax cost is set at the joining time at its *tax cost setting amount; and
(i) the asset is taken to be an asset of the joining entity that becomes an asset of the head company because subsection 701‑1(1) (the single entity rule) applies; and
(ii) it is taken to have a *market value just before the joining time of an amount equal to its market value just after the joining time.
(1) The *tax cost setting amount for a reset cost base asset that is *trading stock, a *depreciating asset or a *revenue asset must not exceed the greater of:
(a) the asset’s *market value; and
(b) the joining entity’s *terminating value for the asset.
(2) If subsection (1) reduces the asset’s *tax cost setting amount, the amount of the reduction is allocated among the other reset cost base assets (including other *trading stock, *depreciating assets and *revenue assets) other than excluded assets, so as to increase their tax cost setting amounts, in accordance with the principles set out in subsection (3).
Note: If any of the amount of the reduction cannot be allocated, it is instead treated as a capital loss of the head company: see CGT event L8.
(3) These are the principles:
(a) the allocation is to be in proportion to the *market values of the assets;
(b) the amount allocated to an item of *trading stock, to a *depreciating asset or to a *revenue asset must not cause its *tax cost setting amount to contravene subsection (1);
(c) any of the amount that cannot be allocated is to be reallocated, to the maximum extent possible, among the remaining reset cost base assets (other than excluded assets) by applying this subsection a further one or more times.
(a) an asset of the joining entity is a *depreciating asset to which Division 40 applies; and
(aa) just before the entity became a subsidiary member, subsection 40‑10(3) or 40‑12(3) of the Income Tax (Transitional Provisions) Act 1997 applied for the purposes of the joining entity working out the asset’s decline in value under Division 40; and
(b) the asset’s *tax cost setting amount would be greater than the joining entity’s *terminating value for the asset; and
(c) the *head company chooses to apply this section to the asset;
the asset’s tax cost setting amount is reduced so that it equals the terminating value.
Note 1: A consequence of the choice is that accelerated depreciation will apply to the asset: see section 701‑80.
Note 2: Unlike the position with a reduction in tax cost setting amount under section 705‑40, the amount of the reduction is not re‑allocated among other assets.
(1) The object of this section is to limit appropriately the amount the *head company of the joined group can deduct for a *depreciating asset it starts to *hold because the joining entity becomes a *subsidiary member of the group, by reference to the direct or indirect effect of the following provisions on the amount the joining entity could deduct for the asset:
(a) former section 61A of the Income Tax Assessment Act 1936 (about depreciation deductions for tax‑exempt entities that become taxable);
(b) former Subdivision 57‑I, and Subdivision 57‑J, in Schedule 2D to the Income Tax Assessment Act 1936 (about depreciation and capital allowance deductions);
(c) Division 58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1 July 2001).
Reduction of tax cost setting amount
(2) The *tax cost setting amount for a *depreciating asset is reduced to the joining entity’s *terminating value for the asset if:
(a) at a time before the joining entity became a *subsidiary member of the joined group, the asset was *held by an entity (whether the joining entity or another entity) that, at that time, was:
(i) an *exempt Australian government agency; or
(ii) another entity whose *ordinary income and *statutory income were exempt from income tax; and
(b) any of the following provisions directly or indirectly affected the amount the joining entity could deduct for the asset:
(i) former section 61A of the Income Tax Assessment Act 1936 (about depreciation deductions for tax‑exempt entities that become taxable);
(ii) former Subdivision 57‑I, and Subdivision 57‑J, in Schedule 2D to the Income Tax Assessment Act 1936 (about depreciation and *capital allowance deductions);
(iii) Division 58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1 July 2001); and
(c) apart from this section, the tax cost setting amount for the asset would exceed the joining entity’s terminating value for the asset.
Note 1: Unlike the position with a reduction in tax cost setting amount under section 705‑40, the amount of the reduction is not re‑allocated among other assets.
Note 2: Former section 61A of, or former Subdivision 57‑I or Subdivision 57‑J in Schedule 2D to, the Income Tax Assessment Act 1936 or Division 58 of this Act may, for example, have indirectly affected the amount the joining entity could deduct for the asset because:
(a) that section, Subdivision or Division affected the amount that could be deducted by an entity that held the asset before the joining entity and that effect extended to the joining entity because of a previous application of this subsection, roll‑over relief or section 701‑40 (the exit history rule); or
(b) this subsection affected the amount the joining entity could deduct for the asset (either directly or because of section 701‑40).
Note 3: Subsection (2) has effect even if, just before the joining time, the joining entity was:
(a) an exempt Australian government agency; or
(b) another entity whose ordinary income and statutory income were exempt from income tax.
This is because section 715‑900 causes Division 58 to apply as if, just before the joining time, the joining entity’s ordinary income or statutory income had become assessable income to some extent.
Exception to reduction of tax cost setting amount
(a) just before the joining time, the joining entity was neither an *exempt Australian government agency nor another entity whose *ordinary income and *statutory income were exempt from income tax; and
(b) a condition in subsection (4) or (5) is met in relation to the period (the pre‑joining taxable period) between the last time for which the condition in paragraph (2)(a) is met and the joining time.
(4) One condition for subsection (2) not to apply is that an amount was included in an entity’s assessable income, or an entity could deduct an amount, because of a *balancing adjustment event that occurred for the asset during the pre‑joining taxable period.
(5) Another condition for subsection (2) not to apply is that:
(a) for at least some of the pre‑joining taxable period, the asset was *held by the *head company of a *consolidated group (the earlier group) for the period (the earlier group period):
(i) starting when (and because) an entity that had previously held the asset became a *subsidiary member of the earlier group or when the asset started to be held by that company because of an asset sale situation described in subsection 58‑5(4) involving a *member of the earlier group as the purchaser mentioned in that subsection; and
(ii) ending when (and because) an entity ceased to be a subsidiary member of the earlier group or when the earlier group ceased to exist; and
(b) the company that was the head company of the earlier group just before the end of the earlier group period was not:
(i) an *associate of the head company of the joined group just before the joining time; or
(ii) the same company as the head company of the joined group; and
(c) the earlier group period was at least 24 months.
If more than one of sections 705‑40, 705‑45 and 705‑50 apply:
(a) the *head company may choose the order in which the sections are to apply; and
(b) if it does not, the order is as follows:
(i) first, section 705‑40;
(ii) second, section 705‑45;
(iii) third, section 705‑47.
(1) This section applies if, just before the joining time:
(a) the joining entity is the lessor or lessee under a lease of a *depreciating asset (the underlying asset) to which Division 40 applies; and
(b) the joining entity classifies the lease, in accordance with its *accounting principles for tax cost setting, as a finance lease.
Joining entity is lessor
(2) If the joining entity is the lessor under the lease and *holds the underlying asset just before the joining time, subsection (5) applies, in relation to the joining entity, to the asset that is the joining entity’s right to receive lease payments.
Note: In this situation, the underlying asset will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10).
(3) If the joining entity is the lessor under the lease and does not *hold the underlying asset just before the joining time:
(a) subsection (5) applies to the underlying asset in relation to the joining entity; and
(b) for the purposes of this Division:
(i) the joining entity’s right to receive lease payments is taken to be a *retained cost base asset; and
(ii) the *tax cost setting amount of that retained cost base asset is taken to be equal to its *market value just before the joining time.
Note: In this situation, the asset that is the joining entity’s right to receive lease payments will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10).
Joining entity is lessee
(4) If the joining entity is the lessee under the lease and does not *hold the underlying asset just before the joining time:
(b) the liability that is the lessee’s obligation to make lease payments is not taken into account under subsection 705‑70(1).
Note: If the joining entity is the lessee under the lease and holds the underlying asset just before the joining time:
(a) the underlying asset will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10); and
(b) the liability that is the lessee’s obligation to make lease payments is taken into account under subsection 705‑70(1).
Tax cost of certain assets set at nil
(5) If this subsection applies to an asset, in relation to the joining entity:
(a) the asset is not taken into account under paragraph 705‑35(1)(b) or (c); and
(b) the asset’s *tax cost setting amount is taken to be nil.
(1) The object of this section is to ensure that provisions that cause *membership interests in the joining entity to stop being *pre‑CGT assets, with a resultant increase in their *cost base and *reduced cost base, do not increase *tax cost setting amounts for *trading stock, *depreciating assets or *revenue assets of the joining entity, where those amounts are above the joining entity’s *terminating values for the assets.
(a) a *membership interest that a *member of the joined group holds in the joining entity at the joining time had previously stopped being a *pre‑CGT asset in the circumstances covered by any of subsections (3) to (5); and
(b) the *cost base or *reduced cost base of the membership interest just after it stopped being a pre‑CGT asset exceeded (the excess being the loss of pre‑CGT status adjustment amount) its cost base or reduced cost base just before it stopped being a pre‑CGT asset; and
(c) an asset (a revenue etc. asset) that is *trading stock, a *depreciating asset or a *revenue asset becomes that of the *head company of the joined group because subsection 701‑1(1) (the single entity rule) applies when the joining entity becomes a *subsidiary member of the group; and
(d) the revenue etc. asset’s *tax cost setting amount (after any application of section 705‑40, 705‑45 or 705‑47) exceeds the joining entity’s *terminating value for the asset.
Loss of pre‑CGT status because Division 149 etc. applied while interest held by member
(3) The first circumstance for the purpose of paragraph (2)(a) is where Division 149 of this Act, former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 or Subdivision C of Division 20 of former Part IIIA of that Act applied to cause the *membership interest to stop being a *pre‑CGT asset while the *member held the membership interest.
Loss of pre‑CGT status because Division 149 etc. applied before current holding by member
(4) The second circumstance for the purpose of paragraph (2)(a) is where:
(i) the *member *acquired the *membership interest directly from another entity; or
(ii) the member acquired the membership interest indirectly from another entity or from itself as a result of 2 or more acquisitions; and
(b) Division 149 of this Act, former subsection 160ZZS(1) of the Income Tax Assessment Act 1936 or Subdivision C of Division 20 of former Part IIIA of that Act applied to cause the membership interest to stop being a *pre‑CGT asset while the other entity held the membership interest or while the member held the membership interest on the previous occasion; and
(c) if subparagraph (a)(i) applies—at the time of the acquisition, the member *controlled (for value shifting purposes) the other entity, or vice versa, or a third entity controlled (for value shifting purposes) the member and the other entity; and
(d) if subparagraph (a)(ii) applies—the same entity:
(i) was a party to each acquisition and at the time of the acquisition controlled (for value shifting purposes) the other party; or
(ii) was a party to each acquisition and at the time of the acquisition was controlled (for value shifting purposes) by the other party; or
(iii) was not a party to each acquisition but, at the time of the acquisition, controlled (for value shifting purposes) the parties to the acquisition;
or any combination of subparagraphs (i) to (iii) occurred in relation to different acquisitions.
Loss of pre‑CGT status because of acquisition from another entity
(5) The third circumstance for the purpose of paragraph (2)(a) is where:
(i) the *member acquired the *membership interest after 16 May 2002 directly from another entity; or
(ii) the member acquired the membership interest indirectly from another entity or from itself as a result of 2 or more acquisitions, all of which took place after 16 May 2002; and
(b) the membership interest stopped being a *pre‑CGT asset because of the acquisition from the other entity or from the member while the member held the membership interest on a previous occasion; and
(i) was a party to each acquisition and at the time of the acquisition controlled (for value shifting purposes) the other parties; or
Reduction in revenue etc. asset’s tax cost setting amount
(6) The revenue etc. asset’s *tax cost setting amount (after any application of section 705‑40, 705‑45 or 705‑47) is instead the amount that would apply if, in working out the step 1 amount in the table in section 705‑60, the *cost base and *reduced cost base of the *