Private ruling: Proposed Restructure
Date of advice: 29 September 2025
Published: 17 November 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will any capital gain or capital loss made by the Shareholder from CGT event A1 (in section 104-10) happening from the disposal of 100% of the shares in Company A, under the Proposed Restructure, be disregarded in accordance with paragraph 104-10(5)(a)? | A1: Yes. | Q2: When determining whether CGT event K6 (in section 104-230) will happen under the Proposed Restructure, will subsection 104-230(8) apply to disregard the discharge or release of any liabilities or the market value of any CGT assets acquired? | A2: No. | Q3: If the answer to Question 1 is 'yes', will the Shareholder make a capital gain from CGT Event K6 (in section 104-230) happening on the disposal of 100% of the shares in Company A under the Proposed Restructure? | A3: No. Issue 2: Consolidation questions relating to Company E | Q4: When performing allocable cost amount (ACA) calculations for Company A, upon joining Company E's tax consolidated group, will the Step 1 amount in subsection 705-65(1) be equal to the market value consideration as proposed? | A4: Yes. | Q5: When performing ACA calculations, for Company A upon joining Company E's tax consolidated group, will the lease liabilities be excluded from Step 2 as a deductible liability under subsection 705-70(1AA)? | A5: Yes. | Q6: When performing ACA calculations for Company A upon joining Company E's tax consolidated group, will an amount of the ACA be allocated to the Right of Use (ROU) lease assets of the Subsidiaries under the cost setting process? | A6: No. | Q7: Will the single entity rule (SER), under section 701-1, apply to the transfer of net business assets to Company C under the Proposed Restructure such that any gains or losses (including capital gains) are ignored for tax purposes? | A7: Yes.

Relevant facts and circumstances: 1. The Shareholder owns 100% of the shares in Company A, which it acquired before 20 September 1985. 2. Company A wholly owns a number of companies (Company B, Company C and Company D which are together referred to as the Subsidiaries). The Subsidiaries carry on a business. Company A and the Subsidiaries are not consolidated for income tax purposes. 3. The Subsidiaries lease various properties (the Leases) which they use in their business. Based on the terms of each Lease (which include the right to use the business premise in exchange for the obligation to make lease payments), each Lease is not considered to have a positive market value. 4. The Shareholder also owns 100% of the shares in Company E. 5. Company E is the head company of an income tax consolidated group which carries on a similar business to the Subsidiaries. 6. The group is considering a business restructure which involves transferring the Shareholder's shares in Company A to Company E and then, transferring all the business assets of the operating companies to Company C (the Proposed Restructure). 7. The steps to be undertaken in the Proposed Restructure are: Step 1 - Company E will acquire 100% of the shares in Company A for market value consideration. Step 2 - The net business assets held by the Subsidiaries and Company E will be transferred to Company C. Step 3 - Some of the Subsidiaries and the current subsidiary members of Company E's income tax consolidated group will then be wound-up. 8. The purpose of the Proposed Restructure is to assist with the commercial objective of having a single operating entity, as required by the business' main supplier, and will significantly simplify the group's operations and create meaningful efficiencies. Assumptions 9. This Ruling is subject to the following assumptions: (i) The valuation of the shares in Company A (and the property and assets that it directly and indirectly owns) at the time of the Proposed Restructure will be undertaken in accordance with the ATO's ' Market valuations for tax purposes ' guidelines. (ii) The total market value of the pre-CGT assets owned directly by Company A (the Company A Pre-CGT assets) will exceed 25% of the net value of Company A, just before CGT event A1 (in section 104-10) happens from the sale of the shares in Company A under the Proposed Restructure. (iii) The total market value of the pre-CGT assets owned indirectly by Company A (the Company B Pre-CGT assets and the Company C Pre-CGT asset) will exceed 25% of the net value of Company A, just before CGT event A1 (in section 104-10) happens from the sale of the shares in Company A under the Proposed Restructure. (iv) Since 20 September 1985, and up until the time of the Proposed Restructure, there has been no change, and there will be no change, in the majority underlying ownership, as described in Division 149, of the shares in Company A. (v) Up until the time of the Proposed Restructure, there will be no change in the nature of the businesses carried on by the Subsidiaries that would cause the goodwill of these businesses to cease to be a pre-CGT asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 paragraph 104-10(5)(a) | Income Tax Assessment Act 1997 section 104-230 | Income Tax Assessment Act 1997 subsection 104-230(2) | Income Tax Assessment Act 1997 subsection 104-230(8) | Income Tax Assessment Act 1997 section 701-1 | Income Tax Assessment Act 1997 subsection 701-1(1) | Income Tax Assessment Act 1997 subsection 705-35(1) | Income Tax Assessment Act 1997 subsection 705-65(1) | Income Tax Assessment Act 1997 section 705-70 | Income Tax Assessment Act 1997 subsection 705-70(1AA) | Income Tax Assessment Act 1997 subsection 705-70(1AB) | Income Tax Assessment Act 1997 subsection 705-70(1AC)

Reasons for decision: Summary: 1. Any capital gain or capital loss that the Shareholder makes from CGT event A1 (in section 104-10) happening, when it disposes of its shares in Company A under the Proposed Restructure, will be disregarded, under paragraph 104-10(5)(a), because the shares were acquired before 20 September 1985. | Detailed Reasoning - Detailed reasoning: 2. The shares in Company A are CGT assets (note 1 to section 108-5). 3. CGT even A1 happens if you dispose of a CGT asset (subsection 104-10(1)). 4. CGT event A1 will happen when the Shareholder disposes of its shares in Company A under the Proposed Restructure. 5. Paragraph 104-10(5)(a) provides that a capital gain or capital loss you make from CGT event A1 is disregarded if you acquired the asset before 20 September 1985. 6. The Shareholder acquired its shares in Company A before 20 September 1985. 7. Accordingly, any capital gain or capital loss that the Shareholder makes from CGT event A1 happening, when it disposes of its shares in Company A under the Proposed Restructure, will be disregarded, under paragraph 104-10(5)(a), because the shares were acquired before 20 September 1985. | Summary: 8. In determining whether CGT event K6 (in section 104-230) will happen from the disposal of the Company A shares under the Proposed Restructure, subsection 104-230(8) will notapply to disregard the discharge of any liabilities or the market value of any CGT assets acquired by Company A (or the Subsidiaries) in working out the net value of Company A for the purposes of subsection 104-230(2). | Detailed Reasoning - Detailed reasoning: 9. Subsection 104-230(1) states that CGT event K6 will happen if: (a) you own shares in a company that you acquired before 20 September 1985; and (b) CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and (c) there is no roll-over for the other CGT event; and (d) the applicable requirement in subsection (2) is satisfied. 10. Subsection 104-230(2) states that, just before the other event happened: (a) the market value of property of the company or trust (that is not its trading stock) that was acquired on or after 20 September 1985; or (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was acquired on or after 20 September 1985; must be at least 75% of the net value of the company or trust. 11. For the purposes of applying subsection 104-230(2), the 'net value' of the company or trust is defined in subsection 995-1(1) as ' net value of an entity means the amount by which the sum of the market values of the assets of the entity exceeds the sum of its liabilities '. 12. Taxation Ruling TR 2004/18 Income tax: capital gains: application of CGT event K6 (about pre-CGT shares and pre-CGT trust interests) in section 104-230 of the Income Tax Assessment Act 1997 (TR 2004/18)elaborates on the meaning of 'net value' as it provides the following definitions of assets and liabilities: 'assets' means property and other economic resources of the company that the entity is capable of turning to account, even if they are not property (paragraph 20). 'liabilities' takes its ordinary meaning, and extends to a legally enforceable debt that is due for payment and to a presently existing obligation to pay either a sum certain or an ascertainable sum. It does not extend to a contingent liability or to a future obligation or expectancy (paragraph 21). 13. The calculation of the ' net value ' may, however, be varied by subsection 104-230(8) which states: In working out the *net value of a company or trust for the purposes of subsection (2), disregard: (a) the discharge or release of any liabilities; or (b) the *market value of any *CGT assets acquired; if the discharge or release, or the *acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation. 14. It is initially noted that the wording of subsection 104-230(8) only indicates that the relevant discharge, release or acquisition was done for a purpose that included ensuring that the requirement in subsection 104-230(2) would not be satisfied. Accordingly, the purpose of the discharge, release or acquisition does not need to be the sole or dominant purpose. 15. In the current circumstances, there are some recent, material movements in certain assets held by the Subsidiaries, the quantum of which could affect whether the 75% test in subsection 104-230(2) is satisfied. However, based on the information provided, it is accepted that, on balance, the acquisition of these assets by the Subsidiaries was notdone for a purpose that included ensuring that the requirements in subsection 104-230(2) are not met. 16. As a result, subsection 104-230(8) will notapply to disregard the release or discharge of any liabilities or the market value of any CGT assets acquired by Company A, or the Subsidiaries, in working out the net value of Company A for the purposes of subsection 104-230(2) in determining whether CGT event K6 will happen from the disposal of the Company A shares under the Proposed Restructure. | Summary: 17. The Shareholder will not make a capital gain from CGT event K6 happening, under section 104-230, when it disposes of its shares in Company A under Step 1 of the Proposed Restructure. 18. CGT event K6 will not happen upon disposal of the shares in Company A by the Shareholder because: (a) the total market value of the Company A Pre-CGT assets will exceed 25% of the net value of Company A, just before CGT event A1 happens from the sale of the shares in Company A under the Proposed Restructure; and (b) the total market value of the Company B Pre-CGT assets and the Company C Pre-CGT asset will exceed 25% of the net value of Company A, just before CGT event A1 happens from the sale of the shares in Company A under the Proposed Restructure. | Detailed Reasoning - Detailed reasoning: 19. Subsection 104-230(1) states that CGT event K6 will happen if: (a) you own shares in a company that you acquired before 20 September 1985; and (b) CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and (c) there is no roll-over for the other CGT event; and (d) the applicable requirement in subsection (2) is satisfied. 20. Subsection 104-230(2) provides that, just before the other event happened: (a) the market value of property of the company or trust (that is not its trading stock) that was acquired on or after 20 September 1985; or (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was acquired on or after 20 September 1985; must be at least 75% of the net value of the company or trust. 21. The time of CGT event K6 is when the other event happens. 22. In this case, the shares in Company A were acquired by the Shareholder prior to 20 September 1985. CGT event A1 will happen when the shares in Company A are disposed of under the Proposed Restructure and there will be no roll-over relevant to CGT event A1. The requirements in paragraphs 104-230(1)(a) to 104-230(1)(c) will consequently be met. 23. It is, therefore, necessary to consider the requirements in subsection 104-230(2) and specifically whether, just before CGT event A1 happens: (a) the market value of property of the company (that is not its trading stock) that was acquired on or after 20 September 1985; or (b) the market value of interests the company owns through interposed companies or trusts in property (except trading stock) that was acquired on or after 20 September 1985; is at least 75% of the net value of the company. Paragraph 104-230(2)(a) - The market value of property of Company A (that is not its trading stock) that was acquired on or after 20 September 1985 24. Based on the information provided, the property of Company A that was acquired on, or after, 20 September 1985 includes shares in Company D, cash and receivables and loans to related parties. 25. The property acquired by Company A before 20 September 1985 is made up of the shares that its holds in Company B and Company C and a parcel of land (the Company A Pre-CGT assets). 26. The Relevant facts and circumstances being ruled upon include that, under the Proposed Restructure, Company E will acquire 100% of the shares in Company A for market value consideration. In addition, the Ruling is based on the assumption that: (a) the valuation of the shares in Company A (and the property and assets that it directly and indirectly owns) at the time of the Proposed Restructure will be undertaken in accordance with the ATO's ' Market valuations for tax purposes ' guidelines; and (b) the total market value of the pre-CGT assets owned directly by Company A, namely, the shares that its holds in Company B and Company C and a parcel of land (the Company A Pre-CGT assets) will exceed 25% of the net value of Company A, just before CGT event A1 (in section 104-10) happens from the sale of the shares in Company A under the Proposed Restructure. 27. Accordingly, taking into consideration the information provided and the Assumptions included in this Ruling, it is accepted that, in this case, the requirements of paragraph 104-230(2)(a) will not be satisfied because, the total market value of the Company A Pre-CGT assets will exceed 25% of the net value of Company A, just before CGT event A1 happens from the sale of the shares in Company A under the Proposed Restructure. Paragraph 104-230(2)(b) - the market value of interests Company A owns through interposed companies or trusts in property (except trading stock) that was acquired on or after 20 September 1985 28. The property taken into account under paragraph 104-230(2)(b) is post-CGT property that is owned by lower tier companies in which the company referred to in paragraph 104-230(2)(a) has a direct or indirect interest. If the company referred to in paragraph 104-230(2)(a) has a less than 100% interest in a lower tier company, only that percentage interest in the underlying post-CGT property is counted. It does not matter, for that purpose, whether the shares in the lower tier company giving rise to the interest were acquired pre-CGT or post-CGT. However, the property taken into account does not include post-CGT shares owned by one lower tier company in another. 29. In the current circumstances, Company A holds interests in the Subsidiaries. 30. The shares in Company D were acquired by Company A after 20 September 1985 and the full value of property held by Company D is considered to be post-20 September 1985 property for the purposes of this test. 31. In respect of the property held by Company B, the property that was acquired on or after 20 September 1985 includes the following: • Cash and cash equivalents; • Trade and other receivables; • Inventories; • Fixed assets; and • A 50% interest in a parcel of land. 32. The property of Company B that was acquired before 20 September 1985 (the Company B Pre-CGT assets) is the goodwill of Company B and a 50% interest in a parcel of land. 33. In respect of the property held by Company C, the property that was acquired on or after 20 September 1985 includes the following: • Trade and other receivables; • Inventories; • Intercompany Loans; and • Fixed assets. 34. The property of Company C that was acquired before 20 September 1985 is the goodwill of Company C (the Company C Pre-CGT asset). 35. The Relevant facts and circumstances being ruled upon include that, under the Proposed Restructure, Company E will acquire 100% of the shares in Company A for market value consideration. In addition, the Ruling is based on the assumption that: (a) the valuation of the shares in Company A (and the property and assets that it directly and indirectly owns) at the time of the Proposed Restructure will be undertaken in accordance with the ATO's ' Market valuations for tax purposes ' guidelines; and (b) the total market value of the pre-CGT assets owned indirectly by Company A namely, Company B's goodwill and it's 50% interest in the land (the Company B Pre-CGT assets) and Company C's goodwill (the Company C Pre-CGT asset) will exceed 25% of the net value of Company A, just before CGT event A1 (in section 104-10) happens from the sale of the shares in Company A under the Proposed Restructure. 36. Accordingly, taking into consideration the information provided and the Assumptions included in this Ruling, it is accepted that, in this case, the requirements of paragraph 104-230(2)(b) will not be satisfied because the total market value of the Company B Pre-CGT assets and the Company C Pre-CGT asset will exceed 25% of the net value of Company A, just before CGT event A1 happens from the sale of the shares in Company A under the Proposed Restructure. The net value of the Company A 37. For both paragraphs of the 75% test, the 'net value' of the test company (in this case, Company A) is the amount by which the sum of the market values of its assets exceeds the sum of its liabilities (subsection 995-1(1)). In the context of 'net value', the word 'assets' means property and other economic resources of the company that the entity is capable of turning to account, even if they are not property (paragraph 20 of TR 2004/18). 'Liabilities' takes its ordinary meaning, and extends to a legally enforceable debt that is due for payment and to a presently existing obligation to pay either a sum certain or an ascertainable sum. It does not extend to a contingent liability or to a future obligation or expectancy (TR 2004/18 at paragraph 21). | Summary: 38. In performing the ACA calculations for Company A, the Step 1 amount for the purposes of subsection 705-65(1) will equal the market value consideration paid by Company E to acquire the Company A shares. | Detailed Reasoning - Detailed reasoning: 39. Section 705-65 provides how to work out Step 1 of the ACA under section 705-60, which is about the cost of membership interests in the joining entity held by members of the joined group. 40. Specifically, subsection 705-65(1) provides as follows: For the purposes of step 1 in the table in section 705-60, the step 1 amount is the sum of the following amounts for each membership interest that members of the joined group hold in the joining entity at the joining time: Note: If the joining entity is a trust, the step 1 amount may be increased by section 713-20 for settled capital that could be distributed tax free in respect of discretionary interests in the trust. Table 1: step 1 table in section 705-60 | Detailed Reasoning - The amount is...: 1 equal to or greater than its cost base its cost base 2 less than its cost base but greater than its reduced cost base its market value 3 less than or equal to its reduced cost base its reduced cost base 41. The Relevant facts and circumstances being ruled upon include that under the Proposed Restructure, Company E will acquire the shares in Company A for their market value. The consideration paid will form part of the cost base of the Company A shares, which includes the total money paid in respect of acquiring them (per paragraph 110-25(2)(a)). 42. Therefore, given that the cost base of the shares in Company A at the joining time will either be equal to, or greater than the market value consideration paid (if, for example, Company E incurs incidental costs in relation to the Proposed Transaction that form part of the cost base of the Company A shares), the cost of the membership interests in Company A for the purposes of Step 1 of the ACA will equal the market value consideration paid by Company E to acquire these shares (per items 1 and 2 of the table in subsection 705-65(1)). | Summary: 43. In performing ACA calculations for Company A, the lease liabilities recognised by the Subsidiaries will not be included in Step 2 of the ACA calculation to the extent that these amounts are a deductible. | Detailed Reasoning - Detailed reasoning: 44. Section 705-60 sets out the steps to work out the joined group's ACA for the joining entity and in this regard provides at 'step 2' 'Add to the result of step 1, the step 2 amount worked out under section 705-70, which is about the value of the joining entity's liabilities .' 45. This section further explains that the purpose of step 2 is to ensure that the joining entity's liabilities at the joining time, which are part of the joined group's cost of acquiring the joining entity, are reflected in the allocable cost amount. 46. Subsection 705-70(1) states: For the purposes of step 2 in the table in section 705-60, the step 2 amount is worked out by adding up the amounts of each thing (an accounting liability ) that, in accordance with the joining entity's accounting principles for tax cost setting, is a liability of the joining entity at the joining time. 47. Subsection 705-70(1AA) is entitled 'Exclusion for deductible liability' and provides that: Subsection (1AB) applies if: (a) the accounting liability is covered by subsection (1AC); and (b) assuming that the *head company had made a payment to discharge the accounting liability to the extent that it is covered under that subsection just after the joining time, that payment would result in an amount equal to all or part of the accounting liability being a deduction to the head company of the group. 48. Subsection 705-70(1AB) provides that an amount is not to be added for the accounting liability under subsection 705-70(1) to the extent of that deduction. 49. Subsection 705-70(1AC) states that: A liability is covered by this subsection except to the extent that: (a) any of the following provisions apply in relation to the liability: (i) section 713-520 (certain liabilities etc. of life insurance company that joins a consolidated group); (ii) section 715-375 (accounting liabilities that are, or are part of, a Division 230 financial arrangement held by an entity that joins a consolidated group); or (b) section 713-515 (certain assets taken to be retained cost base assets where life insurance company joins a consolidated group) applies in relation to an asset to which the liability relates; or (c) the liability is either of the following: (i) the *liability for incurred claims of a *general insurance company or of a private health insurer (within the meaning of the Private Health Insurance (Prudential Supervision) Act 2015 ) under *general insurance policies; (ii) the *liability for remaining coverage of a general insurance company or of a private health insurer (within the meaning of that Act) under general insurance policies; or (d) the liability arises under any of the following: (i) a *retirement village residence contract; (ii) a *retirement village services contract. 50. In accordance with AASB 16, the Subsidiaries have each recognised lease liabilities in their balance sheets which relate to operating leases that they have entered into for their business premises. The lease liabilities represent obligations to make lease payments. 51. The lease liabilities recognised by the Subsidiaries are not subject to the exclusions in paragraphs (a) to (d) of subsection 705-70(1AC) and, therefore, satisfy paragraph 705-70(1AA)(a), as they are an accounting liability covered by subsection 705-70(1AC). 52. Paragraph 705-70(1AA)(b) will also be satisfied as Company E would be entitled to claim a tax deduction for the lease payments made for their business premises, if it had made a payment to discharge this accounting liability just after the joining time. Accordingly, the lease liability will be fully excluded under paragraph 705-70(1AA)(b). 53. Therefore, because the requirements of subsection 705-70(1AA) are met, subsection 705-70(1AB) will apply such that the lease liabilities recognised by the Subsidiaries will not be included in Step 2 of the ACA calculation. | Summary: 54. The ROU lease asset recorded in the financial statements of the Subsidiaries will not be allocated an amount of the ACA under the tax cost setting process for Company A, upon entry into the Company E consolidated group. | Detailed Reasoning - Detailed reasoning: 55. Subsection 701-10(4) provides that: 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. 56. Subsection 701-10(2) identifies the assets to which this provision applies. It states: 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. 57. The object of section 701-10, and Division 705 to which it relates, is to recognise the cost to the head company of such assets as an amount reflecting the group's cost of acquiring the entity (subsection 701-10(3)). 58. The asset's tax cost setting amount is worked out in accordance with Division 705. In particular, subsection 705-35(1) provides: For each asset of the joining entity (a reset cost base asset) that is not a retained cost base asset, 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 in proportion to their market values. 59. The term 'asset' is not defined in the ITAA 1997. The Explanatory Memorandum to the New Business Tax System (Consolidation) Bill (No. 1) 2002 states, at paragraph 5.19, that: An asset, for the purpose of the cost setting rules, is anything of economic value which is brought into a consolidated group by an entity that becomes a subsidiary member of the group (emphasis added) . 60. Taxation Ruling TR 2004/13 Income tax: the meaning of an asset for the purposes of Part 3-90 of the Income Tax Assessment Act 1997 (TR 2004/13) addresses the question of what is an asset for the purposes of the tax cost setting rules in Part 3-90. Paragraphs 5 and 6 of TR 2004/13 states, in part: 5. ... an asset for the purpose of the tax cost setting rules is anything recognised in commerce and business as having economic value to the joining entity at the joining time for which a purchaser of its membership interests would be willing to pay . The business or commercial assets of a joining entity would include the things that would be expected to be identified by a prudent vendor and purchaser as having value in the making of a sale agreement in respect of all the membership interests in an entity and its business. These assets would also come within the scope of a due diligence examination undertaken on behalf of a prudent purchaser of such an entity and business. 6. The commercial or business meaning of an asset in Part 3-90 is not limited to assets that would be recognised under accounting standards or statements of accounting concepts. Internally generated assets would not normally be disclosed in the financial statements of a joining entity prepared in accordance with generally accepted accounting principles when they do not possess a cost or other value that can be measured reliably. However, these assets would be identified under the wider criteria that apply for the consolidation tax cost setting rules (emphasis added) . 61. Further, paragraph 19 of TR 2004/13 further explains that: The presence of a legislative definition of a liability and the absence of such a definition for an asset shows that the identification and recognition of an asset for tax cost setting rules is not simply to be found by reference to definitions in accounting standards and statements of accounting concepts. 62. Section 701-67 is also relevant, in determining whether an asset should be recognised in applying the tax cost setting process, as it broadly provides that, Part 3-90 only applies to an asset if the asset is one or more of the following: • a CGT asset; • a revenue asset; • a depreciating asset; • trading stock; • a thing that is or is part of a Division 230 financial arrangement. 63. In the current circumstances, the Subsidiaries have each recognised a ROU asset in their financial statements for the income year ended 30 June 20XX, which will also be present at the time of the Proposed Transaction. Each ROU asset relates to the lease of a business premises, and represents the right to use the underlying leased asset. 64. The recognition of the ROU asset is required by AASB 16, which introduced a single lessee accounting model, and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to make lease payments. 65. In considering whether the ROU asset is an 'asset' that should be recognised during the tax cost setting process and, in turn, allocated a portion of the ACA, it is noted that: • although a relevant consideration, the fact that an asset is recognised for accounting purposes does not necessarily, nor automatically, mean that it is recognised as an asset for tax cost setting purposes (as highlighted above in paragraph 19 of TR 2004/13); • A lease (which includes the right to use the underlying leased asset) is a contract that provides the legal right to the holder of the lease to use the property, which is the subject of the lease, for a specific time, in return for payment. A lease is a CGT asset, as defined in section 108-5 (as highlighted in paragraph 4 of Taxation Ruling TR 2005/6 Income tax: lease surrender receipts and payments ), and generally, the totality of rights under a contract are treated as one CGT asset, as noted in Taxation Determination TD 93/86 Income tax: capital gains: are the totality of rights under a contract considered to be the one asset, or is each right considered to be a separate asset for CGT purposes? , albeit contingent on the facts of each case. 66. The Relevant facts and circumstances being ruled upon include that, based on the terms of each Lease (which include the right to use the business premise in exchange for the obligation to make lease payments), each Lease is not considered to have a positive market value. Accordingly, it is, therefore, questionable whether the Lease held by each Subsidiary, and the associated ROU asset, would be recognised in commerce and business as having economic value (as flagged in paragraph 5 of TR 2004/13) in order to satisfy the characteristics of a Part 3-90 'asset'. 67. In any event, if it were an asset, as a rest-cost base asset, without a positive market value, no amount of the ACA would be allocated to it under the tax cost setting process, set-out in subsection 705-35(1). It is, therefore, accepted that, in these circumstances, no amount of the ACA shall be allocated to the ROU lease asset of the Subsidiaries under the tax cost setting process upon entry by Company A into the Company E consolidated group under the Proposed Restructure. | Summary: 68. The SER will allow for assets held by the other subsidiary members of the Company E tax consolidated group to be transferred to Company C, under Step 2 of the Proposed Restructure, without income tax consequences, while they are all subsidiary members of the same consolidated group. | Detailed Reasoning - Detailed reasoning: 69. The SER operates for the purposes set out in subsections 701-1(2) and 701-1(3) (the core purposes). These purposes are to work out the amount of the head company and subsidiary member's liability for income tax and the amount of a loss for a relevant period. They include all matters relevant and incidental to those calculations. The intended operation of the SER is to apply the income tax laws to a consolidated group as if it were a single entity. 70. Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 (TR 2004/11) sets out the Commissioner's view on the consequences of the operation of the SER. In this regard, paragraphs 7 and 8 of TR 2004/11 relevantly explain: 7. For income tax purposes the SER deems subsidiary members to be parts of the head company rather than separate entities during the period that they are members of the consolidated group. 8. As a consequence, the SER has the effect that: (a) the actions and transactions of a subsidiary member are treated as having been undertaken by the head company; (b) the assets a subsidiary member of the group owns are taken to be owned by the head company (with the exception of intra-group assets) while the subsidiary remains a member of the consolidated group; (c) assets where the rights and obligations are between members of a consolidated group (intra-group assets) are not recognised for income tax purposes during the period they are held within the group whether or not the asset, as a matter of law, was created before or during the period of consolidation (see also paragraph 11 and paragraphs 26-28); and (d) dealings that are solely between members of the same consolidated group (intra-group dealings) will not result in ordinary or statutory income or a deduction to the group's head company. 71. Under Step 2 of the Proposed Restructure, business assets held by Company B, Company D and Company E will be transferred to Company C. The transfer of these assets will occur after Company A (and the Subsidiaries) have joined the Company E tax consolidated group. Therefore, because the transfer of assets to Company C will occur between members of the same consolidated group, there will be no income tax consequences from these transfers.

Subject: Proposed Restructure: All legislative references in this document are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise specified. | Does Part IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar .