Taxation Determination TD 2005/44
Date of effect: 19 October 2005

What this ruling is about: 1. Yes. If an entity that meets the requirements of Subdivision 701C-B of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) as a transitional foreign-held indirect subsidiary (TFHIS) becomes a member of a consolidated, or MEC (multiple entry consolidated) group, and is not a chosen transitional entity in accordance with section 701-5 of the IT(TP)A 1997, the tax costs of the assets of the entity are set in accordance with Divisions 701 and 705 of the Income Tax Assessment Act 1997 (ITAA 1997) when the entity becomes a member of the group. 2. A TFHIS is a subsidiary member of a consolidated or MEC group. When an entity becomes a subsidiary member of a consolidated or MEC group, and is not within a class of subsidiary members that are excluded from the tax cost setting rules, the tax costs of the assets of that entity are set at the tax cost setting amounts, worked out as described in section 701-60 of ITAA 1997 (refer section 701-10 of the ITAA 1997). 3. The effect of the law is that the following three categories of subsidiary members do not have the tax costs of their assets set: 4. Since none of these provisions excludes a TFHIS that is not a chosen transitional entity from the operation of the tax cost setting rules, the tax costs of its assets are set in accordance with Divisions 701 and 705 of the ITAA 1997 when the entity becomes a member of a consolidated or MEC group. Note: An entity can become a member of a consolidated or MEC group as a TFHIS after the formation of those groups. A TFHIS that joins a group after the formation cannot qualify as a transitional entity (see section 701-1 of the IT(TP)A 1997) and consequently, the tax costs of the assets of that TFHIS will always be set. 5. Head Co is the head company of a consolidated group. 6. The subsidiary members of the consolidated group are M1, M2, A Co and B Co. 7. B Co is a TFHIS of the consolidated group in accordance with the definition in section 701C-20 of the IT(TP)A 1997. 8. The tax costs of the assets of B Co are set when it becomes a member of the group unless it is a chosen transitional entity. 9. A MEC group comprises provisional head company X Co, eligible tier-1 company Y Co and subsidiary members Sub Co, A Co and B Co. 10. B Co is a TFHIS of the MEC group in accordance with the definition in section 701C-20 of the IT(TP)A 1997. 11. The tax costs of the assets of B Co are set when it becomes a member of the MEC group unless it is a chosen transitional entity. Date of effect 12. This Determination applies to years commencing both before and after its date of issue. However, it does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). Commissioner of Taxation 19 October 2005 Previously issued as TD 2005/D12






Preamble: The number, subject heading, date of effect and paragraph 1 of this document are a 'public ruling' for the purposes of Part IVAAA of the Taxation Administration Act 1953 and are legally binding on the Commissioner.


Related rulings: TR 92/20
Legislative references: TAA 1953 Pt IVAAA ITAA 1997 Div 701 ITAA 1997 701-10 ITAA 1997 701-60 ITAA 1997 Div 705 ITAA 1997 719-160 IT(TP)A 1997 701-1 IT(TP)A 1997 701-5 IT(TP)A 1997 701-15 IT(TP)A 1997 Subdiv 701C-B IT(TP)A 1997 701C-20 IT(TP)A 1997 701C-30
Subject references: chosen transitional entity consolidated group consolidation cost setting rules MEC group subsidiary member of a consolidated group subsidiary member of a MEC group tax cost setting rules transitional foreign-held indirect subsidiaries transitional foreign-held subsidiaries