Taxation Determination TD 2007/13
Date of effect: 2 May 2007





Appendix: 3. Deregistration of a company will result in the company ceasing to be a subsidiary member of a consolidated group. The company is therefore regarded as a 'leaving entity' in terms of Division 711 (refer to Taxation Determination TD 2006/58 [2] ). As a consequence, Division 711 will operate to recognise the head company's cost for membership interests in the company just before deregistration as an amount equal to the cost of the company's assets at that time reduced by the amount of its liabilities. This involves working out the ACA for the company under subsection 711-20(1). 4. The first three steps in working out the ACA under subsection 711 20(1) concern the calculation of the terminating values of the leaving entity's assets just before the leaving time, the value of deductions inherited by the leaving entity (not reflected in the terminating value of the assets), and the liabilities owed by members of the group to the leaving entity at the leaving time. 5. Step 4 of the calculation under subsection 711-20(1) requires the subtraction of an amount worked out under section 711-45 from the result of the first three steps. [2A] Subsection 711-45(1) provides that: 4. The first three steps in working out the ACA under subsection 711-20(1) concern the calculation of the terminating value of the assets that the leaving entity takes with it, the value of deductions inherited by the leaving entity (not reflected in the terminating value of the assets), and the liabilities owed by members of the group to the leaving entity at the leaving time. 5. Step 4 of the calculation under subsection 711-20(1) requires the subtraction of an amount worked out under section 711-45 from the result of the first three steps. Subsection 711-45(1) provides that: 6. The unsatisfied debts of a liquidated subsidiary at the time of deregistration would be recognised as accounting liabilities under subsection 711-45(1) (refer to Taxation Determination TD 2006/59 [3] ). Therefore, the step 4 amount can exceed the result of the first three steps to produce a negative amount for a liquidated subsidiary. 7. A negative amount calculated after completing all of the steps in subsection 711-20(1) is an outcome that is contemplated by the note to subsection 711-20(1) which refers to CGT event L5 and states that the head company is taken to have made a capital gain equal to that amount. 8. Subsection 104-520(1) provides that CGT event L5 happens if: 9. Subsection 104-520(3) provides that the head company will make a capital gain under CGT event L5 equal to the negative amount remaining after the application of step 4 of subsection 711-20(1). Previously released in draft form as TD 2006/D42


Ruling: 1. Yes. The head company of a consolidated group will make a capital gain under section 104-520 (CGT event L5) of the Income Tax Assessment Act 1997 [1] where a subsidiary member of that group: | Date of effect: 2. This Determination applies both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). | Commissioner of Taxation 2 May 2007 | For the purposes of step 4 in the table in subsection 711 20(1), the step 4 amount is worked out by adding up the amounts of each thing (an accounting liability ) that, in accordance with the leaving entity's *accounting principles for tax cost setting, is a liability of the leaving entity just before the leaving time. | For the purposes of step 4 in the table in subsection 711-20(1), the step 4 amount is worked out by adding up the amounts of each thing (an accounting liability ) that, in accordance with *accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is a liability of the leaving entity at the leaving time that can or must be identified in the entity's statement of financial position.


Related rulings: TD 2006/58 TD 2006/59 TR 2006/10
Legislative references: ITAA 1997 104-520 ITAA 1997 104-520(1) ITAA 1997 104-520(3) ITAA 1997 Div 711 ITAA 1997 711-20(1) ITAA 1997 711-45 ITAA 1997 711-45(1) TAA 1953
Case references: Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2009) 179 FCR 569 [2009] FCAFC 141 2009 ATC 20-136
Subject references: company consolidated group consolidation - exiting consolidation - tax liabilities insolvency leaving entity leaving time liquidation member of a group ownership, interests, control & rights provisional liquidation subsidiary company subsidiary member of a consolidated group voluntary liquidation wholly owned wholly owned subsidiary