Document ID: chunk:federal_register_of_legislation:C2025C00029:section:4:p4
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 4 (pt 4/10)
Character Range: 5800076–5802838

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.

Object
 (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:

where:
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