Document ID: chunk:federal_register_of_legislation:C2010C00605:clause:3_2:p1
Version: federal_register_of_legislation:C2010C00605
Segment Type: clause
Provision Reference: sch 3 cl 2 (pt 1/2)
Character Range: 48276–51113

2  After section 705‑160
Insert:

705‑163  Modified application of section 705‑57

Object

 (1) The object of this section is to ensure that, in working out *tax cost setting amounts for *trading stock, *depreciating assets or *revenue assets of entities that become *subsidiary members of the group at the formation time, section 705‑57 (about loss of pre‑CGT status of certain *membership interests) only applies if the *membership interests held directly by the *head company of the group are affected.

Modified application of section 705‑57—basic modification

 (2) For the purposes of applying section 705‑57 in accordance with this Subdivision, a reference in that section to a *membership interest that a *member of the joined group holds in the joining entity at the joining time is taken to be a reference to a *membership interest that the *head company of the *consolidated group holds directly in an entity becoming a *subsidiary member at the formation time.

Modified application of section 705‑57—additional modifications where section 705‑145 applies

 (3) Also, if an entity (the first entity) that becomes a *subsidiary member holds a *membership interest (the subject membership interest) in another entity (the second entity) that becomes a subsidiary member, section 705‑57 (as modified in accordance with subsection (2)) is to be applied in relation to the subject membership interest as follows.

 (4) First work out whether there would be a reduction under that section in the *tax cost setting amount for the subject membership interest that is used as mentioned in subsection 705‑145(3) (the subsection 705‑145(3) tax cost setting amount) if:
 (a) the subject membership interest, if it is not a revenue etc. asset of the first entity, were taken to be such an asset; and
 (b) paragraphs 705‑57(2)(c) and (d) and subsection 705‑57(7) did not apply to the subject membership interest.

 (5) Next, if there would be such a reduction (whose amount is the notional section 705‑57 reduction amount):
 (a) apply section 705‑57 to reduce the *tax cost setting amount for any revenue etc. asset of the second entity; and
 (b) if the second entity holds a *membership interest in another entity that becomes a *subsidiary member—apply section 705‑57 in relation to that interest in accordance with subsection (3) of this section;
and for those purposes:
 (c) the subject membership interest is taken to be a membership interest that the *head company of the group holds directly in the second entity at the formation time; and
 (d) the requirements of paragraphs 705‑57(2)(a) and (b) are taken to be satisfied in relation to the subject membership interest; and
 (e) the subject membership interest is taken to have a *cost base and *reduced cost base equal to the subsection 705‑145(3) tax cost setting amount; and