Document ID: chunk:federal_register_of_legislation:C2025C00029:section:2:p3
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 2 (pt 3/66)
Character Range: 6333195–6335930

deduction of expenditure allocated to such a pool. Section 701‑5 (Entry history rule) treats the head company as having incurred the expenditure that was allocated to the pool.
Note 2: Section 701‑10 provides that, for each asset the joining entity has at the joining time, the asset's tax cost is set at the joining time at the asset's tax cost setting amount, which is defined by section 701‑60 as the amount worked out under Division 705, which in turn depends on the adjustable value of the asset worked out under section 40‑85.
Note 3: Section 701‑55 affects matters relevant to working out the head company's deductions for the decline in value of depreciating assets that became assets of the head company at the joining time because section 701‑1 (Single entity rule) applied to the joining entity.
Note 4: This section operates whether or not the joining entity's deductions under section 40‑455 for the period before the joining time for expenditure allocated to the pool total 100% of the expenditure allocated to the pool.

Object
 (2) The main object of this section is to ensure that:
 (a) the *head company's deductions for the *in‑house software:
 (i) are not worked out under section 40‑455 on the basis of section 701‑5 (Entry history rule) treating the expenditure relating to the software as being the head company's expenditure; and
 (ii) are instead worked out under Subdivision 40‑B, using the *prime cost method with the *effective life given by subsection 40‑95(7) and taking account of the *tax cost setting amount for the software; and
 (b) the tax cost setting amount is worked out in a way that takes account of deductions for the period before the joining time for the expenditure reasonably related to the in‑house software.

Joining entity taken not to have incurred certain expenditure
 (3) Subdivision 40‑B and section 40‑455 operate for the head company core purposes mentioned in section 701‑1 (Single entity rule) as if the expenditure reasonably related to the *in‑house software had not been incurred by the joining entity.
Note 1: This has the effects that:
(a) subsection 40‑50(2) does not apply because of section 701‑5 (Entry history rule) to deny the head company deductions under Subdivision 40‑B for the decline in value of the software; and
(b) the head company cannot deduct the expenditure under section 40‑455 as it operates because of section 701‑5.
Note 2: This does not prevent the head company from deducting under section 40‑455 expenditure that is not reasonably related to the in‑house software and that the head company is treated by section 701‑5 as having incurred and allocated to a software development pool because the joining entity did.

Prime cost method of working out