Document ID: chunk:federal_register_of_legislation:C2025C00029:section:3:p4
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 3 (pt 4/45)
Character Range: 5918111–5920744

section unless the joining entity is a trust that is not a *corporate tax entity at the joining time.
Note: If the joining entity is such a trust, the step 3 amount is instead worked out in accordance with section 713‑25.

Undistributed profits
 (2) First work out the undistributed profits of the joining entity at the joining time. These are the amounts that, in accordance with the joining entity's *accounting principles for tax cost setting, are retained profits of the joining entity.
 (2A) However, if a loss that did not accrue to the joined group before the joining time (subsection (8) states what it means for a loss to accrue to the joined group before the joining time) would be taken into account in working out the undistributed profits, the loss is not so taken into account.
 (2B) Also, if an amount is not added under subsection 705‑70(1) for an accounting liability to an extent because of subsection 705‑70(1AB), the accounting liability is not to be taken into account, to that extent, in working out the undistributed profits.

Extent to which tax paid on undistributed profits
 (3) Then work out how much of the undistributed profits does not exceed the amount worked out using the following formula as at the joining time:
where:
applicable gross‑up rate means the joining entity's *corporate tax gross‑up rate for the income year that ends, or, if section 701‑30 applies, for the income year that is taken by subsection (3) of that section to end, at the joining time.

Assumptions for purposes of subsection (3)
 (4) The assumptions are that the joining entity's franking account balance at the end of the income year that ends, or, if section 701‑30 applies, of the income year that is taken by subsection (3) of that section to end, at the joining time had been adjusted to take account of franking credits or franking debits that would arise if the following were paid just before the joining time:
 (a) the income tax, or refund of income tax, on the joining entity's taxable income for that income year; and
 (b) any income tax, or refund of income tax, that has not yet been paid (regardless of whether it has become payable or due for payment) on the joining entity's taxable income for any earlier income year, other than one excluded by subsection (5).

Exclusion of certain income years where previous membership of a consolidated group
 (5) If the joining entity was previously a *subsidiary member of a *consolidated group, any income year earlier than the one that started, or, if section 701‑30 applies, the one that is taken by subsection (3) of that section to have started, when the joining