705‑90 Undistributed, taxed profits accruing to joined group before joining time—step 3 in working out allocable cost amount

3 Section 705‑60 (table item 3, column headed “What the step requires”)

Omit “frankable”, substitute “taxed”.

4 Subsection 705‑90(3)

Repeal the subsection, substitute:

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:

5 Section 705‑90 (heading)

Repeal the heading, substitute:

6 Paragraph 705‑90(6)(a)

Omit “, if they had been distributed as dividends at the joining time, could have been so franked”, substitute “satisfy the requirements of subsection (3)”.

Part 3—Changes to tax cost setting amount in Subdivision 705‑B and 705‑D cases to take account of steps 3 and 5 of allocable cost amount

7 Subsection 701‑30(2)

Omit “unfrankable”, substitute “untaxed”.

Note: The heading to section 701‑30 is altered by omitting “unfrankable” and substituting “untaxed”.

8 Subsection 701‑30(4)

Omit “unfrankable”, substitute “untaxed”.

705‑160 Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members

9 Section 705‑160

Repeal the section, substitute:

Object

(1) The object of this section is to prevent a distortion under section 705‑35 in the allocation of *allocable cost amount to an entity that becomes a *subsidiary member of the group where that entity has direct or indirect *membership interests in another entity that has certain profits or tax losses when it becomes a subsidiary member.

Adjustment to allocation of allocable cost amount where direct interest in entity with profits/losses

(2) If:

(a) an entity becomes a *subsidiary member of the group at the formation time; and

(b) the entity has *membership interests in a second entity that becomes a subsidiary member of the group at that time; and

(i) an amount is required to be added (the second entity’s profit/loss adjustment amount) under step 3 in the table in section 705‑60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the second entity’s profit/loss adjustment amount) under step 5 in the table in section 705‑60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705‑35 the *tax cost setting amount for the assets of the first entity, the *market value of the first entity’s membership interests in the second entity is reduced (in a subparagraph (c)(i) case) or increased (in a subparagraph (c)(ii) case) by the first entity’s interest in the second entity’s profit/loss adjustment amount (see subsection (3)).

First entity’s interest in second entity’s profit/loss adjustment amount

(3) The first entity’s interest in the second entity’s profit/loss adjustment amount is worked out using the formula:

Adjustment to allocation of allocable cost amount for indirect interest in entity with profits/losses

(4) If:

(a) an entity becomes a *subsidiary member of the group at the formation time; and

(b) the entity has *membership interests in a second entity that becomes a subsidiary member of the group at that time; and

(c) the second entity has, directly or indirectly through one or more interposed entities that become subsidiary members of the group at the formation time, membership interests in a third entity that becomes a subsidiary member of the group at that time; and

(d) in working out the group’s *allocable cost amount for the third entity:

(i) an amount is required to be added (the third entity’s profit/loss adjustment amount) under step 3 in the table in section 705‑60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the third entity’s profit/loss adjustment amount) under step 5 in the table in section 705‑60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705‑35 the *tax cost setting amount for the assets of the first entity, the *market value of the first entity’s membership interests in the second entity is reduced (in a subparagraph (d)(i) case) or increased (in a subparagraph (d)(ii) case) by the first entity’s interest in the third entity’s profit/loss adjustment amount (see subsection (5)).

First entity’s interest in third entity’s profit/loss adjustment amount

(5) The first entity’s interest in the third entity’s profit/loss adjustment amount is worked out using the formula:

where:

market value of first entity’s membership interests in third entity held through second entity means the *market value of all *membership interests in the third entity that the first entity holds indirectly through the second entity (including through that entity and one or more other entities that become *subsidiary members of the group and are interposed between the second entity and the third entity).

10 Section 705‑235

Repeal the section, substitute:

705‑235 Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain linked entities

Object

(1) The object of this section is to prevent a distortion under section 705‑35 in the allocation of *allocable cost amount to a linked entity where that entity has direct or indirect *membership interests in another linked entity that has certain profits or tax losses.

Adjustment to allocation of allocable cost amount where direct interest in linked entity with profits/losses

(2) If:

(a) a linked entity has *membership interests in a second linked entity; and

(b) in working out the group’s *allocable cost amount for the second linked entity:

(i) an amount is required to be added (the second linked entity’s profit/loss adjustment amount) under step 3 in the table in section 705‑60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the second linked entity’s profit/loss adjustment amount) under step 5 in the table in section 705‑60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705‑35 the *tax cost setting amount for the assets of the first linked entity, the *market value of the first linked entity’s membership interests in the second linked entity is reduced (in a subparagraph (b)(i) case) or increased (in a subparagraph (b)(ii) case) by the first linked entity’s interest in the second linked entity’s profit/loss adjustment amount (see subsection (3)).

First linked entity’s interest in second linked entity’s profit/loss adjustment amount

(3) The first linked entity’s interest in the second linked entity’s profit/loss adjustment amount is worked out using the formula:

Adjustment to allocation of allocable cost amount for indirect interest in linked entity with profits/losses

(4) If:

(a) a linked entity has *membership interests in a second linked entity; and

(b) the second linked entity has, directly or indirectly through one or more interposed linked entities, membership interests in a third linked entity; and

(i) an amount is required to be added (the third linked entity’s profit/loss adjustment amount) under step 3 in the table in section 705‑60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the third linked entity’s profit/loss adjustment amount) under step 5 in the table in section 705‑60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705‑35 the *tax cost setting amount for the assets of the first linked entity, the *market value of the first linked entity’s membership interests in the second linked entity is reduced (in a subparagraph (c)(i) case) or increased (in a subparagraph (c)(ii) case) by the first linked entity’s interest in the third linked entity’s profit/loss adjustment amount (see subsection (5)).

First linked entity’s interest in third linked entity’s profit/loss adjustment amount

(5) The first linked entity’s interest in the third linked entity’s profit/loss adjustment amount is worked out using the formula:

where:

market value of first linked entity’s membership interests in third linked entity held through second linked entity means the *market value of all *membership interests in the third linked entity that the first linked entity holds indirectly through the second linked entity (including through that entity and one or more other linked entities that are interposed between the second linked entity and the third linked entity).

Part 4—Adjustment to allocable cost amount for certain pre‑joining time roll‑overs from foreign residents

705‑93 If pre‑joining time roll‑over from foreign resident company—step 3A in working out allocable cost amount

11 Section 705‑60 (after table item 3)

Insert:

For each step 3A amount (if any) under section 705‑93 (which is about pre‑joining time intra‑group roll‑overs from foreign resident companies):

(a) if the step 3A amount is an increase amount under that section—add to the result of step 3 (as affected by any previous application of this step) the step 3A amount; or

(b) if the step 3A amount is a reduction amount under that section—subtract from the result of step 3 (as affected by any previous application of this step) the step 3A amount

To adjust for certain intra‑group roll‑overs from foreign companies before the joining time

12 Section 705‑60 (table item 4, column headed “What the step requires”)

Omit “step 3”, substitute “step 3A”.

13 At the end of section 705‑60

Add:

Note: The head company may be taken to have made a capital gain, depending on the amount remaining after applying step 3A: see CGT event L2.

14 After section 705‑90

Insert:

When there is a step 3A amount

(1) For the purposes of step 3A in the table in section 705‑60, there is a step 3A amount if:

(a) before the joining time:

(i) there was a roll‑over under Subdivision 126‑B (a Subdivision 126‑B roll‑over) in relation to a *CGT event that happened in relation to an asset (the roll‑over asset); or

(ii) section 160ZZO of the Income Tax Assessment Act 1936 applied in relation to a disposal (a section 160ZZO roll‑over) of an asset (also the roll‑over asset); and

(b) the originating company in relation to the Subdivision 126‑B roll‑over, or the transferor in relation to the section 160ZZO roll‑over, was a foreign resident; and

(c) the recipient company in relation to the Subdivision 126‑B roll‑over, or the transferee in relation to the section 160ZZO roll‑over, was an Australian resident and was not the entity that became the *head company of the joined group; and

(d) between the Subdivision 126‑B roll‑over, or the section 160ZZO roll‑over, and the joining time, no other CGT event happened in relation to the roll‑over asset for which there was not a Subdivision 126‑B roll‑over or a section 160ZZO roll‑over; and

(e) the roll‑over asset is not a *pre‑CGT asset at the joining time; and

(f) the roll‑over asset becomes that of the head company of the joined group because subsection 701‑1(1) (the single entity rule) applies when the joining entity becomes a *subsidiary member of the group.

What the step 3A amount is

(2) The step 3A amount is:

(a) if, as a result of the Subdivision 126‑B roll‑over mentioned in subparagraph (1)(a)(i), or the section 160ZZO roll‑over mentioned in subparagraph (1)(a)(ii), a *capital loss of the originating company was disregarded or a capital loss of the transferor was not incurred—an increase amount equal to the capital loss; or

(b) if, as a result of the Subdivision 126‑B roll‑over mentioned in subparagraph (1)(a)(i), or the section 160ZZO roll‑over mentioned in subparagraph (1)(a)(ii), a *capital gain of the originating company was disregarded or a capital gain of the transferor did not accrue—a reduction amount equal to the capital gain.

15 After section 705‑145

Insert:

705‑147 Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by subsidiary members in other such members

Object

(1) The object of this section is to modify the effect that section 705‑93 (step 3A of allocable cost amount) has in accordance with this Subdivision so that it takes account of *membership interests that entities that become *subsidiary members hold in other such entities.

Apportionment of step 3A amount among first level interposed entities

(2) If:

(a) under section 705‑93, in its application in accordance with this Subdivision, there is a step 3A amount for the purpose of working out the group’s *allocable cost amount for an entity (the subject entity) that becomes a *subsidiary member of the group at the formation time; and

(b) at that time one or more entities (the first level entities), that become subsidiary members of the group and in which the *head company holds *membership interests, are interposed between the head company and the subject entity;

then the step 3A amount is apportioned among the first level entities and the subject entity on the following basis:

where:

market value of all membership interests in subject entity means the *market value, at the formation time, of all *membership interests in the subject entity that are held by entities that become *members of the group at that time.

market value of first level entity’s direct and indirect membership interests in subject entity means so much of the market value of all membership interests in the subject entity (as defined above) as is attributable to *membership interests that the first level entity holds directly, or indirectly through other interposed entities that become *subsidiary members of the group at the formation time; and

(d) the subject entity has the remainder of the step 3A amount.

Step 3A amount for assets consisting of membership interests held by subsidiary members in other subsidiary members

(3) If:

(a) before the formation time:

(i) there was a roll‑over under Subdivision 126‑B (a Subdivision 126‑B roll‑over) in relation to a *CGT event that happened in relation to an asset (the roll‑over asset); or

(ii) section 160ZZO of the Income Tax Assessment Act 1936 applied in relation to a disposal (a section 160ZZO roll‑over) of an asset (also the roll‑over asset); and

(b) the originating company in relation to the Subdivision 126‑B roll‑over, or the transferor in relation to the section 160ZZO roll‑over, was a foreign resident; and

(d) between the Subdivision 126‑B roll‑over, or the section 160ZZO roll‑over, and the formation time, no other CGT event happened in relation to the roll‑over asset for which there was not a Subdivision 126‑B roll‑over or a section 160ZZO roll‑over; and

(e) the roll‑over asset is a *membership interest in an entity that becomes a *subsidiary member at the formation time, other than one that is held at that time by the entity that becomes the head company of the group;

then, subject to subsection (5), there is under section 705‑93 a step 3A amount for the purpose of working out the group’s *allocable cost amount for the entity (the subject entity) that holds the roll‑over asset at the formation time.

What the step 3A amount is

(4) The step 3A amount is:

(a) if, as a result of the Subdivision 126‑B roll‑over mentioned in subparagraph (3)(a)(i), or the section 160ZZO roll‑over mentioned in subparagraph (3)(a)(ii), a *capital loss of the originating company was disregarded or a capital loss of the transferor was not incurred—an increase amount equal to the capital loss; or

(b) if, as a result of the Subdivision 126‑B roll‑over mentioned in subparagraph (3)(a)(i), or the section 160ZZO roll‑over mentioned in subparagraph (3)(a)(ii), a *capital gain of the originating company was disregarded or a capital gain of the transferor did not accrue—a reduction amount equal to the capital gain.

Apportionment of step 3A amount among first level interposed entities

(5) If at the formation time one or more entities, that become *subsidiary members of the group and in which the *head company holds *membership interests, are interposed between the head company and the subject entity, then the step 3A amount is apportioned among those entities and the subject entity in the same way as a step 3A amount is apportioned under subsection (2).

16 Section 705‑150 (heading)

Repeal the heading, substitute:

705‑150 Adjustment to result of step 3A in working out allocable cost amount where pre‑formation time roll‑over from head company to member of wholly‑owned group

17 Subsection 705‑150(3) (heading)

Repeal the heading, substitute:

Adjustment to result of step 3A in allocable cost amount for head company roll‑over recipient

18 Subsection 705‑150(3)

Omit “step 3”, substitute “step 3A”.

19 Subsection 705‑150(4) (heading)

Repeal the heading, substitute:

Adjustment to result of step 3A in allocable cost amount for interposed entity

20 Subsection 705‑150(4)

Omit “step 3”, substitute “step 3A”.

21 Subsection 705‑150(4) (note)

Repeal the note, substitute:

Note: If, after applying this section, the amount remaining as a result of step 3A in the table in section 705‑60 is negative, the head company makes a capital gain equal to that amount: see CGT event L2.

22 After section 705‑225

Insert:

705‑227 Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by linked entities in other linked entities

Object

(1) The object of this section is to modify the effect that section 705‑93 (step 3A of allocable cost amount) has in accordance with this Subdivision so that it takes account of *membership interests that linked entities hold in other linked entities at the time (the linked entity joining time) when the linked entities become *subsidiary members of the group.

Apportionment of step 3A amount among first level interposed entities

(2) If:

(a) under section 705‑93, in its application in accordance with this Subdivision, there is a step 3A amount for the purpose of working out the group’s *allocable cost amount for a particular linked entity (the subject entity); and

(b) at the linked entity joining time, one or more of the linked entities (the first level entities) in which the *head company holds *membership interests are interposed between the head company and the subject entity;

then the step 3A amount is apportioned among the first level entities and the subject entity on the following basis:

where:

market value of all membership interests in subject entity means the *market value, at the linked entity joining time, of all *membership interests in the subject entity that are held by entities that become *members of the group at that time.

(d) the subject entity has the remainder of the step 3A amount.

Step 3A amount for assets consisting of membership interests held by linked entities in other linked entities

(3) If:

(a) before the linked entity joining time:

(i) there was a roll‑over under Subdivision 126‑B (a Subdivision 126‑B roll‑over) in relation to a *CGT event that happened in relation to an asset (the roll‑over asset); or

(ii) section 160ZZO of the Income Tax Assessment Act 1936 applied in relation to a disposal (a section 160ZZO roll‑over) of an asset (also the roll‑over asset); and

(b) the originating company in relation to the Subdivision 126‑B roll‑over, or the transferor in relation to the section 160ZZO roll‑over, was a foreign resident; and

(d) between the Subdivision 126‑B roll‑over, or the section 160ZZO roll‑over, and the linked entity joining time, no other CGT event happened in relation to the roll‑over asset for which there was not a Subdivision 126‑B roll‑over or a section 160ZZO roll‑over; and

(e) the roll‑over asset is a *membership interest in a linked entity, other than one that is held at that time by the entity that becomes the head company of the group;

then, subject to subsection (5), there is under section 705‑93 a step 3A amount for the purpose of working out the group’s *allocable cost amount for the linked entity (the subject entity) that holds the roll‑over asset at the linked entity joining time.

What the step 3A amount is

(4) The step 3A amount is:

Apportionment of step 3A amount among first level interposed entities

(5) If at the linked entity joining time one or more linked entities, in which the *head company holds *membership interests, are interposed between the head company and the subject entity, then the step 3A amount is apportioned among those entities and the subject entity in the same way as a step 3A amount is apportioned under subsection (2).

Part 5—Technical corrections

Part 6—Extension of transitional provision relating to step 3 of allocable cost amount on group formation

23 Subsection 701‑25(4)

Omit “, and”, substitute “and”.

24 Subsection 701‑45(3)

Omit “*head company”, substitute “entity”.

25 Subparagraph 701‑75(3)(a)(ii)

Omit “time.”, substitute “time; and”.

26 Subsections 705‑150(3) and (4)

Omit “reduced (if the head company roll‑over adjustment amount is an excess), or increased”, substitute “increased (if the head company roll‑over adjustment is an excess), or reduced”.

Part 7—Transitional group’s allocable cost amount for subsidiary members other than chosen transitional entities

27 Subsection 701‑30(1)

Repeal the subsection, substitute:

Section only applies to transitional groups formed at certain times

(1) This section applies if the day on which the transitional group comes into existence is before 1 July 2003 or is both:

(a) the first day of the first income year of the head company starting after 30 June 2003; and

(b) before 1 July 2004.

Section only applies to non‑chosen transitional entities in such groups

(1A) This section applies to each transitional entity in the transitional group, other than a chosen transitional entity. This is so even if there are no chosen transitional entities at all.

27A Paragraph 701‑30(1)(a)

Repeal the paragraph, substitute:

(a) on or before the first day of the first income year of the head company starting after 30 June 2003; and

Part 8—Inclusion in certain transitional provisions of references to the Income Tax Assessment Act 1997

28 Paragraph 701‑20(5)(c)

Omit “in the sub‑group held in any other”, substitute “held at or before that time in any other entity that became a”.

29 Paragraph 701‑20(5)(c)

After “in relation to the sub‑group”, insert “, and any such entity held those membership interests during the period when it actually held them”.

Schedule 2—Consolidation: beneficial ownership

30 Subsection 701‑5(2)

After “703‑50(3)”, insert “of the Income Tax Assessment Act 1997”.

31 Subsection 701‑5(2)

After “section 703‑50”, insert “of that Act”.

32 Section 701‑15

After “amount)”, insert “of the Income Tax Assessment Act 1997”.

33 Section 701‑15 (note)

After “701‑5”, insert “of that Act”.

34 Paragraph 701‑20(4)(b)

After “705‑60”, insert “of the Income Tax Assessment Act 1997”.

35 Paragraph 701‑20(5)(d)

After “705‑60”, insert “of the Income Tax Assessment Act 1997”.

36 Section 701‑25

Omit “this Act”, substitute “the Income Tax Assessment Act 1997”.

703‑33 Transfer time for sale of shares in company

1 After section 703‑30

Insert:

(1) This section applies if:

(a) under a contract:

(i) a person (the seller) stops being entitled to be registered as the holder of a *share in a company at a time (the transfer time); and

(ii) another person (the buyer) becomes entitled to be registered as the holder of the share in the company at the transfer time; and

(b) as a result of the contract, the seller stops being the beneficial owner of the share, and the buyer becomes the beneficial owner of the share; and

(d) the seller and the buyer were not *associates of one another at any time during the period:

(i) starting when the contract was entered into; and

(ii) ending at the transfer time.

(2) For the purposes of subsection 703‑30(1):

(a) the seller is taken to have stopped being the beneficial owner of the share at the transfer time; and

(b) the buyer is taken to have become the beneficial owner of the share at the transfer time.

Schedule 3—Consolidation: technical amendment of membership rules

Schedule 4—Consolidation: adjustments for errors etc.

1 Subparagraph 703‑50(3)(b)(i)

Omit “first income year ending after the day specified in the choice”, substitute “income year during which the day specified in the choice occurs”.

Part 1—New Subdivision 705‑E

Subdivision 705‑E—Adjustments for errors etc.

1 Section 705‑245 (link note)

Repeal the link note.

2 After Subdivision 705‑D

Insert:

Guide to Subdivision 705‑E

705‑300 What this Subdivision is about

Errors in making tax cost setting amount calculations are reversed by means of an immediate capital gain or loss if it would be unreasonable to require the calculations to be re‑done.

Table of sections

Operative provisions

705‑305 Object of this Subdivision

705‑310 Operation of Part IVA of the Income Tax Assessment Act 1936

705‑315 Errors that attract special adjustment action

705‑320 Tax cost setting amounts taken to be correct

[This is the end of the Guide.]

705‑305 Object of this Subdivision

The object of this Subdivision is to avoid the time and expense involved in correcting errors affecting *tax cost setting amount calculations. This is done by providing for *capital gains or *capital losses to reverse the errors.

705‑310 Operation of Part IVA of the Income Tax Assessment Act 1936

To avoid doubt, this Subdivision does not limit the operation of Part IVA of the Income Tax Assessment Act 1936.

705‑315 Errors that attract special adjustment action

(1) Section 705‑320 (about later adjustments to correct *tax cost setting amount calculation errors) applies if the conditions in this section are satisfied.

Tax cost setting amount taken into account

(2) The first condition is that the *head company of a *consolidated group worked out a *tax cost setting amount, in purported compliance with this Division, for an asset of an entity that becomes a *subsidiary member of the group that is an asset of a kind referred to in section 705‑35 as a reset cost base asset.

Error in calculation

(3) The second condition is that:

(a) the *head company made one or more errors in working out the *tax cost setting amount; and

(b) those errors caused the tax cost setting amount to differ from its correct amount.

If the errors caused the tax cost setting amount to be more, the difference is an overstated amount. If the errors caused the tax cost setting amount to be less, the difference is an understated amount.

Unreasonable to require recalculation

(4) The third condition is that, having regard to the following factors:

(a) the net size of the errors compared to the size of the *allocable cost amount for the joining entity;

(b) the number of *tax cost setting amounts that would have to be recalculated, and the difficulty of making the recalculations;

(c) the number of adjustments, in assessments that could be amended and in future *income tax returns, that would be necessary to correct the errors;

(d) the difficulty in obtaining any necessary information;

it is not reasonable to require a recalculation of the amounts involved.

Exception where error due to fraud or evasion

(5) However, the conditions in this section are not satisfied if the errors were to any extent due to fraud or evasion.

Requirement to notify

(6) The *head company of the *consolidated group must, as soon as practicable after becoming aware that it made one or more errors in working out the *tax cost setting amount, notify the Commissioner in the *approved form:

(a) that it had made the errors; and

(b) of the amount of the overstated amount or understated amount.

705‑320 Tax cost setting amounts taken to be correct

(1) For the purposes of this Act (other than this Subdivision) and for the purposes of the Taxation Administration Act 1953, any *tax cost setting amounts that were worked out by the *head company, so far as they were due to the errors, are taken to have been correct if the conditions in section 705‑315 are satisfied.

Note 1: If the conditions in section 705‑315 are satisfied, CGT event L6 happens (see section 104‑525).

Note 2: Subsection (1) means that the Commissioner cannot amend any assessments necessary to correct the errors, and that (except as mentioned in subsection (2)) no offences or administrative penalties arise in respect of the errors.

(2) Subsection (1) does not apply for the purposes of determining whether there is an offence against section 8N of the Taxation Administration Act 1953, or an administrative penalty under section 284‑75 or 284‑145 in Schedule 1 to that Act, in relation to statements made before the Commissioner became aware of the errors.

Note 1: Section 8N of the Taxation Administration Act 1953 deals with false or misleading statements. Sections 284‑75 and 284‑145 in Schedule 1 to that Act set out the circumstances in which an entity is liable for an administrative penalty.

Note 2: The offence and administrative penalty provisions however apply on a modified basis—see subsection 8W(1C) of the Taxation Administration Act 1953, and subsections 284‑80(2) and 284‑150(2) in Schedule 1 to that Act.

[The next Division is Division 707.]

Part 2—Consequential amendments

104‑525 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6

3 Section 104‑5 (at the end of the table)

Add:

L6 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6

[See section 104‑525]

start of the income year when the Commissioner becomes aware of the errors

the net overstated amount resulting from the errors, or a portion of that amount

the net understated amount resulting from the errors, or a portion of that amount

L7 Discharged amount of liability differs from amount for allocable cost amount purposes: CGT event L7

[See section 104‑530]

start of the income year in which the liability is realised

your allocable cost amount less what it would have been had you used the correct amount for the liability

what your allocable cost amount would have been had you used the correct amount for the liability less your allocable cost amount

4 At the end of Division 104

Add:

(1) CGT event L6 happens if:

(a) you are the *head company of a *consolidated group; and

(b) the conditions in section 705‑315 (about errors in tax cost setting amounts) are satisfied for a *subsidiary member of the group; and

(2) The time of the event is the start of the income year in which the Commissioner becomes aware of the errors.

(3) You work out whether you have a net overstated amount or net understated amount using this table:

Meaning of net overstated amount and net understated amount
Item	In this situation:	There is this result:
1	There are one or more overstated amounts under section 705‑315 for the *subsidiary member but no understated amount under that section for the subsidiary member	There is a net overstated amount. It is the overstated amount, or the sum of the overstated amounts.
2	There are one or more understated amounts under section 705‑315 for the *subsidiary member but no overstated amount under that section for the subsidiary member	There is a net understated amount. It is the understated amount, or the sum of the understated amounts.
3	There are both one or more overstated amounts and one or more understated amounts under section 705‑315 for the *subsidiary member and the sum of the overstated amounts exceeds the sum of the understated amounts	There is a net overstated amount. It is the difference between those sums
4	There are both one or more overstated amounts and one or more understated amounts under section 705‑315 for the *subsidiary member and the sum of the overstated amounts is less than the sum of the understated amounts	There is a net understated amount. It is the difference between those sums

(4) If the time when the Commissioner becomes aware of the errors is within the period within which the Commissioner may amend all of the assessments necessary to correct the errors, then, for the head company core purposes mentioned in subsection 701‑1(2):

(a) if you have a *net overstated amount—you make a capital gain equal to that amount; or

(b) if you have a *net understated amount—you make a capital loss equal to that amount.

(5) If the time when the Commissioner becomes aware of the errors is not within that period, then, for the head company core purposes mentioned in subsection 701‑1(2):

(a) if you have a *net overstated amount—you make a capital gain of the amount worked out under subsection (6); or

(b) if you have a *net understated amount—you make a capital loss of the amount worked out under subsection (6).

(6) The amount of the *capital gain or *capital loss is worked out as follows:

where:

current asset setting amount means the *tax cost setting amount for all assets referred to in subsection 705‑315(2) as reset cost base assets that the *head company of the *consolidated group held continuously from the time when the *subsidiary member joined the group until the start of the head company’s income year that is the earliest income year for which the Commissioner could amend the head company’s assessment to correct any of the errors.

original asset setting amount means the *tax cost setting amount for all assets referred to in subsection 705‑315(2) as reset cost base assets that the *subsidiary member held at the time it joined the group.

stated amount means the *net overstated amount or the *net understated amount, as the case requires.

104‑530 Discharged amount of liability differs from amount for allocable cost amount purposes: CGT event L7

(1) CGT event L7 happens if you are the *head company of a *consolidated group and the conditions relating to a liability in subsection (3) are satisfied.

(2) The time of the event is the start of your income year in which the liability is discharged.

(3) The conditions are that:

(a) a liability of an entity that became a *subsidiary member of the group was taken into account in working out your *allocable cost amount for the subsidiary member in accordance with Division 705 (your ACA); and

(b) the liability was later discharged (whether by the making of a payment or by the release, waiver or other extinguishment of the liability) and the sum (the realised amount) of:

(i) the amount of any payment made to discharge the liability; and

(ii) the market value of any other consideration given to discharge the liability;

differs from the amount for the liability that was taken into account in working out your ACA; and

(c) that ACA is different to what it would have been (your true ACA) if you had taken the realised amount into account in working out your ACA.

(4) You make a capital gain for the head company core purposes mentioned in subsection 701‑1(2) if your ACA would have been smaller had you used the realised amount in working out your ACA. The amount of the gain is the difference between the amount you worked out and your true ACA.

(5) You make a capital loss for the head company core purposes mentioned in subsection 701‑1(2) if your ACA would have been greater had you used the realised amount in working out your ACA. The amount of the loss is the difference between the amount you worked out and your true ACA.

5 Section 110‑10 (at the end of the table)

Add:

L6	Errors in tax cost setting amounts for entity joining consolidated group	104‑525
L7	Discharged amount of liability differs from amount for allocable cost amount purposes	104‑530

6 Subsection 995‑1(1)

Insert:

net overstated amount has the meaning given by subsection 104‑525(3).

7 Subsection 995‑1(1)

Insert:

net understated amount has the meaning given by subsection 104‑525(3).

Taxation Administration Act 1953

8 After subsection 8W(1B)

Insert:

(1C) If the conditions in section 705‑315 of the Income Tax Assessment Act 1997 are satisfied, then for the purposes of any application of subsection (1) of this section in relation to the errors mentioned in that section, so far as they were made in a statement made as mentioned in subsection 705‑230(2) of that Act, the references in paragraphs (1)(c) and (d) of this section to the excess are taken instead to be references to the amount worked out using the formula:

where:

adjusted reset cost base asset setting amount means:

(a) the *tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997, for all assets of a kind referred to in section 705‑35 of that Act as reset cost base assets that the *head company of the relevant group held continuously from the time when the *subsidiary member referred to in subsection 705‑315(2) of that Act joined the group until the start of the head company’s income year in which the Commissioner became aware of the errors mentioned in section 705‑315 of that Act;

less:

(b) the head company’s deductions under Division 40 (except under Subdivision 40‑F, 40‑G, 40‑H or 40‑I) or Subdivision 328‑D of the Income Tax Assessment Act 1997 for those assets for all income years before the earliest income year for which the Commissioner could amend the head company’s assessment to correct any of the errors.

capital gain means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104‑525 of the Income Tax Assessment Act 1997.

original reset cost base asset setting amount means the *tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997, for all reset cost base assets that the *subsidiary member held at the time it joined the group, other than assets that the *head company no longer held at the start of the earliest income year for which the Commissioner could amend the head company’s assessment to correct any of the errors.

9 At the end of section 284‑80 in Schedule 1

Add:

(2) However, if:

(a) your shortfall amount arises in the situation covered by both item 1 in the table and item 1, 2 or 3 in the table in subsection 284‑90(1); and

(b) the statement is false or misleading because of errors mentioned in section 705‑315 of the Income Tax Assessment Act 1997 that were made in the income tax return mentioned in subsection 705‑230(2) of that Act, your shortfall amount is instead the amount worked out using the formula:

where:

adjusted reset cost base asset setting amount means:

less:

(b) the head company’s deductions under Division 40 (except under Subdivision 40‑F, 40‑G, 40‑H or 40‑I) or Subdivision 328‑D of the Income Tax Assessment Act 1997 for those assets for all income years before the income year in which the Commissioner became aware of the errors.

capital gain means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104‑525 of the Income Tax Assessment Act 1997.

10 At the end of section 284‑150 in Schedule 1

Add:

(3) However, to the extent that your scheme shortfall amount is due to errors in an income tax return as mentioned in subsection 705‑230(2) of the Income Tax Assessment Act 1997, your scheme shortfall amount is instead the amount worked out using the formula:

where:

adjusted reset cost base asset setting amount means:

less:

(b) the head company’s deductions under Division 40 (except under Subdivision 40‑F, 40‑G, 40‑H or 40‑I) or Subdivision 328‑D of the Income Tax Assessment Act 1997 for those assets for all income years before the income year in which the Commissioner became aware of the errors.

capital gain means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104‑525 of the Income Tax Assessment Act 1997.

original reset cost base asset setting amount means the *tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997, for all reset cost base assets that the *subsidiary member held at the joining time, other than assets that the *head company no longer held at the start of the earliest income year for which the Commissioner could amend the head company’s assessment to correct any of the errors.

Schedule 5—Consolidation: imputation rules

Income Tax Assessment Act 1936

1 At the end of section 177EB

Add:

Section to apply to exempting credits

(11) This section applies to exempting credits arising in the exempting account of the head company of a consolidated group in the same way that it applies to credits arising in the head company’s franking account.

709‑90 Subsidiary member’s distributions to foreign resident taken to be distributions by head company

2 Section 709‑85 (link note)

Repeal the link note.

3 At the end of Subdivision 709‑A

Add:

Part 3‑6 operates as if a *frankable distribution made by a *subsidiary member of a *consolidated group (the foreign‑held subsidiary) were a frankable distribution made by the *head company of the group to a *member of the head company if:

(a) the foreign‑held subsidiary meets the set of requirements in section 703‑45, section 701C‑10 of the Income Tax (Transitional Provisions) Act 1997 or section 701C‑15 of that Act; and

(b) the frankable distribution is made to a foreign resident.

Note: Part 3‑6 deals with imputation.

4 At the end of Division 709

Add:

Subdivision 709‑B—Imputation issues

Guide to Subdivision 709‑B

709‑150 What this Subdivision is about

This Subdivision modifies the way Division 208 (exempting entities and former exempting entities) operates in relation to consolidated groups.

Table of sections

Operative provisions

709‑155 Testing consolidated groups

709‑160 Subsidiary member is exempting entity

709‑165 Subsidiary member is former exempting entity

709‑170 Head company and subsidiary are exempting entities

709‑175 Head company is former exempting entity

[This is the end of the Guide.]

709‑155 Testing consolidated groups

(1) To determine whether a *consolidated group is an *exempting entity or *former exempting entity, the tests in Division 208 are applied to the *head company of the group.

(2) However, there are some additional rules that can alter the way that Division 208 applies to a *consolidated group. These are set out in sections 709‑160 to 709‑175.

(3) In applying those rules to an entity that is a *member of a *consolidated group:

(a) Division 208 is to be applied before those rules; and

(b) that Division is to be applied just after the entity became a member of the group but, for a *subsidiary member, it is to be applied on the assumption that the subsidiary was not a member of the group at that time.

(4) Except as mentioned in paragraph (3)(b), Division 208 has no application to a *subsidiary member of a *consolidated group.

709‑160 Subsidiary member is exempting entity

(1) This section operates if:

(a) the *head company of a *consolidated group is neither an exempting entity nor a *former exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group at a time (the joining time); and

(2) These rules apply to the *consolidated group.

Rules applying to *consolidated group
Item	Rule
1	The head company becomes a former exempting entity at the joining time
2	The head company has both a franking account and an *exempting account
3	If the subsidiary member’s franking account has a franking surplus at the joining time: (a) a debit equal to that surplus arises in that account at the joining time; and (b) a credit equal to that surplus arises in the exempting account of the *head company at the joining time
4	Subsection 709‑60(2) (about franking surplus) does not apply to the *subsidiary member
5	Item 1 of the table in section 208‑115 does not apply to the *head company
6	Item 1 of the table in section 208‑120 does not apply to the *head company
7	Item 1 of the table in section 208‑130 does not apply to the *head company
8	Item 1 of the table in section 208‑145 does not apply to the *head company

Note 1: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3).

Note 2: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

709‑165 Subsidiary member is former exempting entity

(1) This section operates if:

(a) the *head company of a *consolidated group is neither an exempting entity nor a *former exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group at a time (also the joining time); and

(2) These rules apply to the *consolidated group.

Rules applying to *consolidated group
Item	Rule
1	The head company becomes a former exempting entity at the joining time
2	The head company has both a franking account and an *exempting account
3	If the subsidiary member’s exempting account has an exempting surplus at the joining time: (a) a debit equal to that surplus arises in that account at the joining time; and (b) a credit equal to that surplus arises in the exempting account of the head company at the joining time
4	If the subsidiary member’s exempting account has an exempting deficit at the joining time: (a) a credit equal to that deficit arises in that account at the joining time; and (b) a debit equal to that deficit arises in the subsidiary’s franking account just before the joining time
5	The subsidiary member’s exempting account does not operate during the period: (a) starting just after the joining time; and (b) ending when the entity ceases to be a subsidiary member of the group
6	Item 1 of the table in section 208‑115 does not apply to the *head company
7	Item 1 of the table in section 208‑120 does not apply to the *head company
8	Item 1 of the table in section 208‑130 does not apply to the *head company
9	Item 1 of the table in section 208‑145 does not apply to the *head company

Note 1: Any surplus in the subsidiary’s franking account will be transferred to the head company’s franking account: see subsection 709‑60(2).

Note 2: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3). This deficit may be increased by item 4 in the table in subsection (2).

Note 3: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

709‑170 Head company and subsidiary are exempting entities

There is no change to the status of the *head company of a *consolidated group if:

(a) the head company is an *exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group at a time (also the joining time); and

Note 1: If the subsidiary’s franking account is in surplus, that surplus will be transferred to the head company’s franking account: see subsection 709‑60(2).

Note 2: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3).

Note 3: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

709‑175 Head company is former exempting entity

(1) Subsection (2) operates if:

(a) the *head company of a *consolidated group is a *former exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group at a time (also the joining time); and

(2) These rules apply to the *consolidated group.

Rules applying to *consolidated group
Item	Rule
1	There is no change to the status of the *head company
2	If the subsidiary member’s franking account has a franking surplus at the joining time: (a) a debit equal to that surplus arises in that account at the joining time; and (b) a credit equal to that surplus arises in the exempting account of the head company at the joining time
3	Subsection 709‑60(2) (about franking surplus) does not apply to the *subsidiary member

Note 1: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3).

Note 2: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

(3) Subsection (4) operates if:

(a) the *head company of a *consolidated group is a *former exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group at a time (also the joining time); and

(4) These rules apply to the *consolidated group.

Rules applying to *consolidated group
Item	Rule
1	There is no change to the status of the *head company
2	If the subsidiary member’s exempting account has an exempting surplus at the joining time: (a) a debit equal to that surplus arises in that account at the joining time; and (b) a credit equal to that surplus arises in the exempting account of the head company at the joining time
3	If the subsidiary member’s exempting account has an exempting deficit at the joining time: (a) a credit equal to that deficit arises in that account at the joining time; and (b) a debit equal to that deficit arises in the subsidiary’s franking account just before the joining time
4	The subsidiary member’s exempting account does not operate during the period: (a) starting just after the joining time; and (b) ending when the entity ceases to be a subsidiary member of the group

Note 1: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3). This deficit may be increased by item 3 in the table in subsection (4).

Note 2: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

(5) There is no change to the status of the *head company of a *consolidated group if:

(a) the head company is a *former exempting entity; and

(b) a *corporate tax entity becomes a *subsidiary member of the group; and

Note 1: If the subsidiary’s franking account is in surplus, that surplus will be transferred to the head company’s franking account: see subsection 709‑60(2).

Note 2: If the subsidiary’s franking account is in deficit, it will be liable for franking deficit tax: see subsection 709‑60(3).

Note 3: The subsidiary’s franking account does not operate while it is a member of the group: see section 709‑65.

5 Before Subdivision 719‑J

Insert:

Subdivision 719‑H—Imputation issues

719‑425 Guide to Subdivision 719‑H

This Subdivision deals with some imputation issues in relation to MEC groups.

Table of sections

Operative provisions

719‑430 Transfer of franking account balance on cessation event

719‑435 Distributions by subsidiary members of MEC group taken to be distributions by head company

[This is the end of the Guide.]

719‑430 Transfer of franking account balance on cessation event

(1) This section operates if:

(a) a *cessation event happens to the *provisional head company of a *MEC group (the former head company); and

(b) another company (the new head company) is appointed as the provisional head company of the group under subsection 719‑60(3).

(2) When the new head company is appointed:

(a) the *franking account of the former head company ceases to operate; and

(b) the new head company has a franking account; and

(c) any *franking surplus or *franking deficit in the franking account of the former head company just before the *cessation event happened becomes that of the new head company.

719‑435 Distributions by subsidiary members of MEC group taken to be distributions by head company

(1) Part 3‑6 operates as if a *frankable distribution made by an *eligible tier‑1 company that:

(a) is a member of a *MEC group; and

(b) is not the *provisional head company of the group;

had been made by the provisional head company of the group to a *member of the provisional head company.

Note: Part 3‑6 deals with imputation.

(2) Part 3‑6 operates as if a *frankable distribution made by a *subsidiary member of a *MEC group (the foreign‑held subsidiary) that is not an *eligible tier‑1 company were a frankable distribution made by the *head company of the group to a *member of the head company if:

(a) the foreign‑held subsidiary meets the set of requirements in section 703‑45, section 701C‑10 of the Income Tax (Transitional Provisions) Act 1997 or section 701C‑15 of that Act; and

(b) the frankable distribution is made to a foreign resident.

Schedule 6—Consolidation: life insurance companies

Part 1—Life insurance companies and consolidation

Subdivision 713‑L—Life insurance companies

1 At the end of Division 713

Add:

Guide to Subdivision 713‑L

713‑500 What this Subdivision is about

This Subdivision sets out special rules for:

(a) a life insurance company that becomes, or ceases to be, a member of a consolidated group; and

(b) the head company of a consolidated group where a life insurance company is a subsidiary member of the group.

Table of sections

Operative provisions

713‑505 Head company treated as a life insurance company

713‑510 Certain subsidiaries of life insurance companies cannot be members of consolidated group

713‑515 Modification of cost setting rules

713‑520 Valuing certain liabilities

713‑525 Obligation to value virtual PST assets and segregated exempt assets

713‑530 Certain amounts transferred to leaving entity

[This is the end of the Guide.]

713‑505 Head company treated as a life insurance company

This Act, and the Income Tax Rates Act 1986, apply to the *head company of a *consolidated group as if it were a *life insurance company for an income year if one or more life insurance companies are *subsidiary members of the group at any time during that year.

713‑510 Certain subsidiaries of life insurance companies cannot be members of consolidated group

(1) An entity cannot be a *subsidiary member of the same *consolidated group or *consolidatable group of which a *life insurance company is a *member if:

(a) the life insurance company owns, either directly or indirectly, *membership interests in the entity; and

(b) either:

(i) some, but not all, of those membership interests are *virtual PST assets of the life insurance company; or

(ii) some, but not all, of those membership interests are *segregated exempt assets of the life insurance company.

Note: The entity could, however, be a member of another consolidated group or consolidatable group.

(2) An entity cannot continue to be a *subsidiary member of a *consolidated group if:

(a) a *life insurance company is a *member of the group; and

(b) the life insurance company owns, either directly or indirectly, *membership interests in the entity; and

(i) some, but not all, of those membership interests would be *virtual PST assets of the life insurance company; or

(ii) some, but not all, of those membership interests would be *segregated exempt assets of the life insurance company.

713‑515 Modification of cost setting rules

(1) If an entity that becomes a *subsidiary member of a *consolidated group at a time (the joining time) is a *life insurance company, these assets are retained cost base assets:

(a) a *virtual PST asset, or a *segregated exempt asset, of the company; and

(b) another asset of the company that is held by the company for the purpose of discharging its liabilities under the *net investment component of ordinary life insurance policies (except policies that provide for *participating benefits or *discretionary benefits under *life insurance business carried on in Australia); and

(c) for a life insurance company that has demutualised under Division 9AA of Part III of the Income Tax Assessment Act 1936 where, in the period starting just after the company demutualises and ending at the joining time, all of the *membership interests in the company were owned by the same group—a goodwill asset of the company.

(2) If the *retained cost base asset is covered by paragraph (1)(a) or (b), its *tax cost setting amount is:

(a) for the purposes of working out the tax cost setting amounts for reset cost base assets (see section 705‑35)—the asset’s *transfer value just before the joining time; and

(b) for all other purposes—the asset’s *terminating value.

(3) If the *retained cost base asset is covered by paragraph (1)(c), its *tax cost setting amount is the embedded value (see subsection 121AM(1) of the Income Tax Assessment Act 1936) on the applicable accounting day (see subsection 121AM(3) of that Act) of the *life insurance company concerned reduced by the net value of shareholders’ assets held by the company on that day.

(4) The net investment component of ordinary life insurance policies is the component of *life insurance policies (except *exempt life insurance policies and *virtual PST life insurance policies) that:

(a) is the component in respect of the part of those policies that has not been reinsured under a *contract of reinsurance; and

(b) is not the *net risk component of those policies.

713‑520 Valuing certain liabilities

(1) Despite section 705‑70, if the joining entity mentioned in step 2 in the table in section 705‑60 is a *life insurance company, the joining entity’s liabilities mentioned in this section are to be valued as mentioned in this section.

(2) The value of the joining entity’s *virtual PST liabilities (if any) is the amount worked out under section 320‑190 at the joining time.

(3) The value of the joining entity’s *exempt life insurance policy liabilities (if any) is the amount worked out under section 320‑245 at the joining time.

(4) Subsection (5) applies to a liability of the joining entity if:

(a) the liability is under the *net risk component of a *life insurance policy; and

(b) the joining entity could deduct under section 320‑80 an amount for the *risk component of claims paid under the policy had it not become a *member of the *consolidated group.

(5) The value of that liability is the *current termination value of the *net risk component of the *life insurance policy at the joining time (calculated by an *actuary).

(6) The value of the joining entity’s liabilities under the *net investment component of ordinary life insurance policies is the amount worked out for those liabilities under subsection 320‑190(2) as if those liabilities were *virtual PST liabilities.

713‑525 Obligation to value virtual PST assets and segregated exempt assets

Division 320 has effect as if:

(a) the joining time when a *life insurance company becomes a *subsidiary member of a *consolidated group; and

(b) the time (the leaving time) when a life insurance company ceases to be a subsidiary member of a consolidated group;

were a valuation time for the purposes of sections 320‑175 and 320‑230.

Note: This means that:

the company must value its virtual PST assets under section 320‑175 (with the consequences set out in section 320‑180), and its segregated exempt assets under section 320‑230 (with the consequences set out in section 320‑235), as at the joining time; and
the head company must value the life insurance company’s virtual PST assets and its segregated exempt assets as at the leaving time.

713‑530 Certain amounts transferred to leaving entity

(1) This section operates if:

(a) a *life insurance company ceases to be a subsidiary member of a *consolidated group in an income year; and

(b) at the leaving time, no other member of the group is a life insurance company that has a *virtual PST; and

(i) at the leaving time, the *head company of the group has a *net capital loss from *virtual PST assets; or

(ii) the head company has an amount referred to in subsection 320‑205(2) as a difference that it could not apply to reduce any *virtual PST component of the *complying superannuation class of the company’s taxable income for the income year in which the leaving time occurred.

(2) The *net capital loss, or the difference, becomes that of the *life insurance company just after the leaving time.

[The next Division is Division 715.]

Part 2—Consequential amendments

Part 3—Transitional provisions

2 At the end of subsection 320‑175(1)

Add:

Note: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713‑525.

3 At the end of subsection 320‑230(1)

Add:

Note: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see section 713‑525.

4 At the end of section 701‑60

Add:

Note: The tax cost setting amount of certain assets of a life insurance company is worked out under Subdivision 713‑L.

5 At the end of section 703‑20

Add:

Note: A subsidiary of a life insurance company cannot be a member of a consolidated group or consolidatable group in certain circumstances: see section 713‑510.

6 At the end of subsection 705‑25(5)

Add:

Note: There are some additional retained cost base assets for a joining entity that is a life insurance company: see Subdivision 713‑L. The tax cost setting amount for those assets is worked out under that Subdivision.

7 At the end of subsection 705‑70(1)

Add:

Note: Certain liabilities of a life insurance company are worked out under Subdivision 713‑L: see section 713‑520.

8 Subsection 995‑1(1)

Insert:

net investment component of ordinary life insurance policies has the meaning given by subsection 713‑515(4).

9 Subsection 995‑1(1) (definition of retained cost base asset)

After “705‑25(5)”, insert “and 713‑515(1)”.

Division 713—Rules for particular kinds of entities

10 After Division 707

Insert:

Table of Subdivisions

713‑L Transitional relief for certain transactions relating to life insurance companies

Subdivision 713‑L—Transitional relief for certain transactions relating to life insurance companies

Table of sections

713‑500 Object of Subdivision

713‑505 When this Subdivision applies (first case)

713‑510 When this Subdivision applies (second case)

713‑515 Entities must choose the relief

713‑520 Conditions

713‑525 Time of transfer

713‑530 What the relief is

713‑535 Subsequent consequences

713‑540 Requirement to notify happening of new event

713‑545 Discount capital gain in certain cases

713‑500 Object of Subdivision

The object of this Subdivision is to give an opportunity to a group of entities that includes a life insurance company to rearrange the assets of the group for the purposes of one or more of them becoming members of a consolidated group in a way that does not attract any immediate taxation consequences.

713‑505 When this Subdivision applies (first case)

(1) This Subdivision provides for a deferral of the taxation consequences that would occur because of an event (the deferral event) happening involving an entity (the originating entity) and another entity (the recipient entity) if:

(a) the event occurs in connection with a life insurance company (the member life insurance company) becoming a member of a consolidated group; and

(b) the relevant conditions in section 713‑520 are met.

(2) If the originating entity is a company, the deferral event referred to in subsection (1) is a CGT event referred to in subsection (4) happening to a CGT asset (the original asset) where, apart from this Subdivision, the happening of the event would have resulted in:

(a) an amount (other than a capital gain) being included in the originating entity’s assessable income; or

(b) the originating entity making a capital gain.

(3) If the originating entity is a trust, the deferral event referred to in subsection (1) is a CGT event referred to in subsection (4) happening to a CGT asset (also the original asset) where, apart from this Subdivision, the happening of the event would have resulted in:

(a) an amount (other than a capital gain) being included in the net income of the trust; or

(b) the trustee making a capital gain.

(4) The CGT events are:

(a) CGT events A1, B1, D1, D2, D3, E2, F1 and F2; and

(b) CGT event C2, but only if the CGT asset that ends is a unit in a unit trust that is replaced by an equivalent membership interest (the replacement interest) in a company or in another trust.

713‑510 When this Subdivision applies (second case)

(1) This Subdivision also provides for a deferral of the taxation consequences that would occur if:

(a) a life insurance company transfers an asset (also the original asset) to its virtual PST or from its virtual PST where, apart from this Subdivision, section 320‑200 of the Income Tax Assessment Act 1997 would apply to the transfer; or

(b) a life insurance company transfers an asset (also the original asset) to its segregated exempt assets where, apart from this Subdivision, section 320‑255 of the Income Tax Assessment Act 1997 would apply to the transfer;

where the transfer (also the deferral event) is made in connection with the life insurance company (also the member life insurance company) becoming a member of a consolidated group.

(2) The relevant conditions in section 713‑520 must be met.

713‑515 Entities must choose the relief

(1) This Subdivision applies only if the originating entity (for a section 713‑505 case) or the life insurance company (for a section 713‑510 case) chooses that it apply.

(2) The choice must be made:

(a) by the day the originating entity or the life insurance company, or the head company of the consolidated group of which it is a member, lodges its income tax return for the income year in which the deferral event happened; or

(b) within a further time allowed by the Commissioner.

713‑520 Conditions

(1) For a section 713‑505 case:

(a) the originating entity must be:

(i) a life insurance company that has virtual PST assets or segregated exempt assets and that is a member of a consolidatable group; or

(ii) an entity that is unable to be a member of the same consolidatable group as a life insurance company because of section 713‑510 of the Income Tax Assessment Act 1997; or

(iii) an entity that is, directly or indirectly, a subsidiary of a life insurance company and is a member of the same consolidated group as the life insurance company; and

(b) the originating entity and the recipient entity must be members of the same consolidatable group or consolidated group or, if they are not, they would have been apart from section 713‑510 of the Income Tax Assessment Act 1997; and

(2) For both a section 713‑505 case and a section 713‑510 case:

(a) the total transfer values of the virtual PST assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer; and

(b) the total transfer values of the segregated exempt assets of the member life insurance company just before a transfer of assets to which this Subdivision applies must be the same as the total transfer values of those assets just after the transfer.

(3) Any transfer of an asset under the deferral event must happen on or before the later of:

(a) 30 June 2004; and

(b) if the head company of the consolidated group of which the member life insurance company is a member has a substituted accounting period—the end of the head company’s income year in which 30 June 2004 occurs.

713‑525 Time of transfer

This Act, and the Income Tax Assessment Act 1997, apply to the transfer of an asset to which this Subdivision applies as if the asset had been transferred just before the member life insurance company became a member of the consolidated group.

713‑530 What the relief is

(1) For a section 713‑505 case:

(a) if the originating entity is a company:

(i) any amount (other than a capital gain) that would have been included in the originating entity’s assessable income (the deferred amount) as a result of the deferral event is not so included; and

(ii) any capital gain (the deferred gain) that the originating entity would have made as a result of the deferral event is disregarded; and

(b) if the originating entity is a trust:

(i) any amount (other than a capital gain) that would have been included in the member life insurance company’s assessable income (also the deferred amount) as a result of the deferral event is not so included; and

(ii) any capital gain (also the deferred gain) that the member life insurance company would have made as a result of the deferral event is disregarded.

(2) For a section 713‑510 case:

(a) any amount that would have been included in the member life insurance company’s assessable income (also the deferred amount) under paragraph 320‑15(e) or (g) of the Income Tax Assessment Act 1997 as a result of the deferral event is not so included; and

(b) any capital gain (also the deferred gain) that the member life insurance company would have made as a result of the deferral event is disregarded.

713‑535 Subsequent consequences

(1) This section operates if, after the deferral event happens, another event (the new event) happens where the new event is:

(a) a CGT event happening to:

(i) the original asset; or

(ii) if the deferral event was CGT event C2—the replacement asset; or

(b) the recipient entity ceasing to be a member of the consolidated group of which the member life insurance company is a member; or

(i) the original asset being transferred to or from the company’s virtual PST under section 320‑180, 320‑185 or 320‑195 of the Income Tax Assessment Act 1997; or

(ii) the original asset being transferred to or from the company’s segregated exempt assets under section 320‑235, 320‑240 or 320‑250 of that Act; or

(d) if the originating entity is a company—the originating entity ceasing to exist.

(2) For a section 713‑505 case where the originating entity is a company:

(a) the originating entity must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the originating entity is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

Note: If the originating entity is a subsidiary member of a consolidated group, the head company of the group will have the amount included in its assessable income or will make the capital gain.

(3) For a section 713‑505 case where the originating entity is a trust:

(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

(4) For a section 713‑505 case where the originating entity is a life insurance company or a trust and the deferred amount or the deferred gain relates to an asset that was a virtual PST asset at the time when the deferral event happened, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320‑205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.

(5) For a section 713‑510 case:

(a) the member life insurance company must include the deferred amount in its assessable income for the income year in which the new event happens; or

(b) the member life insurance company is taken, just before the new event happened, to have made a capital gain equal to the deferred gain.

(6) In addition, if the deferral event involved the transfer of assets from the member life insurance company’s virtual PST, an amount equal to the deferred amount or deferred gain is taken to be an amount of assessable income to which subsection 320‑205(3) of the Income Tax Assessment Act 1997 applies for the relevant entity.

713‑540 Requirement to notify happening of new event

(1) For a section 713‑505 case, the recipient entity must, if it is not a member of the same consolidated group as the originating entity when the new event happens, notify the originating entity in the approved form of the happening of the new event within 60 days after the new event happens.

(2) Subsection (1) does not apply if the new event is the originating entity ceasing to exist.

713‑545 Discount capital gain in certain cases

The Income Tax Assessment Act 1997 applies as if the capital gain referred to in paragraph 713‑535(2)(b), (3)(b) or (5)(b) were a discount capital gain if:

(a) the asset to which the deferral event happened is a virtual PST asset; and

(b) the asset was acquired less than 12 months before the deferral event happened; and

Taxation Administration Act 1953

11 At the end of section 286‑75 of Schedule 1

Add:

(4) You are also liable to an administrative penalty if:

(a) you are required under section 713‑540 of the Income Tax (Transitional Provisions) Act 1997 to notify another entity of the happening of an event by a particular day; and

(b) you do not notify the other entity of the happening of that event by that day.

12 At the end of subsection 286‑80(2) of Schedule 1

Add:

; or (c) for failing to notify the happening of an event as mentioned in subsection 286‑75(4)—1 penalty unit for each period of 28 days or part of a period of 28 days starting on the day when the notification is due and ending when you notify the happening of the event (up to a maximum of 5 penalty units).

Schedule 7—Consolidation: interactions between Consolidation rules and other rules

Part 1—New Division 715 inserted in the Income Tax Assessment Act 1997

1 After Division 713

Insert:

Division 715—Interactions between this Part and other areas of the income tax law

Table of Subdivisions

715‑A Treatment of unrealised losses existing when ownership or control of a company changes before or during consolidation

715‑B How Subdivision 165‑CD applies to consolidated groups and leaving entities

715‑C Common rules for the purposes of Subdivisions 715‑A and 715‑B

715‑D Treatment of company’s deferred losses under Subdivision 170‑D on joining a consolidated group

715‑G How value shifting rules apply to a consolidated group

715‑H Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a consolidated group

Subdivision 715‑A—Treatment of unrealised losses existing when ownership or control of a company changes before or during consolidation

Table of sections

Object

715‑15 Object of this Subdivision

Effect on Subdivision 165‑CC of a company becoming a member of a consolidated group

715‑25 Subdivision 165‑CC stops applying to earlier changeover time

715‑30 Meaning of 165‑CC tagged asset

715‑35 Meaning of final RUNL

165‑CC tagged assets that affect tax cost setting amounts

715‑50 Step 1 amount is reduced if membership interest in subsidiary member is 165‑CC tagged asset and same business test is failed

715‑55 Step 2 amount is affected if liability of subsidiary member is 165‑CC tagged asset of another group member and same business test is failed

165‑CC tagged assets that form loss denial pools of head company when consolidated group is formed

715‑60 Assets that the head company already owns

715‑70 Assets of subsidiary member that become those of head company

How Subdivision 165‑CC applies to consolidated groups

715‑75 Extension of single entity rule and entry history rule

Effect on Subdivision 165‑CC of entity leaving consolidated group

715‑80 Application of sections 715‑85 to 715‑110

715‑85 First changeover time for leaving company at or after leaving time

715‑90 How same business test applies if leaving time is changeover time for leaving company

715‑95 If ownership and control of leaving entity have not changed since head company’s last changeover time

715‑100 First choice: adjustable values of leaving assets reduced to nil

715‑105 Second choice: head company’s final RUNL applied in reducing adjustable values of leaving assets that are loss assets

715‑110 Third choice: loss denial pool of leaving entity created

Effect of assets in loss denial pool of head company becoming assets of leaving entity

715‑120 What happens

715‑125 First choice: adjustable values of leaving assets reduced to nil

715‑130 Second choice: pool’s loss denial balance applied in reducing adjustable values of leaving assets that are loss assets

715‑135 Third choice: loss denial pool of leaving entity created

Effect of first and second choices on various kinds of assets

715‑145 Effect of choice on adjustable value of leaving asset

General provisions about loss denial pools

715‑155 When asset leaves pool

715‑160 How loss denial balance is applied to losses realised on assets in pool

715‑165 When pool ceases to exist

Choices under this Subdivision

715‑175 When choice must be made

715‑180 Head company to notify leaving entity of choice

715‑185 Leaving entity may choose to cancel loss denial pool by reducing adjustable values of assets in the pool

Object

715‑15 Object of this Subdivision

(1) The object of this Subdivision is to give effect to the purposes of Subdivision 165‑CC (about change of ownership or control of a company that has an unrealised net loss) in these cases:

(a) on formation of a *consolidated group, a *CGT asset held directly by the *head company is affected by that Subdivision, and the *same business test is failed;

(b) on an entity becoming a *subsidiary member of a consolidated group, an asset consisting of:

(i) a *membership interest that a *member of the group (including a chosen transitional entity under Division 701 of the Income Tax (Transitional Provisions) Act 1997) holds in the entity; or

(ii) a liability that the entity owes to such a member;

is affected by that Subdivision, and the same business test is failed;

(i) a CGT asset of the company that becomes an asset of the head company is affected by that Subdivision; and

(ii) because the company is a chosen transitional entity, the asset does not have its tax cost reset; and

(iii) the same business test is failed;

(d) on an entity ceasing to be a subsidiary member, a CGT asset of the head company that becomes an asset of the entity is affected by that Subdivision, and the same business test is failed.

Note: Subdivision 165‑CC also affects an entity that has deferred losses under Subdivision 170‑D on assets that it formerly owned. Subdivision 715‑D gives effect to the purposes of Subdivision 165‑CC if such an entity becomes a member of a consolidated group.

(2) This Subdivision achieves its object by supplementing and modifying the application of Subdivision 165‑CC to take account of how the rest of this Part treats *members of a *consolidated group (in particular the provisions about entities becoming or ceasing to be members).

[The next section is section 715‑25.]

Effect on Subdivision 165‑CC of a company becoming a member of a consolidated group

715‑25 Subdivision 165‑CC stops applying to earlier changeover time

(1) At and after the time (the membership time) when a company becomes a *member of a *consolidated group, Subdivision 165‑CC does not apply to the company in relation to a *changeover time that happened before the membership time, except for the purposes of section 715‑30 (which defines 165‑CC tagged asset).

Note 1: Subdivision 165‑CC is about change of ownership or control of a company that has an unrealised net loss.

Note 2: If the company has 165‑CC tagged assets at the membership time, there are further consequences under this Subdivision and Subdivision 715‑D.

Also, Subdivision 165‑CC can apply to the head company of the group in relation to a changeover time that happens for it at or after the membership time. See section 715‑75.

(2) Subsection (1) continues to have effect even if the company later stops being a *member of the group.

715‑30 Meaning of 165‑CC tagged asset

A *CGT asset is a 165‑CC tagged asset of a company at a particular time if, and only if:

(a) that time is at or after the most recent *changeover time (if any) for the company; and

(b) at that changeover time, the company had an unrealised net loss under section 165‑115E; and

(d) the company would not, at that changeover time, satisfy the maximum net asset value test under section 152‑15; and

(e) if the company has chosen under subsection 165‑115A(1B) in relation to that changeover time—the company *acquired the asset for $10,000 or more.

715‑35 Meaning of final RUNL

A company’s final RUNL at a particular time (the test time) is the amount that would have been the company’s *residual unrealised net loss at the time of:

(a) if no event that subsection 165‑115BB(2) refers to as a relevant event actually happens at the test time—a notional event of that kind happening at the test time; or

(b) otherwise—a notional event of that kind that happens at the test time, and that the company determines under paragraph 165‑115BB(1)(b) to have happened later than each event that actually happened at that time.

Note: This Subdivision reduces a company’s final RUNL as amounts of it are applied for various purposes.

[The next section is section 715‑50.]

165‑CC tagged assets that affect tax cost setting amounts

715‑50 Step 1 amount is reduced if membership interest in subsidiary member is 165‑CC tagged asset and same business test is failed

(1) The amount taken into account under subsection 705‑65(1) (about the cost of membership interests in the joining entity) for a *membership interest that a *member of the joined group holds in the joining entity at the joining time is reduced if:

(a) apart from this section, the amount would be the membership interest’s *reduced cost base (if appropriate, as modified by a later provision of section 705‑65); and

(b) the membership interest is at that time a *165‑CC tagged asset of that member, and that member owned it at the *changeover time for that member; and

(d) that member does not satisfy the *same business test for:

(i) the period (the same business test period) consisting of the *head company’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

(2) If at the joining time that *member holds:

(a) 2 or *more membership interests in the joining entity; or

(b) at least one membership interest in the joining entity, and at least one membership interest in another member of the joined group;

this section applies to each such membership interest in whichever order that member determines.

Amount of reduction

(3) The amount taken into account under subsection 705‑65(1) is reduced to the *membership interest’s *market value at the joining time.

(4) However, if that member’s *final RUNL (as reduced by any previous reductions under this section) is less than the difference between:

(a) the *reduced cost base referred to in paragraph (1)(a); and

(b) the *market value referred to in subsection (3);

the amount taken into account under subsection 705‑65(1) is instead reduced by that final RUNL.

(5) That *final RUNL is reduced by the amount of the reduction under subsection (3) or (4).

Rights and options to acquire membership interests

(6) Subsection 705‑65(6) (which treats rights and options as membership interests) also applies for the purposes of this section.

715‑55 Step 2 amount is affected if liability of subsidiary member is 165‑CC tagged asset of another group member and same business test is failed

(1) The amount (the comparison amount) applicable under the table in subsection 705‑75(2) (about reduction of the step 2 amount) for an accounting liability of the joining entity that is owed to a *member of the joined group at the joining time is reduced if:

(a) apart from this section, the comparison amount would be the *reduced cost base (if appropriate, as modified by a later provision of section 705‑75) of the asset of that member that is constituted by the accounting liability; and

(b) the asset is at that time a *165‑CC tagged asset of that member, and that member owned it at the *changeover time; and

(c) that member’s *final RUNL just before the joining time (as reduced by any reductions under section 715‑50) was greater than nil; and

(d) that member does not satisfy the *same business test for:

(i) the period (the same business test period) consisting of the *head company’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

Note: Paragraph (1)(c) has the effect that if both this section and section 715‑50 apply to the same member of the joined group, section 715‑50 is applied before this section.

(2) If at the joining time that *member holds:

(a) 2 or *more assets constituted by accounting liabilities of the joining entity; or

(b) at least one asset constituted by an accounting liability of the joining entity, and at least one asset constituted by an accounting liability of another member of the group;

this section applies to each such asset in whichever order that member determines.

Amount of reduction

(3) The comparison amount is reduced to the asset’s *market value at the joining time.

(4) However, if that member’s *final RUNL (as reduced by any previous reductions under section 715‑50 or this section) is less than the difference between:

(a) the *reduced cost base referred to in paragraph (1)(a); and

(b) the asset’s *market value at the joining time;

the comparison amount is instead reduced by that final RUNL.

(5) That *final RUNL is reduced by the amount of the reduction under subsection (3) or (4).

165‑CC tagged assets that form loss denial pools of head company when consolidated group is formed

715‑60 Assets that the head company already owns

(1) At the time (the formation time) when a *consolidated group comes into existence under paragraph 703‑5(1)(a), a loss denial pool of the *head company is created if:

(a) the formation time is not a *changeover time for the head company; and

(b) at the formation time, the head company owns a *CGT asset:

(i) that is a *165‑CC tagged asset of the head company at that time; and

(ii) that it owned at the *changeover time; and

(iii) that is not a *membership interest in a *member of the group; and

(iv) that is not a right or option (including a contingent right or option), created or issued by a member of the group, to acquire such a membership interest; and

(v) that is not constituted by a liability owed to the head company by a member of the group;

or 2 or more such assets; and

(c) the head company’s *final RUNL just before the formation time (as reduced by any reductions under section 715‑50 or 715‑55) was greater than nil; and

(d) the head company does not satisfy the *same business test for:

(i) the period (the same business test period) consisting of the head company’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

Note: Paragraph (1)(c) has the effect that if the head company has 165‑CC tagged assets that are affected by section 715‑50 or 715‑55 (because they are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(2) When it is created, the pool consists of the one or more *CGT assets referred to in paragraph (1)(b), and its loss denial balance is equal to the *final RUNL referred to in paragraph (1)(c).

Note 1: The pool is distinct from any other loss denial pool of the head company, for example, one created at the formation time under section 715‑70.

Note 2: 170‑D deferred losses on 165‑CC tagged assets of the head company may be added to the pool by subsection 715‑355(1).

[The next section is section 715‑70.]

715‑70 Assets of subsidiary member that become those of head company

(1) At the time (the formation time) when an entity becomes a *subsidiary member of a *consolidated group, a loss denial pool of the *head company of the group is created if:

(a) the formation time is not a *changeover time for the head company; and

(b) the entity is a chosen transitional entity under Division 701 of the Income Tax (Transitional Provisions) Act 1997; and

Note 1: If the entity is a chosen transitional entity, section 701‑15 of the Income Tax (Transitional Provisions) Act 1997 prevents:

section 701‑10 (cost to head company of assets that entity brings into group); and
subsection 701‑35(4) (setting value of trading stock at tax‑neutral amount);

of this Act from applying to the entity’s assets in relation to the formation time.

Note 2: The pool is distinct from any other loss denial pool of the head company, for example, one created under this section because another entity becomes a subsidiary member of the group at the formation time.

Joining entity has 165‑CC tagged assets

(2) This subsection is satisfied if:

(a) a *CGT asset of the entity, or each of 2 or more CGT assets of the entity:

(i) is a *165‑CC tagged asset of the entity at the formation time; and

(ii) was owned by the entity at the *changeover time; and

(iii) is not a *membership interest in a *member of the group; and

(iv) is not a right or option (including a contingent right or option), created or issued by a member of the group, to acquire such a membership interest; and

(v) is not constituted by a liability owed to the entity by a member of the group at the formation time; and

(b) the entity’s *final RUNL just before the formation time (as reduced by any reductions under section 715‑50 or 715‑55) was greater than nil; and

(i) the period (the same business test period) consisting of the entity’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

Note: Paragraph (2)(b) has the effect that if the entity has 165‑CC tagged assets that are affected by section 715‑50 or 715‑55 (because they are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(3) When it is created because of subsection (2), the pool consists of the one or more *CGT assets referred to in paragraph (2)(a), and its loss denial balance is equal to the *final RUNL referred to in paragraph (2)(b).

Note: 170‑D deferred losses on 165‑CC tagged assets of the head company may be added to the pool by subsection 715‑355(2).

Entity has loss denial pool

(4) This subsection is satisfied if, just before the formation time, the entity had a *loss denial pool.

(5) When it is created because of subsection (4), the *head company’s loss denial pool:

(a) consists of the one or more *CGT assets of which the entity’s loss *denial pool consisted; and

(b) has a loss denial balance equal to the *loss denial balance of the entity’s loss denial pool;

just before the formation time.

How Subdivision 165‑CC applies to consolidated groups

715‑75 Extension of single entity rule and entry history rule

(1) Subsection 701‑1(1) (Single entity rule) and section 701‑5 (Entry history rule) also have effect for all the purposes of Subdivision 165‑CC (about change of ownership or control of a company that has an unrealised net loss).

Note: One consequence of this is that the head company is the only member of a consolidated group that can have a changeover time and be subject to consequences under Subdivision 165‑CC. The head company is treated as owning all CGT assets owned by group members, and as making relevant losses.

(2) This section is not intended to limit the effect that subsection 701‑1(1) and section 701‑5 have apart from this section.

Effect on Subdivision 165‑CC of entity leaving consolidated group

715‑80 Application of sections 715‑85 to 715‑110

Sections 715‑85 to 715‑110 apply if, at a particular time (the leaving time), an entity (the leaving entity) ceases to be a *subsidiary member of a *consolidated group.

Note 1: If a changeover time happened to the head company at or after the group came into existence and before the leaving time, Subdivision 165‑CC does not apply to the head company at and after the leaving time, in respect of assets that leave with the leaving entity, in relation to the changeover time.

This is because the head company can no longer make a capital loss, or become entitled to a deduction, in respect of a CGT event happening to any of those assets.

Note 2: If, just before the leaving time, the head company had a loss denial pool, see section 715‑120.

715‑85 First changeover time for leaving company at or after leaving time

If the leaving entity is a company, its first *changeover time at or after the leaving time is determined:

(a) on the basis that the reference time under subsection 165‑115A(2A) is the one that would be used in determining whether the leaving time was a changeover time for the head company; and

(b) making the additional assumptions in section 715‑290.

Note: If the leaving entity is a trust, it cannot have a changeover time (because Subdivision 165‑CC applies only to companies), so section 715‑95 applies to it instead: see subsection 715‑95(2).

715‑90 How same business test applies if leaving time is changeover time for leaving company

(1) This section applies if:

(a) the leaving entity is a company; and

(b) the leaving time is a *changeover time for the leaving entity.

(2) The continuity period referred to in subsection 165‑115B(3), as applying to the leaving time as a *changeover time for the leaving entity, is taken to have ended just after that time.

Note: This ensures that the same business test is applied to the business that the leaving entity carries on at the leaving time: see subsection 165‑13(3).

715‑95 If ownership and control of leaving entity have not changed since head company’s last changeover time

(1) This section applies if:

(a) the leaving entity is a company; and

(b) the leaving time is not a *changeover time for the leaving entity; and

(i) that was a *165‑CC tagged asset just before the leaving time; and

(ii) that it owned at the latest changeover time for the head company at or after the group came into existence and before the leaving time; and

(d) at least one asset covered by paragraph (c) is an asset (a leaving asset) that becomes an asset of the leaving entity at the leaving time because subsection 701‑1(1) (Single entity rule) ceases to apply to the entity; and

(e) the head company’s *final RUNL at the leaving time is greater than nil.

(2) This section also applies if the leaving entity is a trust.

(3) If the *head company does not satisfy the *same business test for:

(a) the period (the same business test period) starting at the earlier of:

(i) the time 12 months before the leaving time; and

(ii) when the head company came into existence;

and ending just before the leaving time; and

(b) the time (the test time) just before the *changeover time;

the head company must make one of the choices for which sections 715‑100, 715‑105 and 715‑110 provide.

For provisions about making one of these choices,
see sections 715‑175 to 715‑185.

715‑100 First choice: adjustable values of leaving assets reduced to nil

The first choice is to reduce the *adjustable value of each leaving asset to nil. The choice has effect accordingly, just before the leaving time. The *head company’s *final RUNL is not reduced because of it.

Note: The consequences of the choice are worked out under section 715‑145.

715‑105 Second choice: head company’s final RUNL applied in reducing adjustable values of leaving assets that are loss assets

(1) The second choice is to reduce under this section the *adjustable value of each leaving asset (a loss asset) for which the *head company would have had a notional capital loss, or notional revenue loss, under section 165‑115F at the time (the test time) just before the leaving time if the test time had been a *changeover time for the head company. The choice has effect accordingly.

Note: The consequences of the choice are worked out under this section and section 715‑145.

(2) If:

(a) 2 or more entities cease to be *subsidiary members of the *consolidated group at the leaving time; and

(b) 2 or more of them make the second choice;

the choices have effect in whichever order the *head company determines.

(3) This section applies to each of the loss assets in order, according to their respective *adjustable values (apart from this section) at the test time: from largest to smallest. (If an asset has more than one such adjustable value, use the greater or greatest of them.)

(4) At the test time, the *adjustable value of the loss asset is reduced to the asset’s *market value at that time.

(5) However, if the *head company’s *final RUNL at the leaving time (as reduced by any previous reductions under this section) is less than the difference between:

(a) the *adjustable value of the loss asset (apart from this section) at the test time; and

(b) the asset’s *market value at the test time;

the adjustable value is instead reduced at the test time by that final RUNL.

(6) That *final RUNL is reduced by the amount of the reduction under subsection (4) or (5). If 2 or more such reductions are made for the same asset (because it has 2 or more different characters), that final RUNL is reduced by the greater or greatest of the reductions.

715‑110 Third choice: loss denial pool of leaving entity created

(1) The third choice can be made only if every asset covered by paragraph 715‑95(1)(c) is a leaving asset. The choice is to have a loss denial pool of the leaving entity created at the leaving time, consisting of every leaving asset. (To avoid doubt, the choice can be made even if the leaving entity is not a company.)

(2) A choice under this section has effect accordingly. The pool is distinct from any other loss denial pool of the leaving entity.

(3) When the pool is created, its loss denial balance is equal to the *head company’s *final RUNL at the leaving time.

Note: If the head company makes this choice, the leaving entity can choose to cancel the loss denial pool by reducing reduced cost bases of assets in the pool: see section 715‑185.

[The next section is section 715‑120.]

Effect of assets in loss denial pool of head company becoming assets of leaving entity

715‑120 What happens

(1) This section applies if:

(a) at a particular time (the leaving time), an entity (the leaving entity) ceases to be a *subsidiary member of a *consolidated group; and

(b) just before the leaving time, the *head company had a *loss denial pool; and

(c) at the leaving time, at least one *CGT asset (a leaving asset) that was in the pool just before that time becomes a CGT asset of the leaving entity because subsection 701‑1(1) (Single entity rule) ceases to apply to the entity;

(2) Each leaving asset leaves the *loss denial pool at the leaving time.

(3) If:

(a) the leaving entity is a company and the leaving time is not a *changeover time for the leaving entity; or

(b) the leaving entity is a trust;

the *head company must make one of the choices for which sections 715‑125, 715‑130 and 715‑135 provide.

For provisions about making one of these choices,
see sections 715‑175 to 715‑185.

715‑125 First choice: adjustable values of leaving assets reduced to nil

The first choice is to reduce the *adjustable value of each leaving asset to nil. The choice has effect accordingly, just before the leaving time. The *loss denial balance of the *head company’s *loss denial pool is not reduced because of it.

Note: The consequences of the choice are worked out under section 715‑145.

715‑130 Second choice: pool’s loss denial balance applied in reducing adjustable values of leaving assets that are loss assets

Note: The consequences of the choice are worked out under this section and section 715‑145.

(2) If:

(a) 2 or more entities cease to be *subsidiary members of the *consolidated group; and

(b) 2 or more of them make the second choice;

the choices have effect in the same order as the entities cease being subsidiary members. If 2 or more of the entities ceased at the same time, their choices have effect in whichever order the *head company determines.

(4) At the test time, the *adjustable value of the loss asset is reduced to the asset’s *market value at that time.

(5) However, if the *loss denial balance (as reduced by any previous reductions under this section or section 715‑160) of the *head company’s *loss denial pool is less than the difference between:

(a) the *adjustable value of the loss asset (apart from this section) at the test time; and

(b) the asset’s *market value at the test time;

the adjustable value is instead reduced at the test time by that loss denial balance.

(6) That *loss denial balance is reduced at the leaving time by the amount of the reduction under subsection (3) or (4). If 2 or more such reductions are made for the same asset (because it has 2 or more different characters), that loss denial balance is reduced by the greater or greatest of the reductions.

715‑135 Third choice: loss denial pool of leaving entity created

(1) The third choice can be made only if every asset that was in the *loss denial pool just before the leaving time is a leaving asset. The choice is to have a loss denial pool of the leaving entity created at the leaving time, consisting of every leaving asset. (To avoid doubt, the choice can be made even if the leaving entity is not a company.)

(2) A choice under this section has effect accordingly. The pool is distinct from any other loss denial pool of the leaving entity.

(3) When the leaving entity’s loss denial pool is created, its loss denial balance equals the loss denial balance of the head company’s loss denial pool (as reduced by any previous reductions under section 715‑130 or 715‑160).

Note: If the head company makes this choice, the leaving entity can choose to cancel the loss denial pool by reducing reduced cost bases of assets in the pool: see section 715‑185.

(4) The head company’s *loss denial pool ceases to exist when the leaving entity’s loss denial pool is created.

[The next section is section 715‑145.]

Effect of first and second choices on various kinds of assets

715‑145 Effect of choice on adjustable value of leaving asset

(1) This section has effect for the purposes of determining the consequences of a choice under any of sections 715‑100, 715‑105, 715‑125, 715‑130 and 715‑185 (the choice provisions) for a leaving asset.

(2) The asset’s adjustable value at the time (the test time) just before the leaving time is worked out under this table. (If the asset is covered by 2 or more items, there are consequences for it under the choice provisions and this section in respect of each of the items.)

Adjustable value at the test time
Item	If:	Its adjustable value is:
1	the asset is a *CGT asset	its *reduced cost base
2	the asset is an item of trading stock of the head company at the test time, and became part of the head company’s trading stock in the income year (the test year) in which the test time occurs	its *cost
3	the asset is an item of trading stock of the head company at the test time, item 2 does not apply, and at the end of the last income year before the test year, the item was valued at its cost	its *cost
4	the asset is an item of trading stock of the head company at the test time and neither of items 2 and 3 applies	its *value as trading stock of the head company on hand at the start of the income year in which the test time occurs
5	the asset is a *depreciating asset	worked out under section 40‑85
6	the asset is a *revenue asset	the total of the amounts that would be subtracted from the gross disposal proceeds in calculating any profit or loss on disposal of the asset by the head company

(3) If any of the choice provisions reduces at the test time the asset’s *adjustable value, the thing identified for the asset under the table in subsection (2) of this section is reduced by the same amount.

(4) Subsection (3) has effect for the purposes of working out under section 711‑30 the *head company’s *terminating value for the asset at the leaving time.

[The next section is section 715‑155.]

General provisions about loss denial pools

715‑155 When asset leaves pool

A *CGT asset leaves a *loss denial pool:

(a) just after a *realisation event happens to the asset, unless the realisation event is the ending of an income year (in the case of an item of *trading stock); or

(b) as mentioned in subsection 715‑120(2) (when it becomes an asset of the leaving entity).

715‑160 How loss denial balance is applied to losses realised on assets in pool

(1) If, apart from this section, a loss would be *realised for income tax purposes by a *realisation event that happens to a *CGT asset when it is in a *loss denial pool of an entity, the loss is reduced by the lesser of:

(a) the amount of the loss; and

(b) the pool’s *loss denial balance (as reduced by any previous reductions under section 715‑130 or this subsection);

and the loss denial balance is reduced by the same amount.

(2) Subsection (1) applies to *realisation events in the order in which they happen. If 2 or more happen at the same time, it applies to them in whichever order the entity determines.

(3) Subsection (1) reduces a *loss denial balance after section 715‑130 does, unless the *realisation event happens before the leaving time referred to in that section.

715‑165 When pool ceases to exist

(1) A *loss denial pool of a company ceases to exist when there is a *changeover time for the company.

Note: The CGT assets in the pool then become subject to the application of Subdivision 165‑CC (about change of ownership or control of a company that has an unrealised net loss).

(2) A *loss denial pool of any entity ceases to exist:

(a) when there are no *CGT assets, and no *170‑D deferred losses, in the pool; or

(b) just after the *loss denial balance becomes nil; or

(d) as mentioned in subsection 715‑135(4).

[The next section is section 715‑175.]

Choices under this Subdivision

715‑175 When choice must be made

(1) A choice under section 715‑95 or 715‑120 must be made within 6 months after the leaving time, or within a further period allowed by the Commissioner.

(2) After that 6 months, or that further period, the head company is taken to have made the first choice under section 715‑100 or 715‑125 unless it is established that the head company made a different choice within that 6 months or further period.

715‑180 Head company to notify leaving entity of choice

(1) Within one month after making a choice under section 715‑95 or 715‑120, or within a further period allowed by the Commissioner, the head company must give the leaving entity written notice of the choice.

(2) If the choice is to have a *loss denial pool of the leaving entity created at the leaving time, the notice must also specify the pool’s *loss denial balance at that time.

715‑185 Leaving entity may choose to cancel loss denial pool by reducing adjustable values of assets in the pool

(1) Within 6 months after a *loss denial pool is created under section 715‑110 or 715‑135, or within a further period allowed by the Commissioner, the leaving entity may choose to be treated as if the *head company had instead made:

(a) the first choice under section 715‑100 or 715‑125; or

(b) the second choice under section 715‑105 or 715‑130;

as specified by the leaving entity in its choice.

(2) If the leaving entity makes a choice under subsection (1):

(a) the *loss denial pool ceases to exist just after the leaving time; and

(b) at the leaving time, the *adjustable value of each *CGT asset in the pool is reduced to what it would have been at that time if the head company had instead made the choice specified by the leaving entity in its choice.

(3) The choice by the leaving entity does not affect how subsection 715‑135(4) applies to the *head company.

Note: This means that the head company’s loss denial pool still ceases to exist.

Subdivision 715‑B—How Subdivision 165‑CD applies to consolidated groups and leaving entities

Table of sections

How Subdivision 165‑CD applies to consolidated groups

715‑215 Extension of single entity rule and entry history rule

715‑225 Working out adjusted unrealised loss using individual asset method

715‑230 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H

How Subdivision 165‑CD applies to leaving entity that is a company

715‑240 Application of sections 715‑245 to 715‑260

715‑245 If ownership or control of leaving entity has altered since head company’s last alteration time or formation of group

715‑250 If head company has had an alteration time but ownership and control of leaving entity have not altered since

715‑255 Consequences if leaving entity is a loss company at the leaving time

715‑260 If neither of sections 715‑245 and 715‑250 applies

How Subdivision 165‑CD applies to leaving entity that is a trust

715‑270 Subdivision 165‑CD applies

How Subdivision 165‑CD applies to consolidated groups

715‑215 Extension of single entity rule and entry history rule

(1) Subsection 701‑1(1) (Single entity rule) and section 701‑5 (Entry history rule) also have effect for all the purposes of Subdivision 165‑CD (about reductions after alterations in ownership or control of loss company).

Note: One consequence of this is that the head company is the only member of a consolidated group that can have an alteration time and be subject to reductions or other consequences under Subdivision 165‑CD. The head company is treated as owning all CGT assets owned by group members, and as making relevant losses.

Another consequence is for working out who has a relevant equity interest or relevant debt interest in a company that has an alteration time at which it is a loss company but not a member of a consolidated group. Interests in the loss company that are owned by subsidiary members of the group are treated as being owned by the head company.

(2) This section is not intended to limit the effect that subsection 701‑1(1) and section 701‑5 have apart from this section.

[The next section is section 715‑225.]

715‑225 Working out adjusted unrealised loss using individual asset method

(1) For the purposes of:

(a) using the *individual asset method to work out whether the *head company of a *consolidated group has an adjusted unrealised loss under section 165‑115U at an *alteration time; or

(b) working out under section 165‑115W whether the head company of a consolidated group has a trading stock decrease at an alteration time;

step 1 of the method statement in subsection 165‑115U(1), or step 2 of the method statement in subsection 165‑115W(1), does not apply to an amount that was counted in respect of a *CGT asset at an earlier time if:

(c) at the time (the joining time) when an entity became a *subsidiary member of the group, the asset became an asset of the head company because of subsection 701‑1(1) (Single entity rule); and

(d) the earlier time is an *alteration time that happened in respect of the entity before the joining time;

unless the entity is a chosen transitional entity under Division 701 of the Income Tax (Transitional Provisions) Act 1997.

Note: If the joining entity is a chosen transitional entity, section 701‑15 of the Income Tax (Transitional Provisions) Act 1997 prevents:

section 701‑10 (cost to head company of assets that entity brings into group); and
subsection 701‑35(4) (setting value of trading stock at tax‑neutral amount);

of this Act from applying to the assets of the joining entity in relation to the joining time.

If the joining entity is not a chosen transitional entity, it is assumed that the process of resetting the tax costs of its assets will bring their tax costs into closer alignment to their market values, and so remove the need to consider unrealised losses on those assets that existed before the joining time.

(2) This section has effect despite section 701‑5 (Entry history rule).

715‑230 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H

If section 715‑610 reduces a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an interest in, or a debt owed by, a company, sections 165‑115ZA and 165‑115ZB do not apply (and are taken never to have applied) to the interest or debt, in relation to an *alteration time that happened for the company during the ownership period referred to in subsection 715‑610(2).

Note 1: Section 715‑610 is about cancelling a loss on a realisation event for a direct or indirect interest in a subsidiary member of a consolidated group.

Note 2: Sections 165‑115ZA and 165‑115ZB are about the consequences that an alteration time for a loss company has for relevant equity interests and relevant debt interests in the company.

[The next section is section 715‑240.]

How Subdivision 165‑CD applies to leaving entity that is a company

715‑240 Application of sections 715‑245 to 715‑260

Sections 715‑245 to 715‑260 affect how Subdivision 165‑CD (about reductions after alterations in ownership or control of loss company) applies to a company (the leaving entity) at and after the time (the leaving time) when it ceases to be a *subsidiary member of a *consolidated group that came into existence at a particular time (the formation time).

Note: If a trust ceases to be a subsidiary member of a consolidated group: see section 715‑270.

715‑245 If ownership or control of leaving entity has altered since head company’s last alteration time or formation of group

(1) This section applies if the leaving time would be an *alteration time for the leaving entity if:

(a) the reference time under subsection 165‑115L(2) or 165‑115M(2) were:

(i) if at least one alteration time has occurred in relation to the *head company of the *consolidated group since the formation time and before the leaving time—the time just after the most recent such alteration time; or

(ii) otherwise—the formation time; and

(b) the additional assumptions in section 715‑290 were made.

(2) The leaving time is an alteration time for the leaving entity.

Note: One consequence of this is that the reference time for working out the leaving entity’s next alteration time is the time just after the leaving time.

(3) The leaving entity is a loss company at that *alteration time if, and only if, it has an *adjusted unrealised loss at that time. If so, that adjusted unrealised loss is the leaving entity’s overall loss at that time.

Note 1: Subsection (4) affects how the leaving entity works out its adjusted unrealised loss at the leaving time in some cases.

Note 2: If the leaving entity is a loss company at the leaving time, section 715‑255 provides for the consequences.

(4) If the leaving entity uses the *individual asset method of working out its *adjusted unrealised loss at that *alteration time, then for the purposes of:

(a) step 1 of the method statement in subsection 165‑115U(1); and

(b) the method statement in subsection 165‑115W(1);

the leaving entity is taken to have had no earlier alteration time.

715‑250 If head company has had an alteration time but ownership and control of leaving entity have not altered since

(1) This section applies if:

(a) at least one *alteration time has occurred in relation to the *head company of the *consolidated group since the formation time and before the leaving time; and

(b) the leaving time is not an *alteration time for the leaving entity under subsection 715‑245(2).

(2) The leaving time is an alteration time for the leaving entity.

(3) However, for the purposes of determining when the leaving entity’s next *alteration time happens, the reference time under subsection 165‑115L(2) or 165‑115M(2) is the time just after the most recent alteration time for the *head company before the leaving time.

(4) The leaving entity is a loss company at the leaving time if, and only if, the *head company would have had an *adjusted unrealised loss at the most recent *alteration time (the head company alteration time) for the head company before the leaving time if that adjusted unrealised loss (if any) were worked out on the basis that:

(a) the head company chooses whether the *individual asset method or the *global method is used; and

(b) a *CGT asset is taken into account only if:

(i) the head company owned it at the head company alteration time; and

(ii) it becomes a CGT asset of the leaving entity at the leaving time because subsection 701‑1(1) (the single entity rule) ceases to apply to the entity; and

(i) step 1 of the method statement in subsection 165‑115U(1); and

(ii) the method statement in subsection 165‑115W(1);

the head company had no earlier alteration time.

(5) If the leaving entity is a *loss company at the leaving time, its overall loss at that time is the *adjusted unrealised loss worked out under subsection (4).

715‑255 Consequences if leaving entity is a loss company at the leaving time

(1) If:

(a) section 715‑245 or 715‑250 applies; and

(b) the leaving entity is a *loss company at the leaving time;

the head company must choose whether subsection (2) or (3) of this section has effect for the purposes of applying, to each *membership interest in the leaving entity, in relation to the time just before the leaving time, whichever of these provisions is appropriate:

(d) subsection 701‑55(5), but only so far as it relates to working out the *reduced cost base of a *membership interest that was *acquired on or after 20 September 1985;

(e) subsection 701‑55(6) (about revenue assets).

Note: Section 701‑55 is about setting the tax cost of an asset.

(2) If the *head company chooses this subsection, the interest’s *tax cost setting amount (apart from this section) just before the leaving time is reduced to nil.

(3) If the *head company chooses this subsection, the interest’s *tax cost setting amount (apart from this section) just before the leaving time is reduced by the adjustment amount under section 165‑115ZB, which is calculated on the basis that:

(a) just before the leaving time, all the *membership interests in the leaving entity constituted a single relevant equity interest under section 165‑115X that the head company had in the leaving entity; and

(b) the adjustment amount is worked out and applied in accordance with subsection 165‑115ZB(6), but disregarding the paragraphs of that subsection except paragraphs 165‑115ZB(6)(a) and (d).

(4) The *head company’s choice must be made within 6 months after the leaving time, or within a further period allowed by the Commissioner.

(5) After that 6 months, or that further period, the head company is taken to have chosen subsection (2) unless it is established that the head company made a different choice within that 6 months or further period.

Rights and options to acquire membership interests

(6) Subsection 711‑15(2) (which treats rights and options as membership interests) also applies for the purposes of this section, on the basis that the *consolidated group referred to in section 715‑240 is the old group referred to in that subsection.

715‑260 If neither of sections 715‑245 and 715‑250 applies

(1) This section applies if:

(a) no *alteration time has occurred in relation to the *head company of the *consolidated group since the formation time and before the leaving time; and

(b) the leaving time is not an *alteration time for the leaving entity under subsection 715‑245(2).

(2) The leaving entity’s first *alteration time after the leaving time is determined:

(a) on the basis that the reference time under subsection 165‑115L(2) or 165‑115M(2) is the time just after the formation time; and

(b) making the additional assumptions in section 715‑290.

(3) If the leaving entity uses the *individual asset method of working out its *adjusted unrealised loss at that first *alteration time, then for the purposes of:

(a) step 1 of the method statement in subsection 165‑115U(1); and

(b) the method statement in subsection 165‑115W(1);

the leaving entity is taken to have had no earlier alteration time.

[The next section is section 715‑270.]

How Subdivision 165‑CD applies to leaving entity that is a trust

715‑270 Subdivision 165‑CD applies

(1) At and after the time (the leaving time) when a trust ceases to be a *subsidiary member of a *consolidated group, Subdivision 165‑CD (about reductions after alterations in ownership or control of loss company) applies to the trust on the basis set out in this section.

(2) The trust is taken to be a company.

(3) The leaving time is the only alteration time in respect of the trust.

(4) The trust is a loss company at that time if, and only if, it has an *adjusted unrealised loss at that time. If so, that adjusted unrealised loss is its overall loss at that time.

(5) If the trust is a *loss company at the leaving time, the *head company must choose whether subsection (6) or (7) of this section has effect for the purposes of applying, to each *membership interest in the trust, in relation to the time just before the leaving time, whichever of these provisions is appropriate:

(d) subsection 701‑55(5), but only so far as it relates to working out the *reduced cost base of a *membership interest that was *acquired on or after 20 September 1985;

(e) subsection 701‑55(6) (about revenue assets).

Note: Section 701‑55 is about setting the tax cost of an asset.

(6) If the *head company chooses this subsection, the interest’s *tax cost setting amount (apart from this section) just before the leaving time is reduced to nil.

(7) If the *head company chooses this subsection, the interest’s *tax cost setting amount (apart from this section) just before the leaving time is reduced by the adjustment amount under section 165‑115ZB, which is calculated on the basis that:

(a) just before the leaving time:

(i) all the *membership interests in the leaving entity constituted a single relevant equity interest under section 165‑115X that the *head company had in the leaving entity; and

(ii) each of those interests was an equity under section 165‑115X that the *head company had in the leaving entity; and

(b) the adjustment amount is worked out and applied in accordance with subsection 165‑115ZB(6), but disregarding the paragraphs of that subsection except paragraphs 165‑115ZB(6)(a) and (d).

(8) The *head company’s choice must be made within 6 months after the leaving time, or within a further period allowed by the Commissioner.

(9) After that 6 months, or that further period, the head company is taken to have chosen subsection (6) unless it is established that the head company made a different choice within that 6 months or further period.

Rights and options to acquire membership interests

(10) Subsection 711‑15(2) (which treats rights and options as membership interests) also applies for the purposes of this section, on the basis that the *consolidated group is the old group referred to in that subsection.

Subdivision 715‑C—Common rules for the purposes of Subdivisions 715‑A and 715‑B

715‑290 Additional assumptions to be made when using reference time

The additional assumptions to be made are that, throughout the period starting at the reference time and ending just before the leaving time:

(a) the leaving entity was in existence; and

(b) the *head company held and beneficially owned all the *membership interests in the leaving entity (instead of whoever actually did); and

(d) the head company directly controlled the voting power in the leaving entity.

Subdivision 715‑D—Treatment of company’s deferred losses under Subdivision 170‑D on joining a consolidated group

Table of sections

Key terminology

715‑310 What is a 170‑D deferred loss, and when it revives

Deferred loss on 165‑CC tagged asset

715‑355 Head company’s own deferred losses at formation time

715‑360 Deferred losses brought in by subsidiary member

715‑365 How loss denial balance is applied when 170‑D deferred loss revives

Key terminology

715‑310 What is a 170‑D deferred loss, and when it revives

(1) A *capital loss, deduction, or partner’s share of a deduction, that section 170‑270 (about transactions within linked groups) requires to be disregarded is a 170‑D deferred loss made:

(a) by the company that paragraph 170‑255(1)(a) refers to as the originating company; and

(b) at the time of the event that paragraph refers to as the deferral event; and

(2) The *170‑D deferred loss revives at the time when section 170‑275 (as applying in relation to the deferral event) treats the originating company as having made a *capital loss, or having become entitled to a deduction, in respect of that asset.

[The next section is section 715‑355.]

Deferred loss on 165‑CC tagged asset

715‑355 Head company’s own deferred losses at formation time

(1) This section applies if, at the time (the formation time) when a *consolidated group comes into existence, the *head company has (otherwise than because of section 701‑5 (Entry history rule)) a *170‑D deferred loss that:

(a) it made on a *CGT asset that is a *165‑CC tagged asset of the head company because of paragraph 165‑115A(1A)(b) (which covers CGT assets on which it has 170‑D deferred losses); and

(b) has not *revived.

(2) If a *loss denial pool of the *head company is created under section 715‑60 at the formation time, each *170‑D deferred loss of that kind that the head company has at that time is added to the loss denial pool at that time.

(3) Otherwise, a loss denial pool of the *head company is created at the formation time if:

(a) the formation time is not a *changeover time for the head company; and

(b) the head company’s *final RUNL just before the formation time (as reduced by any reductions under section 715‑50 or 715‑55) was greater than nil; and

(i) the period (the same business test period) consisting of the head company’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

Note: Paragraph (3)(b) has the effect that if the head company has 165‑CC tagged assets that are affected by section 715‑50 or 715‑55 (because they are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(4) When it is created because of subsection (3), the pool consists of each *170‑D deferred loss covered by subsection (2), and its loss denial balance is equal to the *final RUNL referred to in paragraph (3)(b).

Note: The pool is distinct from any other loss denial pool of the head company, for example, one created at the formation time under section 715‑360.

715‑360 Deferred losses brought in by subsidiary member

(1) This section applies if, just before the time (the membership time) when a company (the deferred loss company) becomes a *subsidiary member of a *consolidated group, it had a *170‑D deferred loss that:

(a) it made on a *CGT asset that is a *165‑CC tagged asset of the company at the membership time because of paragraph 165‑115A(1A)(b) (which covers CGT assets on which it has 170‑D deferred losses); and

(b) as at the membership time has not *revived.

(2) If a *loss denial pool of the *head company is created under subsection 715‑70(2) because of the deferred loss company becoming a *subsidiary member of the group, each *170‑D deferred loss of that kind that the deferred loss company had just before the membership time is added to the loss denial pool at that time.

(3) Otherwise, a loss denial pool of the *head company is created at the membership time if:

(a) the membership time is not a *changeover time for the head company; and

(b) the deferred loss company’s *final RUNL just before the membership time (as reduced by any reductions under section 715‑50 or 715‑55) was greater than nil; and

(i) the period (the same business test period) consisting of the deferred loss company’s *trial year; and

(ii) the time (the test time) just before the *changeover time.

Note 1: The 170‑D deferred losses become those of the head company at the formation time because of section 701‑5 (Entry history rule).

Note 2: Paragraph (3)(b) has the effect that if the deferred loss company has other 165‑CC tagged assets affected by section 715‑50 or 715‑55 (because the membership time is when the group comes into existence, and the other 165‑CC tagged assets are membership interests in, or accounting liabilities owed by, another group member), those sections are applied before this section.

(4) When it is created because of subsection (3), the pool consists of each 170‑D deferred loss covered by subsection (2), and its loss denial balance is equal to the *final RUNL referred to in paragraph (3)(b).

Note: The pool is distinct from any other loss denial pool of the head company, for example, one created under this section because another entity becomes a subsidiary member of the group at the membership time.

715‑365 How loss denial balance is applied when 170‑D deferred loss revives

(1) If a *170‑D deferred loss on a *CGT asset is in a *loss denial pool of an entity when the loss *revives, the *capital loss or deduction that section 170‑275 would, apart from this section, treat the entity as having made or become entitled to at that time in respect of the asset is reduced by the lesser of:

(a) the amount of the capital loss or deduction; and

(b) the pool’s *loss denial balance (as reduced by any previous reductions under section 715‑130, subsection 715‑160(1) or this subsection);

and the loss denial balance is reduced by the same amount.

(2) Subsection (1) applies to *170‑D deferred losses in the order in which they *revive. If 2 or more revive at the same time, it applies to them in whichever order the entity determines.

(3) Subsection (1) reduces a *loss denial balance before section 715‑130 does, unless the *realisation event happens after the leaving time referred to in that section.

[The next Subdivision is Subdivision 715‑G.]

Subdivision 715‑G—How value shifting rules apply to a consolidated group

Table of sections

715‑410 Extension of single entity rule and entry history rule

715‑450 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H

715‑410 Extension of single entity rule and entry history rule

(1) Subsection 701‑1(1) (Single entity rule) and section 701‑5 (Entry history rule) also have effect for all the purposes of Part 3‑95 (Value shifting).

Note: One consequence of this for the operation of Division 727 (about indirect value shifting affecting interests in companies and trusts, and arising from non‑arm’s length dealings) is that economic benefits provided by or to a subsidiary member of a consolidated group are treated as provided by or to the head company of the group. As a result:

the head company is the only group member that can be a losing entity or gaining entity for an indirect value shift; and
economic benefits provided by one group member to another are treated as provided by the head company to itself, and so have no relevance to Division 727.

Another consequence is that the head company is treated as owning all interests owned by group members in a losing entity or gaining entity that is not a group member.

(2) This section is not intended to limit the effect that subsection 701‑1(1) and section 701‑5 have apart from this section.

[The next section is section 715‑450.]

715‑450 No reductions or other consequences for interests subject to loss cancellation under Subdivision 715‑H

If section 715‑610 reduces a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest in an entity:

(a) the loss is not subject to reduction under Division 723 (Direct value shifting by creating right over non‑depreciating asset) or 727 (Indirect value shifting); and

(b) the interest’s *adjustable value is not, and is taken never to have been, reduced under Division 725 because of a *direct value shift during the ownership period referred to in subsection 715‑610(2); and

(c) the interest’s *adjustable value is not, and is taken never to have been, reduced under Division 727 because of an *indirect value shift during that period.

Note: Section 715‑610 is about cancelling a loss on a realisation event for a direct or indirect interest in a subsidiary member of a consolidated group.

Subdivision 715‑H—Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a consolidated group

Table of sections

715‑610 Cancellation of loss

715‑615 Exception for interests in entity leaving consolidated group

715‑620 Exception if loss attributable to certain matters

715‑610 Cancellation of loss

(1) This section reduces to nil a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest (the realised interest) in an entity (the first entity) when it is owned by another entity (the owner), if the conditions in subsections (2) and (4) are met.

(2) The first condition is that, at some time during the period (the ownership period) when the owner owned the realised interest:

(a) the first entity was a *subsidiary member of a *consolidated group, and the owner was not a *member of the group; or

(b) the realised interest was an *external indirect equity or loan interest in a subsidiary member of a consolidated group; or

(i) owned an equity or loan interest in a subsidiary member of a consolidated group; and

(ii) was not a member of the group; or

(d) the realised interest was an *equity or loan interest in an entity that owned at that time an external indirect equity or loan interest in a subsidiary member of a consolidated group.

(3) An *equity or loan interest in an entity (the test entity) is an external indirect equity or loan interest in a *subsidiary member of a *consolidated group if, and only if, neither the owner of the interest nor the test entity is a member of the group and:

(a) the test entity owns an equity or loan interest in the subsidiary member; or

(b) the test entity owns an equity or loan interest that is an external indirect equity or loan interest in the subsidiary member because of one or more other applications of this subsection.

(4) The second condition is that, at the same or a different time during the ownership period:

(a) the owner was, or *controlled (for value shifting purposes), the *head company of a *consolidated group because of which the first condition is satisfied; or

(b) the owner was an *associate of an entity that, at the same or a different time during the ownership period, was, or controlled (for value shifting purposes), the head company of such a consolidated group.

715‑615 Exception for interests in entity leaving consolidated group

Membership interests in leaving entity

(1) If:

(a) the realised interest is a *membership interest; and

(b) during the ownership period the first entity ceased to be a *subsidiary member of a *consolidated group;

the first condition in section 715‑610 cannot be satisfied, because of that consolidated group, at a time when the first entity was a member of the group, unless the interest needed to be disregarded under section 703‑35 (about employee shares) in order for the first entity to be a member of the group at that time.

Liabilities owed by leaving entity

(2) If the realised interest:

(a) consists of a liability owed by the first entity to the owner; and

(b) became an asset of the owner because subsection 701‑1(1) (the single entity rule) ceased to apply to the first entity when it ceased to be a *subsidiary member of a *consolidated group;

the first condition in section 715‑610 cannot be satisfied, because of that consolidated group, at a time when the first entity was a member of the group.

715‑620 Exception if loss attributable to certain matters

(1) The loss is not reduced if all of it can be shown to be attributable to things other than these:

(a) something that would be reflected in what would, apart from this Part, be an overall loss under section 165‑115R or 165‑115S, of a *member of a *consolidated group (an excluded group) because of which the first condition in section 715‑610 is satisfied, at an *alteration time for that member;

(b) an *indirect value shift for which, apart from this Part, a member of an excluded group would be the *losing entity or the *gaining entity.

(2) If only part of the loss can be shown to be attributable to things other than the ones listed in subsection (1), the loss is reduced to the amount of that part.

Part 2—New Subdivision 719‑T inserted in the Income Tax Assessment Act 1997

2 After Subdivision 719‑K

Insert:

Subdivision 719‑T—Interactions between this Part and other areas of the income tax law: special rules for MEC groups

Table of sections

How Subdivision 165‑CC applies to MEC groups

719‑700 Changeover times under section 165‑115C or 165‑115D

719‑705 Additional changeover times for head company of MEC group

How Subdivision 165‑CD applies to MEC groups

719‑720 Alteration times under section 165‑115L or 165‑115M

719‑725 Additional alteration times for head company of MEC group

719‑730 Some alteration times only affect interests in top company

719‑735 Some alteration times affect only pooled interests

How indirect value shifting rules apply to a MEC group

719‑755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift

Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group

719‑775 Cancellation of loss

719‑780 Exception for pooled interests in eligible tier‑1 companies

719‑785 Exception for interests in top company

719‑790 Exception for interests in entity leaving MEC group

719‑795 Exception if loss attributable to certain matters

How Subdivision 165‑CC applies to MEC groups

719‑700 Changeover times under section 165‑115C or 165‑115D

(1) This section has effect for the purposes of determining whether a time (the test time) is a *changeover time under section 165‑115C (about changes in ownership) or 165‑115D (about changes in control) in respect of the *head company of a *MEC group.

Modified meaning of reference time

(2) The reference time is:

(a) if no *changeover time has occurred in respect of the head company since the group came into existence and before the test time—when the group came into existence; or

(b) otherwise—the time just after the last such changeover time.

(3) Subsection (2) of this section has effect despite subsection 165‑115A(2A).

Assumptions to make

(4) Assume that, while the *MEC group exists:

(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and

(b) those membership interests remain the same; and

719‑705 Additional changeover times for head company of MEC group

(1) The time when a *potential MEC group ceases to exist is a changeover time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group’s membership was the same as the membership of the MEC group.

Note: The changeover times in subsections (1), (2) and (3) are based on the events described in subsections 719‑280(2), (3) and (4), each of which causes the test company referred to in section 719‑280 to be assumed to fail the continuity of ownership test in section 165‑12.

(2) If something:

(a) happens at a time in relation to *membership interests in one or more of these entities:

(i) a company that was just before that time a *member of a *MEC group and an *eligible tier‑1 company of the *top company for the MEC group;

(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time; and

(b) does not cause the *potential MEC group whose membership is the same as the membership of the MEC group to cease to exist, but does cause a change in the identity of the top company for the potential MEC group;

that time is a changeover time in respect of the *head company of the *MEC group.

(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is a changeover time in respect of the *head company of the *MEC group.

[The next section is section 719‑720.]

How Subdivision 165‑CD applies to MEC groups

719‑720 Alteration times under section 165‑115L or 165‑115M

(1) This section has effect for the purposes of determining whether a time (the test time) is an *alteration time under section 165‑115L (about alterations in ownership) or 165‑115M (about alterations in control) in respect of the *head company of a *MEC group.

Modified meaning of reference time

(2) The reference time is:

(a) if no *alteration time has occurred in respect of the head company since the group came into existence and before the test time—when the group came into existence; or

(b) otherwise—the time just after the last such alteration time.

(3) In applying subsection (2), disregard an *alteration time arising under subsection 719‑725(4).

(4) Subsection (2) of this section has effect despite subsections 165‑115L(2) and 165‑115M(2).

Assumptions to make

(5) Assume that, while the *MEC group exists:

(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and

(b) those membership interests remain the same; and

719‑725 Additional alteration times for head company of MEC group

Additional alteration times based on section 719‑280

(1) The time when a *potential MEC group ceases to exist is an alteration time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group’s membership was the same as the membership of the MEC group.

Note: The alteration times in subsections (1), (2) and (3) are based on the events described in subsections 719‑280(2), (3) and (4), each of which causes the test company referred to in section 719‑280 to be assumed to fail the continuity of ownership test in section 165‑12.

(2) If something:

(a) happens at a time in relation to *membership interests in one or more of these entities:

(i) a company that was just before that time a *member of a *MEC group and an *eligible tier‑1 company of the *top company for the MEC group;

(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time; and

that time is an alteration time in respect of the *head company of the *MEC group.

(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is an alteration time in respect of the *head company of the *MEC group.

Additional alteration times based on Subdivision 719‑K

(4) If Subdivision 719‑K (MEC group cost setting rules: pooling cases) applies, the time just before the trigger time referred to in paragraph 719‑555(1)(a) is an alteration time in respect of the *head company of the *MEC group.

719‑730 Some alteration times only affect interests in top company

(1) This section applies if an *alteration time (except one arising under subsection 719‑725(4)) happens for the *head company of a *MEC group.

(2) Sections 165‑115ZA and 165‑115ZB apply, in relation to the alteration time, to an interest or debt that is, or is part of, a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, only if the interest or debt is:

(a) an *equity or loan interest in the *top company for the MEC group; or

(b) an *indirect equity or loan interest in the top company.

Note: Sections 165‑115ZA and 165‑115ZB are about the consequences that an alteration time for a loss company has for relevant equity interests and relevant debt interests in the company.

(3) In determining what is a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, make the assumptions in subsection 719‑720(5).

719‑735 Some alteration times affect only pooled interests

(1) Sections 165‑115ZA and 165‑115ZB do not apply in relation to an *alteration time that happens for the *head company of a *MEC group because of subsection 719‑725(4) (trigger time for MEC group cost setting rules: pooling cases).

(2) Instead, Subdivision 719‑K applies to the *MEC group, in relation to the trigger time, on the basis that:

(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719‑570(1) and (2) is reduced by the amount of the *head company’s overall loss under section 165‑115R or 165‑115S at that alteration time; but

(b) paragraph (a) of this subsection only affects the application of those formulas because of subsection 719‑570(3) (to work out the *reduced cost base of a *membership interest).

[The next section is section 719‑755.]

How indirect value shifting rules apply to a MEC group

719‑755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift

(1) This section has effect for the purposes of working out the consequences (if any) of an *indirect value shift if the *losing entity or *gaining entity is the *head company of a *MEC group. (Subsection (3) has effect in addition to section 727‑455.)

(2) An *equity or loan interest can be an *affected interest in the *head company only if it is:

(a) an *equity or loan interest in the *top company for the MEC group; or

(b) an *indirect equity or loan interest in the top company.

(3) Subdivision 719‑K (MEC group cost setting rules: pooling cases) applies to the *MEC group, in relation to the first time referred to in that Subdivision as a trigger time that happens at or after the *IVS time, on the basis that:

(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719‑570(1) and (2) is:

(i) if the *head company is the *losing entity—reduced; or

(ii) if the head company is the gaining entity—increased;

by the amount of the indirect value shift; and

(b) paragraph (a) of this subsection also affects the application of those formulas because of subsection 719‑570(3) (to work out the *reduced cost base of a *membership interest).

[The next section is section 719‑775.]

Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group

719‑775 Cancellation of loss

(2) The first condition is that, at some time during the period (the ownership period) when the owner owned the realised interest:

(a) the first entity was a *subsidiary member of a *MEC group (except an *eligible tier‑1 company), and the owner was not a *member of the group; or

(b) the realised interest was an *external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier‑1 company); or

(i) owned an equity or loan interest in a subsidiary member of a MEC group (except an eligible tier‑1 company); and

(ii) was not a member of the group; or

(d) the realised interest was an equity or loan interest in an entity that owned at that time an external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier‑1 company); or

(e) the realised interest was an equity or loan interest, or an *indirect equity or loan interest, in an eligible tier‑1 company that was a member of a MEC group at that time.

(3) An *equity or loan interest in an entity (the test entity) is an external indirect equity or loan interest in a *subsidiary member of a *MEC group if, and only if, neither the owner of the interest nor the test entity is a member of the group and:

(a) the test entity owns an equity or loan interest in the subsidiary member; or

(b) the test entity owns an equity or loan interest that is an external indirect equity or loan interest in the subsidiary member because of one or more other applications of this subsection.

(4) The second condition is that, at the same or a different time during the ownership period:

(a) the owner was, or *controlled (for value shifting purposes), the *head company of a *MEC group because of which the first condition is satisfied; or

(b) the owner was an *associate of an entity that, at the same or a different time during the ownership period, was, or controlled (for value shifting purposes), the head company of such a MEC group.

719‑780 Exception for pooled interests in eligible tier‑1 companies

The first condition in section 719‑775 cannot be satisfied, because of a *MEC group, at a time when the realised interest was a *pooled interest in an *eligible tier‑1 company that is a member of the group.

719‑785 Exception for interests in top company

The first condition in section 719‑775 cannot be satisfied, because of a *MEC group, at a time when:

(a) the first entity was the *top company for the MEC group; or

(b) the realised interest was an *indirect equity or loan interest in the top company for the MEC group.

719‑790 Exception for interests in entity leaving MEC group

Membership interests in leaving entity

(1) If:

(a) the realised interest is a *membership interest; and

(b) during the ownership period the first entity ceased to be a *subsidiary member of a *MEC group;

the first condition in section 719‑775 cannot be satisfied, because of that MEC group, at a time when the first entity was a member of the group, unless the interest needed to be disregarded under section 719‑30 (about employee shares) in order for the first entity to be a member of the group at that time.

Liabilities owed by leaving entity

(2) If the realised interest:

(a) consists of a liability owed by the first entity to the owner; and

(b) became an asset of the owner because subsection 701‑1(1) (the single entity rule) ceased to apply to the first entity when it ceased to be a *subsidiary member of a *MEC group;

the first condition in section 719‑775 cannot be satisfied, because of that MEC group, at a time when the first entity was a member of the group.

719‑795 Exception if loss attributable to certain matters

(1) The loss is not reduced if all of it can be shown to be attributable to things other than these:

(a) something that would be reflected in what would, apart from this Part, be an overall loss under section 165‑115R or 165‑115S, of a *member of a *MEC group (an excluded group) because of which the first condition in section 719‑775 is satisfied, at an *alteration time for that member;

(b) an *indirect value shift for which, apart from this Part, a member of an excluded group would be the *losing entity or the *gaining entity.

(2) If only part of the loss can be shown to be attributable to things other than the ones listed in subsection (1), the loss is reduced to the amount of that part.

[The next Subdivision is Subdivision 719‑X.]

Part 3—Consequential amendment of the Income Tax Assessment Act 1997

3 [1] Subsection 165‑115BB(2) (definition of residual unrealised net loss)

Repeal the definition, substitute:

previous capital losses, deductions or trading stock losses means the total of the following:

(a) capital losses that the company made, deductions to which the company became entitled, or trading stock losses that the company made, as a result of events earlier than the relevant event in respect of assets that the company owned at the *changeover time;

(b) each reduction that section 715‑105 (as applying to the company as the *head company of a *consolidated group or *MEC group) makes in respect of such an asset because an entity ceased before the time of the relevant event to be a *subsidiary member of the group (but counting only the greater or greatest such reduction if 2 or more are made for the same asset);

or nil if there are none.

4 Before subsection 165‑115ZB(1)

Insert:

(1A) This section has effect for the purposes of:

(a) section 165‑115ZA; and

(b) sections 715‑255 and 715‑270 (about effect of alteration time for head company on membership interests of leaving entity just before leaving time).[[1]]

5 Subsection 165‑115ZB(1)

Omit “For the purposes of section 165‑115ZA, an”, substitute “An”.

6 Subsection 165‑115ZB(1)

Omit “referred to in that section”.

7 After subsection 705‑65(3)

Insert:

(3AA) If, on the assumption that:

(a) the *members of the joined group had, just before the joining time, *disposed of their *membership interest in the joining entity; and

(b) the consideration received by the members for the disposal were equal to the *market value of the membership interest at that time;

they would have made a *capital loss that section 727‑615 would have reduced (because of an indirect value shift), then the *reduced cost base of the membership interest that is to be used in subsection (1) of this section is reduced by the amount of that reduction.

8 Before subsection 705‑65(4)

Insert:

Certain provisions not to apply after joining time

9 Subsection 705‑65(4)

After “subsection (3)”, insert “, (3AA)”.

10 Heading to subsection 705‑75(3)

Repeal the heading, substitute:

Application of subsections 705‑65(2), (3), (3AA) and (3A)

11 Subsection 705‑75(3)

After “(3)”, insert “, (3AA)”.

12 Section 713‑50 (link note)

Repeal the link note.

13 Section 719‑570 (link note)

Repeal the link note, substitute:

[The next Subdivision is Subdivision 719‑T.]

Part 4—Dictionary amendments

Schedule 8—Consolidation: various provisions about CFCs, FIFs and FLPs

14 Subsection 995‑1(1) (after paragraph (a) of the definition of adjustable value)

Insert:

(ba) of an asset, for the purposes of determining the consequences of a choice under any of sections 715‑100, 715‑105, 715‑125, 715‑130 and 715‑185, has the meaning given by section 715‑145; and

15 Subsection 995‑1(1)

Insert:

165‑CC tagged asset has the meaning given by section 715‑30.

16 Subsection 995‑1(1)

Insert:

170‑D deferred loss has the meaning given by section 715‑310.

17 Subsection 995‑1(1)

Insert:

adjusted unrealised loss at an *alteration time for a company has the meaning given by section 165‑115U.

18 Subsection 995‑1(1)

Insert:

alteration time:

(a) for a company has the meaning given by sections 165‑115L, 165‑115M, 165‑115N, 165‑115P, 165‑115Q, 715‑245, 715‑250 and 719‑725; and

(b) for a trust, has the meaning given by section 715‑270.

19 Subsection 995‑1(1)

Insert:

changeover time for a company has the meaning given by sections 165‑115C, 165‑115D and 719‑705.

20 Subsection 995‑1(1)

Insert:

external indirect equity or loan interest in a *subsidiary member of a *consolidated group or *MEC group has the meaning given by section 715‑610 or 719‑775.

21 Subsection 995‑1(1)

Insert:

final RUNL has the meaning given by section 715‑35.

22 Subsection 995‑1(1)

Insert:

loss denial balance of a *loss denial pool of an entity has the meaning given by sections 715‑60, 715‑70, 715‑110, 715‑135, 715‑355 and 715‑360.

23 Subsection 995‑1(1)

Insert:

loss denial pool of an entity has the meaning given by sections 715‑60, 715‑70, 715‑110, 715‑135, 715‑355 and 715‑360.

24 Subsection 995‑1(1)

Insert:

residual unrealised net loss for a *changeover time has the meaning given by section 165‑115BB.

25 Subsection 995‑1(1)

Insert:

revive: a *170‑D deferred loss revives as mentioned in section 715‑310.

26 Subsection 995‑1(1) (definition of same business test period)

Omit “and 707‑135”, substitute “, 707‑135, 715‑50, 715‑55, 715‑60, 715‑70, 715‑95, 715‑355 and 715‑360”.

27 Subsection 995‑1(1) (definition of test time)

Before “has the meaning”, insert “for the purposes of applying the *same business test”.

28 Subsection 995‑1(1) (definition of test time)

Omit “165‑115A, 165‑115C, 165‑115D, 165‑115K, 165‑115L, 165‑115M,”.

29 Subsection 995‑1(1) (definition of test time)

Omit “and 707‑135”, substitute “, 707‑135, 715‑50, 715‑55, 715‑60, 715‑70, 715‑95, 715‑355 and 715‑360”.

Subdivision 717‑D—Transfer of certain surpluses under CFC, FIF and FLP provisions: entry rules

1 Subdivision 717‑D (heading)

Repeal the heading, substitute:

2 After section 717‑225

Insert:

717‑227 Deferred attribution credits

(1) This section operates for the purposes of Part X of the Income Tax Assessment Act 1936 if:

(a) a company (the joining company) becomes a *subsidiary member of a *consolidated group at a time (the joining time); and

(b) assuming the joining company had not done so, an attribution credit would have arisen under subsection 371(8) of that Act at a later time for an attribution account entity in relation to the joining company for the purposes of that Part.

Credit in relation to the head company

(2) The attribution credit arises instead at the later time for the attribution account entity in relation to the *head company of the group.

3 Subsection 717‑230(4)

Repeal the subsection, substitute:

(4) That Part operates in relation to the *head company of the *consolidated group, in relation to the *FIF in respect of the notional accounting period of that FIF that included the joining time, as if any interest in the FIF of which the head company became the holder because subsection 701‑1(1) (the single entity rule) applies at the joining time had been acquired by the head company at that time.

(5) Paragraph 538(2)(d) of that Act operates in relation to the *head company of the *consolidated group, in relation to the *FIF in respect of the notional accounting period of that FIF that included the joining time, as if the amount or value of the consideration paid or given by the head company in respect of any acquisition mentioned in subsection (4) of this section was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the joining company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

4 Subdivision 717‑E (heading)

Repeal the heading, substitute:

Subdivision 717‑E—Transfer of certain surpluses under CFC, FIF and FLP provisions: exit rules

5 Group heading before section 717‑245

Repeal the heading, substitute:

Transfers

6 Group heading before section 717‑255

Repeal the heading.

7 After section 717‑260

Insert:

717‑262 Deferred attribution credits

(1) This section operates for the purposes of Part X of the Income Tax Assessment Act 1936 if:

(a) a company (the leaving company) ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time); and

(b) disregarding this section, an attribution credit (the original credit) will arise under subsection 371(8) of that Act at a later time for an attribution account entity in relation to the *head company of the group (including because of the operation of section 717‑227) for the purposes of that Part; and

(c) at the leaving time the leaving company’s attribution account percentage in relation to the attribution account entity for the purposes of that Part is more than nil.

Credit in relation to the leaving company

(2) An attribution credit arises at the later time for the attribution account entity in relation to the leaving company. The credit is the amount worked out under subsection (3).

Amount of credit

(3) The amount of the credit is worked out using the formula:

Reduction in credit in relation to the head company

(4) The attribution credit that arises at the later time for the attribution account entity in relation to the *head company is reduced by the amount of the attribution credit that arises under subsection (2) in relation to the leaving company.

8 Subsection 717‑265(5)

Repeal the subsection, substitute:

(5) That Part operates in relation to the leaving company, in relation to the *FIF in respect of the notional accounting period of that FIF that included the leaving time, as if any interest in the FIF of which the leaving company became the holder because subsection 701‑1(1) (the single entity rule) ceased to apply at the leaving time had been acquired by the leaving company at that time.

(6) Paragraph 538(2)(d) of that Act operates in relation to the leaving company, in relation to the *FIF in respect of the notional accounting period of that FIF that included the leaving time, as if the amount or value of the consideration paid or given by the leaving company in respect of any acquisition mentioned in subsection (5) of this section was equal to the amount worked out under paragraph 538(2)(a) of that Act in relation to the transferor company in relation to the FIF in respect of the notional accounting period mentioned in subsection (2) of this section.

9 At the end of Division 717

Add:

Subdivision 717‑F—Elections etc. relating to CFCs, FIFs and FLPs: entry rules

Guide to Subdivision 717‑F

717‑270 What this Subdivision is about

This Subdivision deals with the effect upon certain elections etc. relating to CFCs, FIFs and FLPs when an entity becomes a subsidiary member of a consolidated group.

Table of sections

Application and object

717‑275 Application

717‑280 Object of this Subdivision

Elections etc.

717‑285 Pre‑joining‑time irrevocable elections etc. by joining entity not inherited by head company

717‑290 Pre‑joining‑time actions of joining entity do not prevent head company from electing to apply the calculation method

[This is the end of the Guide.]

Application and object

717‑275 Application

This Subdivision operates for the purposes of Part X and Part X1 of the Income Tax Assessment Act 1936 if an entity (the joining entity) becomes a *subsidiary member of a *consolidated group at a time (the joining time).

717‑280 Object of this Subdivision

The object of this Subdivision is to provide:

(a) that the *head company of the *consolidated group does not inherit the joining entity’s irrevocable declarations, elections, choices or selections; and

(b) that pre‑joining‑time actions of the joining entity do not prevent the head company from electing to apply the calculation method to determine whether foreign investment fund income accrued from a FIF.

Elections etc.

717‑285 Pre‑joining‑time irrevocable elections etc. by joining entity not inherited by head company

If at the joining time an irrevocable declaration, election, choice or selection made by the joining entity under Part X or XI of the Income Tax Assessment Act 1936 is in force, then, for the head company core purposes, the *head company of the group is not taken to have made the declaration, election, choice or selection.

Note 1: The entry history rule in section 701‑5 would otherwise have had the effect that the head company is taken to have made the declaration etc.

Note 2: Declarations etc. actually made by the head company would apply to interests in CFCs, FIFs or FLPs of which the head company becomes the holder under the single entity rule as a result of the joining entity becoming a subsidiary member.

717‑290 Pre‑joining‑time actions of joining entity do not prevent head company from electing to apply the calculation method

Any entitlement of the *head company of the group to make an election under subsection 535(3) of the Income Tax Assessment Act 1936 for the head company core purposes is not affected by anything done by the joining entity before the joining time.

Note: The entry history rule in section 701‑5 would otherwise have had the effect that actions of the joining entity would be treated as those of the head company. Depending on the nature of the actions, this could have prevented the head company from making the election mentioned above.

Subdivision 717‑G—Elections etc. relating to CFCs, FIFs and FLPs: exit rules

Guide to Subdivision 717‑G

717‑295 What this Subdivision is about

This Subdivision deals with the effect upon certain elections etc. relating to CFCs, FIFs and FLPs when an entity ceases to be a subsidiary member of a consolidated group.

Table of sections

Application and object

717‑300 Application

717‑305 Object of this Subdivision

Elections etc.

717‑310 Pre‑leaving‑time irrevocable declarations, elections, choices and selections by head company not inherited by leaving entity

717‑315 Pre‑leaving‑time actions of head company do not prevent leaving entity from electing to apply the calculation method

[This is the end of the Guide.]

Application and object

717‑300 Application

This Subdivision operates for the purposes of Part X and Part X1 of the Income Tax Assessment Act 1936 if an entity (the leaving entity) ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time).

717‑305 Object of this Subdivision

The object of this Subdivision is to provide:

(a) that the leaving entity does not inherit the *head company’s irrevocable declarations, elections, choices or selections; and

(b) that pre‑leaving‑time actions of the head company do not prevent the leaving entity from electing to apply the calculation method to determine whether foreign investment fund income accrued from a FIF.

Elections etc.

717‑310 Pre‑leaving‑time irrevocable declarations, elections, choices and selections by head company not inherited by leaving entity

If at the leaving time an irrevocable declaration, election, choice or selection made by the *head company of the group under Part X or XI of the Income Tax Assessment Act 1936 is in force, then, for the entity core purposes, so far as they relate to the leaving entity after the leaving time, the leaving entity is not taken to have made the election.

Note: The exit history rule in section 701‑40 would otherwise have had the effect that the leaving entity is taken to have made the declaration etc.

717‑315 Pre‑leaving‑time actions of head company do not prevent leaving entity from electing to apply the calculation method

Any entitlement of the leaving entity to make an election under subsection 535(3) of the Income Tax Assessment Act 1936 for the entity core purposes, so far as they relate to the leaving entity after the leaving time, is not affected by anything done by the *head company before that time.

Note: The exit history rule in section 701‑40 would otherwise have had the effect that actions of the head company would be treated as those of the leaving entity. Depending on the nature of the actions, this could have prevented the leaving entity from making the election mentioned above.

Schedule 9—Consolidation: foreign dividend accounts

Part 1—Basic amendments

Subdivision 717‑J—Foreign dividend accounts

1 At the end of Division 717

Add:

Guide to Subdivision 717‑J

717‑500 What this Subdivision is about

Only the head company of a consolidated group has an operating foreign dividend account, so only the head company can make an FDA declaration to relieve from withholding tax a dividend paid by a member of the group to a foreign resident. The balance of the account reflects what has happened to all members of the group.

Table of sections

Object

717‑505 Object of this Subdivision

Treatment of foreign dividend accounts around joining time

717‑510 No FDA surplus for joining company

Single entity rule for foreign dividend accounts

717‑515 Single entity rule for FDA credits and FDA debits

FDA declaration for dividend paid by subsidiary member

717‑520 Head company may make FDA declaration

717‑525 Multiple FDA declarations for dividends paid on same day

717‑530 Extended operation of sections 717‑520 and 717‑525

[This is the end of the Guide.]

Object

717‑505 Object of this Subdivision

(1) The object of this Subdivision is to affect the operation of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 so that each *consolidated group operates a single *foreign dividend account, by ensuring that:

(a) an *FDA credit and an *FDA debit arise so that:

(i) the balance of the foreign dividend account of the *head company of the group reflects the balance of the foreign dividend account of a company that becomes a *subsidiary member of the group; and

(ii) the balance of the foreign dividend account of the subsidiary member of the group is nil; and

(b) the head company is the only *member of the group that can have an *FDA surplus; and

(c) the head company can make an *FDA declaration relating to a dividend (within the meaning of that Subdivision) or *non‑share dividend paid by any member of the group.

(2) In this Act:

FDA credit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA debit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA declaration has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

FDA surplus has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

foreign dividend account has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

Treatment of foreign dividend accounts around joining time

717‑510 No FDA surplus for joining company

(1) This section operates for the purposes of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 if a company (the joining company) becomes a *subsidiary member of a *consolidated group at a time (the joining time) just after another time (the balance time).

(2) If the joining company has an *FDA surplus at the balance time:

(a) an *FDA debit equal to the FDA surplus arises for the joining company at the balance time; and

(b) an *FDA credit equal to the FDA surplus arises for the *head company of the group at the joining time.

(3) If the joining company’s total *FDA debits arising before the balance time exceed its total *FDA credits arising before the balance time:

(a) an FDA credit equal to the excess arises for the joining company at the balance time; and

(b) an FDA debit equal to the excess arises for the *head company of the group at the joining time.

(4) For the purposes of subsections (2) and (3) of this section, work out whether, when, and how much (if any) of, an *FDA debit arises for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 in relation to the income year that actually includes the balance time as if that income year:

(a) started at:

(i) the start of that income year; or

(ii) if the joining company ceased to be a *subsidiary member of a *consolidated group after the start of that income year but before the balance time—the time the joining company last ceased to be a subsidiary member of a consolidated group before the balance time; and

(b) ended just before the balance time.

Note: This ensures that the FDA debit (if any) for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 arises just before the balance time, so that it is taken into account for the purposes of subsections (2) and (3) of this section.

Single entity rule for foreign dividend accounts

717‑515 Single entity rule for FDA credits and FDA debits

If a company is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes of sections 128TA and 128TB of the Income Tax Assessment Act 1936 to be parts of the *head company of the group, rather than separate entities, during that period.

Note 1: This has the effect that:

(a) FDA credits and FDA debits arise under sections 128TA and 128TB (respectively) of the Income Tax Assessment Act 1936 for the head company of a consolidated group but not for a subsidiary member of the group; and

(b) the shareholdings of all members of a consolidated group are aggregated to work out whether dividends paid to a member are non‑portfolio dividends for the purposes of those sections.

Note 2: Section 717‑10 may also affect FDA credits and FDA debits for the head company of a consolidated group. It treats the head company as having paid and been personally liable for foreign tax on foreign income included in its assessable income if a subsidiary member of the group actually paid and was personally liable for the tax.

FDA declaration for dividend paid by subsidiary member

717‑520 Head company may make FDA declaration

(1) This section operates if:

(a) on a day, a company that is a *subsidiary member of a *consolidated group pays dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) to shareholders (within the meaning of that Act) in respect of *shares in the company; and

(b) on the day, there is an *FDA surplus for the *head company of the consolidated group.

(2) The *head company may make an *FDA declaration specifying an *FDA declaration percentage under subsection 128TC(1) of the Income Tax Assessment Act 1936 as if the head company were paying the dividends.

Note: If the head company makes an FDA declaration:

(a) an FDA debit equal to the sum of the FDA declaration amounts worked out for the dividends by reference to the FDA declaration percentage will arise for the head company just after the start of the day under section 128TB of the Income Tax Assessment Act 1936; and

(b) foreign resident shareholders in the subsidiary member will be relieved from withholding tax on amounts of the dividends not exceeding the FDA declaration amounts.

(3) In this Act:

FDA declaration percentage has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.

(4) However, subsection 128TC(2) of the Income Tax Assessment Act 1936 operates in relation to the *FDA declaration percentage on the basis that:

(a) the company mentioned in that subsection is the *subsidiary member; and

(b) the dividends were paid to shareholders in respect of *shares in the subsidiary member.

(5) To avoid doubt, subsection 128TC(5) of the Income Tax Assessment Act 1936 operates in relation to the *head company’s *FDA declaration by reference to amounts worked out on the basis described in subsection (4) of this section.

(6) To avoid doubt, sections 128TD and 128TE of the Income Tax Assessment Act 1936 apply to the *head company in relation to an *FDA declaration made because of subsection (2) of this section, even though the shareholders and dividends mentioned in those sections applying in relation to the declaration are shareholders in, and dividends paid by, the *subsidiary member.

717‑525 Multiple FDA declarations for dividends paid on same day

(1) This section operates if the *head company of a *consolidated group makes 2 or more *FDA declarations relating to dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) paid by *members of the group on a single day.

Note: It does not matter whether all those FDA declarations are made under section 128TC of the Income Tax Assessment Act 1936 as affected by section 717‑520 of this Act or whether one of the declarations relates to dividends actually paid by the head company.

FDA declaration percentage in each FDA declaration

(2) The *FDA declaration percentage for each *FDA declaration must be such that the sum of the amounts worked out under subsection 128TC(2) of the Income Tax Assessment Act 1936 in relation to the FDA declarations is not greater than the *head company’s *FDA surplus at the beginning of the day.

(3) If (apart from this subsection) that sum is greater than the *head company’s *FDA surplus at the beginning of the day, each of the *FDA declarations is valid but is taken always to have effect as if the *FDA declaration percentage specified in the declaration were the percentage worked out using the formula:

(4) Subsection 128TC(5) of the Income Tax Assessment Act 1936 does not operate in relation to any of the *FDA declarations.

Penalty for statement reflecting wrong percentage

(5) Subsection 128TE(1) of the Income Tax Assessment Act 1936 operates as if it referred to subsection (3) of this section instead of subsection 128TC(5) of that Act.

(6) To avoid doubt, subsection (3) of this section does not prevent subsection 128TE(1) of the Income Tax Assessment Act 1936 from making the *head company liable to pay additional tax by way of penalty.

717‑530 Extended operation of sections 717‑520 and 717‑525

Section 128AAA (the applied section) of the Income Tax Assessment Act 1936 applies to sections 717‑520 and 717‑525 of this Act in the same way as the applied section applies to Division 11A of Part III of that Act.

Note: Section 128AAA of the Income Tax Assessment Act 1936 applies Division 11A of Part III of that Act to non‑share dividends in the same way as that Division applies to dividends.

[The next Division is Division 719.]

2 At the end of Division 719

Add:

Subdivision 719‑X—International tax rules

Table of sections

Foreign dividend accounts

719‑900 General rules about foreign dividend accounts

719‑905 Transfer of balance of foreign dividend accounts on change in identity of provisional head company

Foreign dividend accounts

719‑900 General rules about foreign dividend accounts

(1) This section modifies the effect that Subdivision 717‑J has in relation to a *MEC group because of section 719‑2.

Note: Except as provided by this section, section 719‑2 gives Subdivision 717‑J effect in relation to a MEC group in a way corresponding to the way in which that Subdivision has effect in relation to a consolidated group.

(2) Subdivision 717‑J has effect in relation to the *provisional head company of the *MEC group in a way corresponding to the way in which that Subdivision has effect in relation to the *head company of a *consolidated group.

(3) Subdivision 717‑J has effect as if:

(a) the company that is the *provisional head company of the *MEC group at a time were not a *subsidiary member of the group at the time; and

(b) each company that is a *member of the MEC group at the time and is not the provisional head company at the time were a subsidiary member of the group at the time.

719‑905 Transfer of balance of foreign dividend accounts on change in identity of provisional head company

(1) This section operates if:

(a) a *cessation event happens to the *provisional head company (the old company) of a *MEC group; and

(b) another company (the new company) is appointed as the provisional head company of the group under subsection 719‑60(3).

Note: The appointment of the new company as the provisional head company of a MEC group under subsection 719‑60(3) is taken to have come into force immediately after the cessation event.

(2) If there was an *FDA surplus for the old company at the time of the *cessation event:

(a) an *FDA debit equal to the FDA surplus arises for the old company at the time of the cessation event; and

(b) an *FDA credit equal to the FDA surplus arises for the new company when it is appointed.

(3) If the old company’s total *FDA debits arising before the time of the *cessation event exceeded its total *FDA credits arising before that time:

(a) an FDA credit equal to the excess arises for the old company at the time of the cessation event; and

(b) an FDA debit equal to the excess arises for the new company when it is appointed.

[The next Division is Division 721.]

Part 2—Related amendments

Income Tax Assessment Act 1936

3 Paragraph 128TA(1)(b)

Omit “dividend; or”, substitute “dividend.”.

4 Paragraph 128TA(1)(c)

Repeal the paragraph.

5 Paragraph 128TA(2)(b)

Omit “23AK; or”, substitute “23AK.”.

6 Paragraph 128TA(2)(c)

Repeal the paragraph.

7 Subparagraph 128TB(1)(c)(ii)

Omit “or (c)”.

8 Paragraph 128TB(3)(c)

Repeal the paragraph, substitute:

9 Subsection 128TC(2) (definition of total non‑resident dividends)

Omit “or companies that are related (within the meaning of subsection 51AE(16))”.

10 Subsection 128TC(2) (definition of maximum non‑resident dividend percentage)

Omit “or to a company that is related (within the meaning of subsection 51AE(16))”.

11 Subsection 128TC(2) (definition of total calculation value for dividend purposes of other shares)

Omit “or to a company that is related (within the meaning of subsection 51AE(16))”.

12 Application of amendments

(1) The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply in relation to a dividend or non‑share dividend paid after 30 June 2003 by a company, except a company to which subitem (2) applies.

(2) This subitem and subitem (3) apply to a company if:

(a) the company becomes a member of a consolidated group or MEC group on the day (the consolidation day) the group comes into existence; and

(b) the consolidation day either is before 1 July 2003 or is both:

(i) the first day of the first income year starting after 30 June 2003 of the group’s head company (for a consolidated group) or provisional head company (for a MEC group) on the consolidation day; and

(ii) before 1 July 2004; and

(3) The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply in relation to a dividend or non‑share dividend paid by a company on or after the consolidation day.

(4) A term used in subitem (2) and defined in the Income Tax Assessment Act 1997 has the same meaning in that subitem as it has in that Act.

(5) The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply to a dividend or a non‑share dividend that:

(a) is paid by a company (the paying company) after 30 June 2002; and

(b) is paid to a company that:

(i) is related (within the meaning of subsection 51AE(16) of that Act) to the paying company; and

(ii) is a member of a consolidated group or MEC group.

(6) A term used in paragraph (5)(a) or (b) and defined in the Income Tax Assessment Act 1997 has the same meaning in that paragraph as it has in that Act.

(7) To avoid doubt, the amendments of the Income Tax Assessment Act 1936 made by this Schedule apply to a dividend or a non‑share dividend if they apply to it under subitem (5), even if they would not apply to it under subitem (1) or (3).

Schedule 10—Consolidation: offshore banking units

13 At the end of subsection 703‑75(3)

Add:

; and (d) for the purposes of determining the respective balances of the *FDA accounts of the original company and the interposed company at and after the completion time.

14 Section 717‑265 (link note)

Repeal the link note.

15 Subsection 995‑1(1)

Insert:

FDA credit has the meaning given by section 717‑505.

16 Subsection 995‑1(1)

Insert:

FDA debit has the meaning given by section 717‑505.

17 Subsection 995‑1(1)

Insert:

FDA declaration has the meaning given by section 717‑505.

18 Subsection 995‑1(1)

Insert:

FDA declaration percentage has the meaning given by section 717‑520.

19 Subsection 995‑1(1)

Insert:

FDA surplus has the meaning given by section 717‑505.

20 Subsection 995‑1(1)

Insert:

foreign dividend account has the meaning given by section 717‑505.

21 Application of amendments of subsection 995‑1(1)

The amendments of subsection 995‑1(1) of the Income Tax Assessment Act 1997 made by this Part apply on and after 1 July 2002.

Income Tax Assessment Act 1936

1 Section 121C (at the end of the definition of OBU)

Add:

Note: In this Division, the head company of a consolidated group or MEC group may be treated for certain purposes as an OBU at a time when a subsidiary member of the group is an OBU (see Subdivision 717‑O of the Income Tax Assessment Act 1997).

Subdivision 717‑O—Offshore banking units

2 At the end of Division 717

Add:

Guide to Subdivision 717‑O

717‑700 What this Subdivision is about

The head company of a consolidated group is treated for certain purposes as an offshore banking unit at a time when a subsidiary member of the group is an offshore banking unit.

Table of sections

717‑705 Object of this Subdivision

717‑710 Head company treated as OBU

[This is the end of the Guide.]

717‑705 Object of this Subdivision

The object of this Subdivision is to ensure that certain rules in the Income Tax Assessment Act 1936 relating to offshore banking units interact properly with the consolidation regime in this Part.

717‑710 Head company treated as OBU

(1) Division 9A of Part III of the Income Tax Assessment Act 1936 applies to the *head company of a *consolidated group as if the head company were an OBU (within the meaning of that Division) at a time when a *subsidiary member of the group is an OBU (within the meaning of that Division).

(2) Subsection (1) operates for the head company core purposes mentioned in subsection 701‑1(2).

Schedule 11—Consolidation: application of rules to MEC groups

Subdivision 719‑A—Modified application of Part 3‑90 to MEC groups

1 Before Subdivision 719‑B

Insert:

719‑2 Modified application of Part 3‑90 to MEC groups

(1) This Part (other than Division 703 and this Division) has effect in relation to a *MEC group in the same way in which it has effect in relation to a *consolidated group.

Note: A provision in this Part (other than in Division 703 or in this Division) mentioning 2 separate consolidated groups will, under subsection (1), have an additional operation when the groups are both MEC groups or when one is a MEC group and the other is a consolidated group.

(2) However, that effect is subject to the modifications set out in this Division.

(3) For the purposes of subsection (1), a reference in this Part (other than in Division 703 or this Division) to a provision in Division 703 applies as if it referred instead to that provision or the corresponding provision in Subdivision 719‑B (as appropriate).

2 Subsection 995‑1(1) (at the end of the definition of consolidated group)

Add:

Note 1: Part 3‑90 contains rules relating to the tax treatment of consolidated groups. Division 719 (of that Part) applies those rules to MEC groups with modifications (see section 719‑2).

Note 2: Provisions in the Income Tax Assessment Act 1936 and in the Income Tax Assessment Act 1997 (other than in Part 3‑90) referring only to consolidated groups do not apply to MEC groups.

3 Subsection 995‑1(1) (at the end of the definition of MEC group)

Add:

Note 1: Part 3‑90 contains rules relating to the tax treatment of consolidated groups. Division 719 (of that Part) applies those rules to MEC groups with modifications (see section 719‑2).

Note 2: Provisions in the Income Tax Assessment Act 1936 and in the Income Tax Assessment Act 1997 (other than in Part 3‑90) referring only to consolidated groups do not apply to MEC groups.

Subdivision 719‑A—Modified application of Part 3‑90 to MEC groups

4 Before Subdivision 719‑C

Insert:

719‑2 Modified application of Part 3‑90 to MEC groups

(1) This Part (other than Division 703 and this Division) has effect in relation to a MEC group in the same way in which it has effect in relation to a consolidated group.

(2) However, that effect is subject to the modifications set out in this Division.

Subdivision 719‑B—MEC groups and their members

719‑5 Debt interests that are not membership interests

Section 703‑30 of this Act has effect in relation to a MEC group in the same way in which it has effect in relation to a consolidated group.

Schedule 12—Consolidation: MEC group cost setting rules

719‑155 Object of this Subdivision

1 Section 719‑155

Repeal the section, substitute:

The object of this Subdivision is to modify the tax cost setting rules in Divisions 701 and 705 so that they take account of the special characteristics of *MEC groups.

2 Before subsection 719‑160(1)

Insert:

(1A) This section applies if an entity (the MEC joining entity) becomes a *subsidiary member of a *MEC group at a time (the MEC joining time).

3 Section 719‑165

Repeal the section, substitute:

719‑165 Trading stock value not set for assets of eligible tier‑1 companies

(1) This section applies if an entity (the MEC joining entity) becomes a *subsidiary member of a *MEC group at a time (the MEC joining time).

(2) Subsection 701‑35(4) (setting value of trading stock at tax‑neutral amount) does not apply to the assets of the MEC joining entity if it is an *eligible tier‑1 company at the MEC joining time.

4 At the end of Subdivision 719‑C

Add:

719‑170 Modified effect of subsections 705‑175(1) and 705‑185(1)

(1) This section applies if all of the *members of a *MEC group (the acquired group) become members of another MEC group, or of a *consolidated group, at a particular time (the acquisition time) as a result of the *acquisition of *membership interests in:

(a) the *head company of the acquired group; and

(b) other entities that were *eligible tier‑1 companies of the acquired group just before the acquisition time.

(2) Subsections 705‑175(1) and 705‑185(1) have effect as if a *membership interest in an entity mentioned in paragraph (1)(b) of this section were a membership interest in the *head company of the acquired group.

Note 1: If the acquiring group is a MEC group, and the head company of the acquired group becomes an eligible tier‑1 company of the acquiring group, the assets of the members of the acquired group do not have their tax cost reset at the acquisition time. This is because:

(a) section 719‑160 treats an entity becoming an eligible tier‑1 company of the acquiring group as if it were a part of the head company of that group; and

(b) section 705‑185 treats the subsidiary members of the acquired group as part of the head company of the acquired group.

Note 2: If:

(a) the acquiring group is a MEC group, but the head company of the acquired group does not become an eligible tier‑1 company of the acquiring group; or

(b) the acquiring group is a consolidated group and the acquired group is a MEC group;

the assets of the members of the acquired group have their tax cost reset at the acquisition time (section 719‑160 does not preclude tax cost resetting in these cases). For the purposes of resetting the tax cost of those assets, section 705‑185 treats the subsidiary members of the acquired group as part of the head company of the acquired group.

Schedule 13—Consolidation: MEC groups and losses

Part 1—Basic amendments

Guide to Subdivision 719‑F

1 Before section 719‑300

Insert:

719‑250 What this Subdivision is about

This Subdivision modifies the rules about transferring and utilising losses so the rules operate appropriately in relation to MEC groups, taking account of the special characteristics of those groups. The modifications mainly affect:

(a) rules about maintaining the same ownership to be able to utilise a loss; and

(b) rules for working out how much of a loss can be utilised by reference to bundles of losses and their available fractions.

Table of sections

Maintaining the same ownership to be able to utilise loss

719‑255 Special rules

719‑260 Special test for utilising a loss because a company maintains the same owners

719‑265 What is the test company?

719‑270 Assumptions about the test company having made the loss for an income year

719‑275 Assumptions about nothing happening to affect direct and indirect ownership of the test company

719‑280 Assumptions about the test company failing to meet the conditions in section 165‑12

Same business test and change of head company

719‑285 Same business test and change of head company

Bundles of losses and their available fractions

719‑300 Application

719‑305 Subdivision 707‑C affects utilisation of losses made by ongoing head company while it was head company

719‑310 Adjustment of available fractions for bundles of losses previously transferred to ongoing head company

719‑315 Further adjustment of available fractions for all bundles

719‑320 Limit on utilising losses other than the prior group losses

719‑325 Cancellation of all losses in a bundle

[This is the end of the Guide.]

Maintaining the same ownership to be able to utilise loss

719‑255 Special rules

(1) This section and section 719‑260 have effect for the purposes of working out whether a loss can be *utilised for an income year (the claim year) by a company (the focal company) that made the loss if:

(a) section 165‑12 is relevant to the question whether the focal company can utilise the loss; and

(b) the focal company is the *head company of a *MEC group at any time in its *ownership test period for the loss (as affected by section 707‑205, if relevant).

Note: If the focal company made the loss because of a transfer under Subdivision 707‑A, section 707‑205 has the effect that the ownership test period starts for the focal company at the time of the transfer.

Section 707‑210 does not have effect

(2) Section 707‑210 does not have effect for the purposes of working out whether the focal company can *utilise the loss for the claim year.

Note: Section 707‑210 is about whether a company can utilise a loss it made because the loss was transferred to it under Subdivision 707‑A because the transferor met the conditions in section 165‑12.

719‑260 Special test for utilising a loss because a company maintains the same owners

Meeting the conditions in section 165‑12

(1) The focal company is taken to meet the conditions in section 165‑12 for the claim year and the loss if and only if the company (the test company) identified in relation to the focal company in accordance with section 719‑265 would have met those conditions for that year on the relevant assumptions in:

(a) section 719‑270 (which is about assuming the test company made the loss for a particular income year); and

(b) section 719‑275 (which is about assuming that nothing happened in relation to certain things that would affect whether the test company would meet those conditions); and

(c) section 719‑280 (which is about assuming that the test company would have failed to meet those conditions in certain circumstances).

Focal company’s failure to meet conditions in section 165‑12

(2) The focal company is taken to fail to meet a condition in section 165‑12 only at:

(a) the first time the test company would have failed to meet the condition on the relevant assumptions mentioned in subsection (1); or

(b) the *test time described in subsection 166‑5(5) for the test company, if:

(i) Division 166 is relevant to working out whether the test company could have *utilised the loss for the claim year on the relevant assumptions mentioned in paragraphs (1)(a) and (b); and

(ii) the test company is not assumed under section 719‑280 to fail to meet the condition before the test time.

Note: If the focal company is taken to fail to meet a condition in section 165‑12, the focal company will not be able to utilise the loss for the claim year unless the focal company meets the conditions in section 165‑13 by satisfying the same business test. That test applies to the focal company (and not the test company).

Same business test for focal company under Division 166

(3) If subsection 166‑5(4) affects whether the focal company can *utilise the loss for the claim year because the focal company is a *listed public company or a *100% subsidiary of one for the year, subsection 166‑5(5) operates as if it required the *same business test to be applied to the *business the focal company carried on just before the time described in subsection (2) of this section.

Same business test for focal company to transfer loss

(4) If subsection 707‑125(4) is relevant to working out whether the focal company can transfer the loss to a company under Subdivision 707‑A, that subsection:

(a) has effect as if subsection 707‑125(5) described the focal company’s income year containing the time at which the focal company is taken under subsection (2) of this section to fail to meet a condition in section 165‑12; and

(b) has effect despite subsection (3) of this section.

Note: For working out whether certain losses can be transferred under Subdivision 707‑A, subsection 707‑125(4) modifies the operation of subsection 166‑5(5) by extending the same business test period to include the income year described in subsection 707‑125(5).

719‑265 What is the test company?

(1) To identify for the purposes of section 719‑260 the company that is the test company for the focal company for the loss:

(a) first, identify the test company for the focal company by applying whichever one of subsections (2), (3), (4) and (6) is relevant; and

(b) then, if the condition in column 1 of an item of the table is met, apply this section again to identify the test company as if the company described in column 2 of the item were the focal company, taking account only of things that happened before the event described in column 3 of the item.

Repeated application of this section
	Column 1 If the test company for the focal company is identified:	Column 2 Apply this section again as if this company were the focal company:	Column 3 Take account only of things that happened before this event:
1	Under subsection (2) as the company that is the test company for the transferor	The transferor mentioned in subsection (2)	The transfer mentioned in subsection (2)
2	Under subsection (6) as the company that is the test company for the first head company	The first head company mentioned in subsection (6)	The first head company ceasing to be the head company of the MEC group mentioned in subsection (6)

Note: More than 2 applications of this section may be needed to identify the test company for the focal company.

COT transfer of loss to focal company

(2) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss because of a *COT transfer to the focal company.

Test company for the focal company
	Column 1 If:	Column 2 The test company for the focal company is:
1	The focal company and the transferor are the same company	The focal company
2	The focal company and the transferor are different companies	The company that is the test company for the transferor

Loss transferred because same business test satisfied

(3) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss because the loss was transferred under Subdivision 707‑A to the focal company from a company because it satisfied the *same business test for:

(a) the *same business test period; and

(b) the *test time specified in Division 165 or 166 or section 707‑125.

Test company for the focal company
	Column 1 If:	Column 2 The test company for the focal company is:
1	The focal company was the head company of a MEC group at the time of the transfer	The company that was the *top company for the MEC group at the time of the transfer
2	The focal company was not the head company of a MEC group at the time of the transfer	The focal company

Loss not transferred from a company

(4) The test company for the focal company is the company described in column 2 of the relevant item of the table if the focal company made the loss apart from a transfer of the loss under Subdivision 707‑A from a company.

Test company for the focal company
	Column 1 If:	Column 2 The test company for the focal company is:
1	The focal company made the loss apart from Subdivision 707‑A and was the head company of a MEC group at the start of the income year for which it made the loss	The company that was the *top company for the MEC group at the start of the income year
2	The focal company made the loss because it was transferred under Subdivision 707‑A to the focal company as the head company of a MEC group from an entity other than a company	The company that was the *top company for the MEC group at the time of the transfer
3	Neither item 1 nor item 2 applies	The focal company

Relationship between subsections (2), (3) and (4)

(5) Subsection (2) or (3), and not subsection (4), is relevant for identifying the test company for the focal company if the focal company made the loss apart from a transfer under Subdivision 707‑A, and later transferred the loss to itself under that Subdivision.

Change of head company

(6) If, under section 719‑90, the focal company is taken to have made the loss because:

(a) a company (the first head company) other than the focal company made the loss apart from that section and either:

(i) was the *head company of a *MEC group at any time during the income year for which it made the loss; or

(ii) became the head company of a MEC group after that income year (without having been a *subsidiary member of the group before becoming the head company); and

(b) the focal company was later the head company of the MEC group;

the test company for the focal company is the company that is the test company for the first head company.

Note: Section 719‑90 applies if there is a change in the head company of a MEC group, treating the later head company as if what had happened to the earlier head company had happened to the later head company.

(7) Subsections (2), (3) and (4) and section 719‑90 have effect subject to subsection (6) of this section.

719‑270 Assumptions about the test company having made the loss for an income year

If test company was top company for focal company’s MEC group

(1) If the test company was the *top company for a *MEC group and the focal company is or was the *head company of that MEC group, assume that the test company made the loss for an income year starting at the relevant time shown in the table.

Start of income year for which test company is assumed to have made loss
	If:	The relevant time is:
1	The focal company made the loss apart from Subdivision 707‑A	The start of the income year for which the focal company made the loss
2	The focal company made the loss because it was transferred to the focal company under Subdivision 707‑A	The time of the transfer

Note: Subsection (1) applies even if the test company is still the top company for the MEC group at the end of the claim year.

If test company is focal company or first head company

(2) If the test company is:

(a) the focal company; or

(b) the first head company identified in subsection 719‑265(6) by reference to the focal company;

assume that the test company made the loss for an income year starting at the relevant time shown in the table.

Start of income year for which test company is assumed to have made loss
	If:	The relevant time is:
1	The test company made the loss apart from Subdivision 707‑A (even if the test company later transferred the loss to itself in a *COT transfer)	The start of the income year for which the test company made the loss
2	The test company made the loss because it was transferred to the test company under Subdivision 707‑A in a transfer other than a *COT transfer (even if the test company first made the loss apart from that Subdivision)	The time of the transfer

(3) If the test company is the first head company, disregard section 719‑90 for the purposes of working out the relevant time using the table in subsection (2) of this section.

Note: This ensures that section 719‑90 does not make the items in the table inapplicable by treating the test company as if another company had made the loss instead of the test company.

If subsections (1) and (2) do not apply

(4) If neither subsection (1) nor subsection (2) applies, assume that the test company made the loss for an income year starting at the relevant time shown in the table.

Start of income year for which test company is assumed to have made loss
	If:	The relevant time is:
1	The test company made the loss apart from Subdivision 707‑A (even if the test company later transferred the loss to itself in a *COT transfer)	The start of the income year for which the test company made the loss
2	The test company made the loss because it was transferred to the test company under Subdivision 707‑A in a transfer other than a *COT transfer (even if the test company first made the loss apart from that Subdivision)	The time of the transfer
3	The test company is the test company for the focal company for the loss because the test company was the top company for a MEC group whose *head company made the loss before it was transferred to the focal company under Subdivision 707‑A	The time that was the relevant time under subsection (1) for the test company as the test company for the first company for which the test company was the test company for the loss

Note: Subsection (4) applies if the focal company made the loss because of a COT transfer of the loss to the focal company from another company.

(5) Disregard section 719‑90 for the purposes of items 1 and 2 of the table in subsection (4) of this section if the test company was identified using subsection 719‑265(6).

Note: This ensures that section 719‑90 does not make those items inapplicable by treating the test company as if another company had made the loss instead of the test company.

Other events do not override assumption

(6) If the test company transferred the loss to itself or another company under Subdivision 707‑A, assume that the transfer did not affect, for income years ending after the transfer:

(a) the fact that the test company made the loss; or

(b) the income year for which the test company is assumed (under subsection (1), (2) or (4)) to have made the loss.

719‑275 Assumptions about nothing happening to affect direct and indirect ownership of the test company

(1) This section sets out an assumption that must be made whenever an event described in subsection (2) occurs:

(a) after the time assumed under section 719‑270 to be the start of the income year for which the test company made the loss; and

(b) before the end of the claim year;

(whether or not the test company or the focal company is one of the companies mentioned in the description of the event).

(2) Assume that, after an event described in an item of the table, nothing happens in relation to *membership interests or voting power in an entity described in the item that would affect whether the test company would meet the conditions in section 165‑12 for the claim year and the loss.

Assumption about nothing happening to membership interests or voting power
	If this event occurs:	Assume that nothing happens in relation to membership interests or voting power in:
1	There is a COT transfer of the loss to the head company of a *MEC group (but not from a company that was the head company of another MEC group just before the transfer)	The transferor or an entity that was at the time of the transfer interposed between the transferor and the *top company for the MEC group
2	There is a COT transfer of the loss to the head company of a *MEC group from a company that was the head company of another MEC group just before the transfer	The company that was just before the transfer the *top company for the other MEC group, or an entity that was at the time of the transfer interposed between that company and the top company of the MEC group to whose head company the loss was transferred
3	There is a change in the identity of the top company for a MEC group whose *head company has made the loss	The company that ceased to be the top company for the MEC group as part of the change or an entity that was at the time of the change interposed between that company and the company that became the top company for the MEC group as part of the change
4	A company that has made the loss becomes at a time the head company of a MEC group (as the first company to be the head company of the group) and has not before that time transferred the loss to another company under Subdivision 707‑A	The company or an entity that was at the time interposed between the company and the *top company for the MEC group
5	There is a COT transfer of the loss to the head company of a *consolidated group from another company	The other company or an entity that was at the time of the transfer interposed between the other company and the head company

(3) For the purposes of this section, a company is taken to make a loss:

(a) at the start of the income year for which the company makes the loss, if it makes the loss apart from a transfer under Subdivision 707‑A (even if the company later transfers the loss to itself under that Subdivision); or

(b) at the time the loss is transferred to the company under that Subdivision, if the company makes the loss because of that transfer.

(4) Disregard section 719‑90 for the purposes of making an assumption on the basis of item 1 of the table in subsection (2) of this section if (apart from that section):

(a) the *COT transfer mentioned in that item was from the *head company of the *MEC group to itself; and

(b) for an income year starting after the transfer, another company was the head company of the group.

719‑280 Assumptions about the test company failing to meet the conditions in section 165‑12

(1) Assume that the test company fails to meet the conditions in section 165‑12 at the time an event described in subsection (2), (3) or (4) happens after the start of the *ownership test period for the focal company in relation to:

(a) the *MEC group whose *head company was the focal company; or

(b) the *potential MEC group whose membership was the same as the membership of that MEC group.

Note: If the test company is assumed to fail to meet the conditions in section 165‑12 for the claim year and the loss, the focal company is taken (under section 719‑260) to have failed to meet those conditions.

(2) One event is the *potential MEC group ceasing to exist.

(3) Another event is something happening that meets these conditions:

(a) the thing happens at a time in relation to *membership interests in one or more of these entities:

(i) a company that was just before that time a *member of the *MEC group and an *eligible tier‑1 company of the *top company for the MEC group;

(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time;

(b) the thing does not cause the *potential MEC group to cease to exist but does cause a change in the identity of the top company for the potential MEC group.

(4) Another event is the *MEC group ceasing to exist because there ceases to be a *provisional head company of the group.

Other causes of failure to meet conditions in section 165‑12

(5) To avoid doubt, this section does not limit the circumstances in which the test company would have failed to meet the conditions in section 165‑12 on the relevant assumptions set out in sections 719‑270 and 719‑275.

Same business test and change of head company

719‑285 Same business test and change of head company

In working out whether the *same business test is satisfied by a company that, after the *test time, became the *head company of a *MEC group that existed before that time, disregard what happened in relation to the company before it became a *member of the group. Section 719‑90 has effect subject to this section.

Note 1: The same business test is to be applied on the basis that the company’s business at the test time was the business that section 719‑90 treats the company as having carried on at that time, except to the extent that section 719‑90 attributes to the company its actual history before it became a member of the MEC group.

Note 2: Section 719‑90 applies if there is a change in the head company of a MEC group, treating the later head company as if what had happened to the earlier head company had happened to the later head company.

[The next section is section 719‑300.]

Bundles of losses and their available fractions

Part 2—Related amendments

Schedule 14—Consolidation: liability rules

2 Subsection 707‑210(1)

Repeal the subsection, substitute:

(1) This section has effect for the purposes of working out whether a company (the latest transferee) can *utilise for an income year a loss it made because of a *COT transfer from a company (the latest transferor).

(1A) A transfer of a loss under Subdivision 707‑A from a company to a company is a COT transfer of the loss if the transfer occurs because:

(a) the transferor meets the conditions in section 165‑12; and

(b) the conditions in one or more of paragraphs 165‑15(1)(a), (b) and (c) do not exist in relation to the transferor.

3 Paragraph 707‑210(3)(b)

Repeal the paragraph, substitute:

(b) one or more of those earlier transfers was not a *COT transfer;

4 Subsection 995‑1(1)

Insert:

COT transfer of a loss has the meaning given by section 707‑210.

5 Application of amendment of subsection 995‑1(1)

The amendment of subsection 995‑1(1) of the Income Tax Assessment Act 1997 made by this Schedule applies on and after 1 July 2002.

Payment of group liability by former subsidiary member

1 At the end of Subdivision 709‑A

Add:

709‑95 Payment of group liability by former subsidiary member

(1) This section operates if:

(a) an entity (the former subsidiary) ceases to be a *subsidiary member of a *consolidated group (the old group) at a particular time (the leaving time); and

(b) at or after the leaving time, the former subsidiary:

(i) *pays a PAYG instalment for which it was jointly and severally liable under subsection 721‑15(1) because it was a subsidiary member of the old group; or

(ii) *pays income tax for which it was jointly and severally liable under that subsection because it was a subsidiary member of the old group; and

(c) apart from this section, a *franking credit would arise under section 205‑15 in the *franking account of the former subsidiary at a time (the crediting time) because of that payment.

(2) The credit:

(a) does not arise at the crediting time in the *franking account of the former subsidiary; and

(b) instead, arises at the crediting time in the franking account of the entity that was the *head company of the old group at the leaving time.

709‑100 Refund of income tax to former subsidiary member

(1) This section operates if:

(a) an entity (the former subsidiary) ceases to be a *subsidiary member of a *consolidated group (the old group) at a particular time (the leaving time); and

(b) at or after the leaving time, the former subsidiary *receives a refund of income tax for which it was jointly and severally liable under subsection 721‑15(1) because it was a subsidiary member of the old group; and

(c) apart from this section, a *franking debit would arise under section 205‑30 in the *franking account of the former subsidiary at a time (the debiting time) because of that payment.

(2) The debit:

(a) does not arise at the debiting time in the *franking account of the former subsidiary; and

(b) instead, arises at the debiting time in the franking account of the entity that was the *head company of the old group at the leaving time.

2 Subsection 721‑10(2) (at the end of the table)

Add:

60	subsection 45‑875(2) in Schedule 1 to the Taxation Administration Act 1953 (head company’s liability to GIC on shortfall in quarterly instalment)	the *instalment quarter to which the general interest charge relates
65	if an administrative penalty of a kind mentioned in section 284‑75, 284‑145, 286‑75 or 288‑25 in Schedule 1 to the Taxation Administration Act 1953 relates only to another *tax‑related liability mentioned in this table—section 298‑15 in that Schedule	the period provided for in this table for the *tax‑related liability to which the penalty relates

3 After subsection 721‑15(5)

Insert:

(5A) Despite subsection (5), if the group liability is *general interest charge for a day, the joint and several liability of a particular contributing member under subsection (1) becomes due and payable by the member at the end of the day on which the Commissioner gives the member written notice of the liability under subsection (5).

4 After section 721‑15

Insert:

721‑17 Notice of joint and several liability for general interest charge

(1) This section operates if:

(a) the group liability is *general interest charge for a day in relation to another liability (the primary liability); and

(b) the Commissioner gives a particular contributing member written notice under subsection 721‑15(5) of the group liability; and

(d) the general interest charge for the subsequent day has not been paid or otherwise discharged in full by the time it became due and payable.

(2) The Commissioner is taken to have given the contributing member written notice under subsection 721‑15(5) of the *general interest charge for the subsequent day. The notice is taken to have been given on that day.

5 After subsection 721‑30(5)

Insert:

(5A) Despite subsection (5), if the group liability is *general interest charge for a day, the liability of a TSA contributing member under subsection (2) becomes due and payable by the member at the end of the day on which the Commissioner gives the member written notice of the liability under subsection (5).

6 After section 721‑30

Insert:

721‑32 Notice of general interest charge liability under TSA

(1) This section operates if:

(a) the group liability is *general interest charge for a day in relation to another liability (the primary liability); and

(b) the Commissioner gives a particular TSA contributing member written notice under subsection 721‑30(5) of its liability under subsection 721‑30(2) in relation to the general interest charge for that day; and

(d) the TSA contributing member is liable under subsection 721‑30(2) for an amount in relation to the general interest charge for the subsequent day.

(2) The Commissioner is taken to have given the TSA contributing member written notice under subsection 721‑30(5) of the amount in relation to the *general interest charge for the subsequent day. The notice is taken to have been given on that day.

7 After section 721‑35

Insert:

721‑40 TSA liability and group liability are linked

(1) The liability of a TSA contributing member under subsection 721‑30(2) (the TSA liability) is separate and distinct for all purposes from the group liability to which it relates (the linked group liability). For example, the Commissioner may take proceedings to recover the unpaid amount of the TSA liability, proceedings to recover the unpaid amount of the linked group liability, or both.

Note: The TSA contributing member will not be jointly and severally liable for the linked group liability under section 721‑15 (see subsection 721‑15(3)). However, the head company of the group remains liable for the linked group liability.

Payment or discharge of TSA liability

(2) If an amount is paid or applied at a particular time towards discharging the TSA liability, the linked group liability is discharged at that time to the extent of the same amount.

Payment or discharge of linked group liability

(3) If:

(a) an amount is paid or applied at a particular time towards discharging the linked group liability; and

(b) as a result, the amount unpaid on the TSA liability at that time (apart from this section) exceeds the amount unpaid on the linked group liability at that time;

the TSA liability is discharged at that time to the extent of the excess.

(4) Subsections (2) and (3) operate in relation to a liability under a judgment (the judgment liability):

(a) if the judgment liability is for the entire amount unpaid on the TSA liability—as if the judgment liability were the TSA liability; and

(b) if the judgment liability is for the entire amount unpaid on the linked group liability—as if the judgment liability were the linked group liability.

(5) This section does not discharge a liability to a greater extent than the amount of the liability.

Taxation Administration Act 1953

8 Subsection 250‑10(1) in Schedule 1 (note)

Omit “Note”, substitute “Note 1”.

9 At the end of subsection 250‑10(1) in Schedule 1 (after the note)

Add:

Note 2: Members and former members of consolidated groups and MEC groups may be jointly and severally liable to pay certain tax‑related liabilities related to the group’s activities (see Division 721 of the Income Tax Assessment Act 1997).

10 Subsection 250‑10(2) (after table item 37)

Insert:

TSA liability

721‑30

Income Tax Assessment Act 1997

11 Subsection 250‑10(2) in Schedule 1 (note)

Omit “Note”, substitute “Note 1”.

12 At the end of subsection 250‑10(2) in Schedule 1 (after the note)

Add:

Schedule 15—Consolidation: general application provision

Schedule 16—Consolidation: transitional foreign‑held membership structures

1 Subsection 700‑1(1)

Repeal the subsection, substitute:

(1) Part 3‑90 of the Income Tax Assessment Act 1997, as inserted by the New Business Tax System (Consolidation) Act (No. 1) 2002 and amended by:

(a) the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002; and

(b) the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002; and

applies on and after 1 July 2002.

Part 1—Amendment of the Income Tax Assessment Act 1997

1 Subsection 703‑15(2) (cell at table item 2, column 4)

Omit “requirement in subsection 703‑45(1)”, substitute “set of requirements in section 703‑45, section 701C‑10 of the Income Tax (Transitional Provisions) Act 1997 or section 701C‑15 of that Act”.

2 Section 703‑45

Repeal the section, substitute:

703‑45 Subsidiary members or nominees interposed between the head company and a subsidiary member of a consolidated group or a consolidatable group

(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703‑15(2), a set of requirements that must be met for an entity (the test entity) to be a *subsidiary member of a *consolidated group or a *consolidatable group at a particular time (the test time).

(2) At the test time, each of the interposed entities must either:

(a) be a *subsidiary member of the group; or

(b) hold *membership interests in:

(i) the test entity; or

(ii) a subsidiary member of the group interposed between the *head company of the group and the test entity;

only as a nominee of one or more entities each of which is a *member of the group.

3 Paragraph 705‑15(d)

Repeal the paragraph.

Part 2—Amendment of the Income Tax (Transitional Provisions) Act 1997

4 Division 701B (heading)

Repeal the heading, substitute:

Division 701B—Modified application of provisions of Income Tax Assessment Act 1997 relating to CGT event L1

5 After Division 701B

Insert:

Division 701C—Modified application etc. of provisions of Income Tax Assessment Act 1997: transitional foreign‑held membership structures

Table of Subdivisions

701C‑A Overview

701C‑B Membership rules allowing foreign holding

701C‑C Modifications of tax cost setting rules

Subdivision 701C‑A—Overview

Table of sections

701C‑1 Overview

This Division:

(a) sets out, for the purposes of item 2, column 4 of the table in subsection 703‑15(2) of the Income Tax Assessment Act 1997, rules that allow certain entities to be subsidiary members of consolidatable groups or consolidated groups where other entities are interposed between them and the head company of the group (see Subdivision 701C‑B); and

(b) modifies certain rules in Part 3‑90 of the Income Tax Assessment Act 1997 relating to setting the tax cost of assets to take account of those membership rules (see Subdivision 701C‑C).

[The next section is 701C‑10.]

Subdivision 701C‑B—Membership rules allowing foreign holding

Table of sections

701C‑10 Additional membership rules where entities are interposed between the head company and a subsidiary member—case where an interposed entity is a non‑resident and the subsidiary member is a company

701C‑15 Additional membership rules where entities are interposed between the head company and a subsidiary member—case where an interposed entity is a non‑resident and the subsidiary member is a trust or partnership

701C‑20 Transitional foreign‑held subsidiaries and transitional foreign‑held indirect subsidiaries

(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703‑15(2) of the Income Tax Assessment Act 1997, a set of requirements that must be met for an entity (the test entity) to be a subsidiary member of a consolidated group or a consolidatable group at a particular time (the test time).

Test entity must be company

(2) At the test time, the test entity must be a company.

At least one interposed entity must be a non‑resident company or non‑resident trust

(3) At the test time, at least one of the interposed entities must be:

(a) a company (a non‑resident company) that is a foreign resident; or

(b) a trust (a non‑resident trust) that does not meet the requirements in any item of the table in section 703‑25 of the Income Tax Assessment Act 1997.

The interposed entities must all be of a particular kind

(4) At the test time, each of the interposed entities must be:

(a) a subsidiary member of the group; or

(b) a non‑resident company; or

(d) an entity that holds membership interests in an entity interposed between it and the test entity, or in the test entity, only as a nominee of one or more entities each of which is a member of the group, a non‑resident company or a non‑resident trust; or

(e) a partnership, each of the partners in which is a non‑resident company or a non‑resident trust.

Test entity must be a subsidiary member on assumption that non‑resident companies and non‑resident trusts were subsidiary members

(5) At the test time, it must be the case that the test entity would be a subsidiary member of the group if each interposed entity that is a non‑resident company or non‑resident trust were a subsidiary member of the group.

Additional requirement for consolidatable groups

(6) If the group is a consolidatable group, the test time must be before 1 July 2004.

Additional requirement for consolidated groups at formation

(7) If the group is a consolidated group and the test time is the time at which the group comes into existence as a consolidated group, the test time must be before 1 July 2004.

Additional requirement for consolidated groups after formation

(8) If:

(a) the group is a consolidated group; and

(b) the test time is after the group comes into existence; and

(i) a non‑resident company; or

(ii) a non‑resident trust; or

(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non‑resident company or a non‑resident trust; or

(iv) a partnership, each of the partners in which is a non‑resident company or a non‑resident trust;

then:

(d) from the time the group came into existence as a consolidated group until the test time, the test entity must have been a subsidiary member of the group; and

(e) at the time the group came into existence as a consolidated group, one or more of the membership interests in the test entity must have been held by an entity of a kind mentioned in subparagraph (c)(i), (ii), (iii) or (iv).

Test entity must be a trust or partnership

(2) At the test time, the test entity must be a trust or partnership.

At least one interposed entity must be a company that is a subsidiary member because of section 701C‑10

(3) At the test time, one or more of the interposed entities must be companies that are subsidiary members of the group because the set of requirements in section 701C‑10 are met.

Test entity must be a subsidiary member on assumption that head company beneficially owned all membership interests beneficially owned by subsection (3) companies

(4) At the test time, it must be the case that the test entity would be a subsidiary member of the group if the head company beneficially owned all the membership interests beneficially owned by each company described in subsection (3).

701C‑20 Transitional foreign‑held subsidiaries and transitional foreign‑held indirect subsidiaries

If:

(a) an entity is a subsidiary member of a consolidated group in a case where the set of requirements described in section 701C‑10 are met; and

(b) one or more of the membership interests in the entity are held by:

(i) a non‑resident company; or

(ii) a non‑resident trust; or

(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non‑resident company or a non‑resident trust; or

(iv) a partnership, each of the partners in which is a non‑resident company or a non‑resident trust;

then:

(d) if:

(i) the transitional foreign‑held subsidiary; or

(ii) an entity that is a transitional foreign‑held indirect subsidiary of the group because of another application of this paragraph;

holds one or more membership interests in another entity that:

(iii) is a subsidiary member of the group; and

(iv) is not a transitional foreign‑held subsidiary of the group;

that other member is a transitional foreign‑held indirect subsidiary of the group.

Note: In order to be a subsidiary member of the group as required by subparagraph (d)(iii), the transitional foreign‑held indirect subsidiary would need to have satisfied the set of requirements in either section 701C‑10 or 701C‑15

Subdivision 701C‑C—Modifications of tax cost setting rules

Table of sections

Application and object

701C‑25 Application and object of this Subdivision

Basic modification

701C‑30 Transitional foreign‑held subsidiary to be treated as part of head company

Other modifications

701C‑35 Trading stock value not set for assets of transitional foreign‑held subsidiaries

701C‑40 Cost setting rules for exit cases—modification of core rules

701C‑50 Cost setting rules for exit cases—reference to modification of core rule

Application and object

701C‑25 Application and object of this Subdivision

Application

(1) This Subdivision applies if an entity (the transitional foreign‑held joining entity) that is a transitional foreign‑held subsidiary or a transitional foreign‑held indirect subsidiary becomes a subsidiary member of a consolidated group at the time (the formation time) the group comes into existence.

Object

(2) The object of this Subdivision is to ensure that, on becoming a subsidiary member at the formation time, the tax cost of the assets of any transitional foreign‑held subsidiary is not set and that the tax cost setting amount for assets of any transitional foreign‑held indirect subsidiary that becomes a subsidiary member at that time takes account of this.

Basic modification

701C‑30 Transitional foreign‑held subsidiary to be treated as part of head company

The following provisions:

(a) section 701‑10 of the Income Tax Assessment Act 1997 (about setting the tax cost of assets that an entity brings into the group);

(b) Subdivision 705‑A of that Act, in its application in accordance with Subdivision 705‑B of that Act;

apply, for the purposes of setting the tax cost of an asset of the transitional foreign‑held entity at the formation time, as if each subsidiary member of the group that is a transitional foreign‑held subsidiary at the formation time were a part of the head company of the group, rather than a separate entity.

Note 1: This section means that references in those provisions to matters internal to the group operate as if transitional foreign‑held subsidiaries in the group were parts of the head company of the group. For example:

(a) provisions operating if the head company holds (whether directly or indirectly) membership interests in another entity operate even if a transitional foreign‑held subsidiary actually holds those interests; and

(b) provisions operating if the head company owns or controls another entity operate even if one or more transitional foreign‑held subsidiaries actually own or control that other entity; and

(c) provisions operating if an entity is interposed between the head company and another entity operate even if the first entity is actually interposed between a transitional foreign‑held subsidiary and the other entity.

Note 2: If the transitional foreign‑held entity is a transitional foreign‑held subsidiary, this section means the assets of the entity do not have their tax cost reset at the formation time. This is because Subdivision 705‑A of the Income Tax Assessment Act 1997, in its application in accordance with Subdivision 705‑B of that Act, resets the tax cost of assets of subsidiary members of a group, but not assets of the head company.

Other modifications

701C‑35 Trading stock value not set for assets of transitional foreign‑held subsidiaries

Subsection 701‑35(4) of the Income Tax Assessment Act 1997 (setting value of trading stock at tax‑neutral amount) does not apply to the assets of the transitional foreign‑held entity if it is a transitional foreign‑held subsidiary.

701C‑40 Cost setting rules for exit cases—modification of core rules

Section 701‑15 of the Income Tax Assessment Act 1997 applies as if the following subsection were added at the end of the section:

Application to transitional foreign‑held subsidiaries

(4) If an entity that ceases to be a subsidiary member is a transitional foreign‑held subsidiary when it does so:

(a) this section applies to each membership interest in the transitional foreign‑held subsidiary that is held by an entity (an eligible non‑resident) of a kind mentioned in subparagraph 701C‑20(b)(i), (ii), (iii) or (iv) of the Income Tax (Transitional Provisions) Act 1997 in the same way as it applies to a membership interest in the transitional foreign‑held subsidiary that is held by the head company; and

(b) for that purpose, the definition of head company core purposes in subsection 701‑1(2) of the Income Tax Assessment Act 1997 applies to the eligible non‑resident in the same way as it applies to the head company.

701C‑50 Cost setting rules for exit cases—reference to modification of core rule

Section 711‑5 of the Income Tax Assessment Act 1997 applies as if the following note were added at the end of the section:

Note: If the leaving entity is a transitional foreign‑held subsidiary (within the meaning of section 701C‑20 of the Income Tax (Transitional Provisions) Act 1997), this Division will, in accordance with subsection 701‑15(4) of this Act (see section 701C‑40 of the first‑mentioned Act), apply to membership interests that an eligible non‑resident mentioned in that subsection holds in the entity in the same way as it applies to membership interests that the head company holds in the entity.

Schedule 17—Consolidation: transitional cost setting rule relating to roll‑overs

719‑163 Modified effect of section 701‑35

1 Section 701‑35

Omit “Part 3‑90 of the Income Tax Assessment 1997 applies”, substitute “the provisions mentioned in subsection (2) apply”.

2 At the end of section 701‑35

Add:

(2) The provisions are:

(a) Division 705 of the Income Tax Assessment Act 1997; and

(b) provisions of this Act modifying the effect of that Division.

(3) Subsection (1) does not apply if:

(a) the asset mentioned in subsection (1) is a membership interest in an entity (the test entity); and

(b) when the CGT event happened:

(i) the originating company in relation to the roll‑over, or the transferor in relation to the roll‑over relief, was a foreign resident; and

(ii) the recipient company, or the transferee in relation to the roll‑over relief, was an Australian resident; and

(c) when the transitional group came into existence, the test entity was a subsidiary member of the group, other than as a transitional foreign‑held subsidiary of the group.

3 After section 719‑160

Insert:

(1) This section applies if the transitional group mentioned in section 701‑35 of this Act is a MEC group.

(2) That section has effect as if paragraph 701‑35(3)(c) were repealed and the following paragraph were substituted:

(c) when the transitional group came into existence, the test entity was a subsidiary member of the group, other than as:

(i) a transitional foreign‑held subsidiary of the group (see section 701C‑20); or

(ii) an eligible tier‑1 company of the group.

Schedule 18—Consolidation: extra transitional provision for foreign tax credits

New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002

1 At the end of Schedule 10

Add:

11 Transitional provision for section 160AF

(1) This item applies if:

(a) because of item 5, 6 or 7, old section 160AFE applies to a taxpayer as if a period were an income year (the notional income year); and

(b) the taxpayer has an initial excess credit (within the meaning of old section 160AFE) in relation to the notional income year; and

(c) the taxpayer transfers all or part (the extent of the transfer being the transfer amount) of that initial excess credit under old section 160AFE for utilisation by another company in the notional income year.

(2) Section 160AF of the Income Tax Assessment Act 1936 applies to the taxpayer for the year of income in which the notional income year ends as if the amount of foreign tax paid by the taxpayer mentioned in paragraph 160AF(1)(b) of that Act were reduced by the transfer amount.

(3) This item operates separately in relation to each class of foreign income identified in subsection 160AF(7) of the Income Tax Assessment Act 1936, as if the taxpayer’s foreign income of that class for a year of income were the whole of the taxpayer’s foreign income for that year.

Schedule 19—Consolidation: amendment of losses rules

1 After subsection 701‑30(3)

Insert:

(3A) For the purposes of working out the entity’s taxable income (if any) for the non‑membership period, determine:

(a) whether the entity can *utilise a loss of any *sort transferred to the entity in the period; and

(b) if the period started at the start of the income year—whether the entity can utilise a loss of any sort:

(i) made by the entity, without a transfer, for an earlier income year; or

(ii) transferred to the entity in an earlier income year;

as if the time just after the end of the period were the end of the income year and the entity carried on at that time the same business that it carried on just before that time. Paragraph (3)(a) has effect subject to this subsection.

Note: This means that things that happen in relation to the entity at the time it becomes a subsidiary member of the group are taken into account in determining whether the entity can utilise such a loss to affect its taxable income for the non‑membership period.

2 At the end of section 701‑30

Add:

Utilisation and transfer of non‑membership period loss

(8) However, the provisions of this Act relating to transfer or *utilisation of a loss of any *sort have effect in relation to a non‑membership period loss of that sort for any non‑membership period as if the non‑membership period loss were the entity’s loss for an income year that:

(a) started at the start of the period; and

(b) ended at the end of the period.

(9) Subsection (8) has effect not only for the entity core purposes, but also (despite subsection (2)) for other purposes.

3 Section 707‑405

Repeal the section.