Federal Register of Legislation - Australian Government

Primary content

A Bill for an Act about income tax to implement a New Business Tax System, and for related purposes
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Introduced HR

New Business Tax System (Consolidation) Bill 2000
Exposure Draft

1998-1999-2000

The Parliament of the

Commonwealth of Australia

HOUSE OF REPRESENTATIVES

New Business Tax System (Consolidation) Bill 2000

No. , 2000

Exposure Draft

(Supplied by the Treasury Department)

A Bill for an Act about income tax to implement a New Business Tax System, and for related purposes

ISBN: 0642 464421

Contents

Exposure Draft       1

1       Short title 1

2       Commencement 1

3       Schedule(s) 1

4       Amendment of income tax assessments 2

Schedule 1--Consolidating groups of companies and trusts       3

Part 1--New consolidation provisions       3

Income Tax Assessment Act 1997       3

Part 2--Consequential amendment of the Income Tax Assessment Act 1997       89

Part 3--Amendment of the Income Tax (Transitional Provisions) Act 1997       90

Part 4--Removal of intercorporate dividend rebate       95

Division 1--Removing rebate for dividends paid after 30 June 2001       95

Income Tax Assessment Act 1936       95

Division 2--Consequential changes       96

Income Tax Assessment Act 1936       96

Income Tax Assessment Act 1997       98

Part 5--Repeal of company loss transfer provisions       100

Income Tax Assessment Act 1997       100

Part 6--Dictionary amendments       104

Income Tax Assessment Act 1997       104

A Bill for an Act about income tax to implement a New Business Tax System, and for related purposes

The Parliament of Australia enacts:

1 Short title
        This Act may be cited as the New Business Tax System (Consolidation) Act 2000.

2 Commencement
        This Act commences on the day on which it receives the Royal Assent.

3 Schedule(s)
        Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

4 Amendment of income tax assessments
        Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment made before the commencement of this section for the purposes of giving effect to this Act.

Schedule 1--Consolidating groups of companies and trusts
Part 1--New consolidation provisions

Income Tax Assessment Act 1997

1 Section 166-270 (link note)

Repeal the link note, substitute:

[The next Division is Division 168.]

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Division 168--Consolidating groups of companies and trusts

Table of Subdivisions

       Guide to Division 168

168-A       Object of this Division

168-B       Basic income tax treatment of a consolidated group

168-C       Consolidated groups and their head entities and subsidiary members

168-E       Consequences for asset treatment if entities become members of a consolidated group: basic case

168-F       Consequences for asset treatment if entities become members of a consolidated group: group formation case

168-J       Transfer of previously unutilised losses to head entity

168-R       Amount of transferred losses that can be utilised

168-U       Consequences for asset treatment if entities cease to be members of a consolidated group: basic case

Guide to Division 168

168-1 What this Division is about
A group of entities is treated as a single entity for income tax purposes if:

       (a) the group is headed by an Australian corporate tax entity; and

       (b) the other members of the group are all the Australian resident companies and trusts that are wholly owned by the head entity directly or through other Australian resident companies and/or trusts; and

       (c) the head entity has chosen to consolidate the group.

Table of sections

168-5       Overview of this Division

168-5 Overview of this Division
       (1) The group is generally treated for income tax purposes as a single entity identical to the head entity by treating the wholly-owned companies and trusts in the group as divisions or parts of the head entity (which means that transactions between group members are generally ignored for income tax purposes).

Note:       This treatment facilitates restructuring the group by transactions between members, because those transactions have no income tax consequences.

       (2) This, coupled with special rules for setting the values (including cost bases) for income tax purposes of assets of an entity joining the group and of membership interests in an entity leaving the group, means that:

       (a) there is no double taxation of the same economic gain realised by the group while it is consolidated; and

       (b) the tax benefit of an economic loss realised by the group while it is consolidated can be obtained only once.

       (3) There are also other rules about the tax attributes (including losses) of entities joining and leaving the group to facilitate treating the group as a single entity.

[This is the end of the Guide.]

Subdivision 168-A--Object of this Division

Table of sections

168-30       Object of this Division

168-30 Object of this Division
        The object of this Division is to allow certain groups of Australian resident companies and trusts to be treated as single entities for income tax purposes in a way that:

       (a) prevents double taxation of the same economic gain realised by the group; and

       (b) prevents the tax benefit of an economic loss realised by the group from being obtained more than once; and


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       (c) reduces the cost of complying with this Act, so far as this is consistent with preventing double taxation and preventing tax benefits of a loss being obtained more than once.

Subdivision 168-B--Basic income tax treatment of a consolidated group

Table of sections

168-40       Subsidiary members of consolidated group treated as parts of head entity of the group

168-45       Income years of entities becoming or ceasing to be members of consolidated group

168-50       Entity's income tax for financial year with 2 or more income years

168-40 Subsidiary members of consolidated group treated as parts of head entity of the group
        For the purposes of an assessment of income tax covering a period for which an entity is a *subsidiary member of a *consolidated group, this Act (except this Division) operates as if the entity were a division or part of the *head entity of the group for the period, rather than a separate entity.

Note 1:       An assessment of the liability of the head entity of a consolidated group for income tax will therefore take account of activities of the subsidiary members of the group while they are subsidiary members, but will ignore transactions between members of the group.

Note 2:       An entity that is a subsidiary member of a consolidated group for a period will not be assessed separately for income tax for that period.

Note 3:       However, an assessment of an entity's liability for income tax for a period when it was not a member may be made, and that tax recovered from the entity, even while it is a member of a consolidated group.

168-45 Income years of entities becoming or ceasing to be members of consolidated group
       (1) For the purposes of working out the income tax an entity must pay for a *financial year, the period that would be the entity's income year for those purposes apart from this section is divided into income years as follows, if the entity is involved during the period in one or more events described in subsection (2):

       (a) the first income year in the period starts at the start of the period;

       (b) each later income year in the period starts immediately after the end of the previous income year in the period;

       (c) each income year (except the last) in the period ends on the occurrence of an event described in subsection (2);

       (d) the last income year in the period ends at the end of the period.

Note:       Section 168-40 has the effect that the entity will not have any taxable income of its own for an income year for which it is a subsidiary member of a consolidated group.

       (2) Each of these events ends an income year in the period:

       (a) the entity becomes a *member of a *consolidated group without having been a member of another consolidated group just before;

       (b) the entity ceases to be a *subsidiary member of a consolidated group and does not become a subsidiary member of another consolidated group at the same time;

       (c) the entity ceases to be the *head entity of a consolidated group and at the same time becomes a subsidiary member of another consolidated group.

168-50 Entity's income tax for financial year with 2 or more income years
        Work out the amount of an entity's income tax for a *financial year in this way if the entity has 2 or more income years for the purposes of working out its income tax for the *financial year because of section 168-45.

Income tax for financial year

Step 1.       For each income year, work out the amount of the entity's income tax for the financial year on the basis that that income year was the only income year for that purpose.

Step 2.       Add up all the results of step 1.


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Subdivision 168-C--Consolidated groups and their head entities and subsidiary members

Table of sections

Basic concepts

168-60       What is a consolidated group?

168-65       What is a consolidatable group?

168-70       Members of a consolidated group or consolidatable group

168-75       When is an entity a head entity?

168-78       What is a common Australian corporate tax entity?

168-80       Subsidiary member of a consolidated group or consolidatable group

168-85       100% Australian subsidiary of a common Australian corporate tax entity

168-90       Entities treated as 100% Australian subsidiaries by disregarding finance and employee shares

Choice to consolidate a consolidatable group

168-95       Head entity may choose to consolidate a consolidatable group

Notice of events affecting consolidated group

168-100       Notice of events affecting consolidated group

Basic concepts

168-60 What is a consolidated group?
        A consolidated group:

       (a) comes into existence when a choice by the *head entity of a *consolidatable group that the group be consolidated starts to have effect under section 168-95; and

       (b) remains in existence while the head entity remains a head entity; and

       (c) ceases to exist when the head entity ceases to be a head entity; and

       (d) at any time while it is in existence, consists of the head entity and all of its *100% Australian subsidiaries (if any) at the time.

Note:       A consolidated group continues to exist despite one or more entities ceasing to be 100% Australian subsidiaries of the head entity of the group or becoming 100% Australian subsidiaries of the head entity, as long as the head entity remains a head entity. Thus a consolidated group may come to consist of a head entity alone at various times.

168-65 What is a consolidatable group?
       (1) A consolidatable group consists of:

       (a) a single *head entity; and

       (b) all the *100% Australian subsidiaries of the head entity.

       (2) To avoid doubt, a consolidatable group cannot consist of a *head entity that does not have any *100% Australian subsidiaries.

168-70 Members of a consolidated group or consolidatable group
        An entity is a member of a *consolidated group or *consolidatable group while the entity is:

       (a) the *head entity of the group; or

       (b) a *subsidiary member of the group.

168-75 When is an entity a head entity?
        An entity is a head entity at a particular time if the entity:

       (a) is a *common Australian corporate tax entity at the time; and

       (b) is not a *100% Australian subsidiary of another common Australian corporate tax entity at the time.

168-78 What is a common Australian corporate tax entity?
       (1) An entity is a common Australian corporate tax
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entity
at a time in an income year if:

       (a) it is an *Australian corporate tax entity at the time; and

       (b) it is an entity of a kind all or some of whose taxable income for the income year is taxable at:

       (i) the rate set out in subsection 23(2) of the Income Tax Rates Act 1986 for the income year; or

       (ii) a rate equal to the rate set out in that subsection for the income year; and

       (c) it is not covered by subsection (2), (3), (4), (5), (6) or (7) at the time.

Note 1:       Subsection 23(2) of the Income Tax Rates Act 1986 sets out the rate of tax on the taxable income of most companies.

Note 2:       Each of subsections (2), (3), (4), (5), (6) and (7) describes a kind of entity subject to special income tax treatment that it would not be appropriate:

(a)       to extend to the whole of a consolidated group (if the entity were the head entity of the group); or

(b)       for the entity to lose (if as a subsidiary member of a consolidated group it was treated as a division or part of the head entity of the group).

Mutual entities are not common Australian corporate tax entities

       (2) An entity is not a *common Australian corporate tax entity at a particular time if, at the time, the entity:

       (a) is not carried on for the object of securing a profit or pecuniary gain for its *members; and

       (b) does not have capital divided into *membership interests held by its members; and

       (c) does not hold property in which any of its members has a disposable interest (whether directly or indirectly) except in the event of the winding up of the entity.

Co-operative companies are not common Australian corporate tax entities

       (3) An entity is not a *common Australian corporate tax entity at a particular time if the entity is a co-operative company (as defined in section 117 of the Income Tax Assessment Act 1936) at the time.

Some credit unions are not common Australian corporate tax entities

       (4) An entity is not a *common Australian corporate tax entity at a particular time if the entity is a recognised medium credit union (as defined in section 6H of the Income Tax Assessment Act 1936) for the income year in which the time occurs.

       (5) An entity is not a *common Australian corporate tax entity at a time during an income year if the entity:

       (a) is an approved credit union for the income year for the purposes of section 23G of the Income Tax Assessment Act 1936; and

       (b) is not a recognised medium credit union (as defined in section 6H of the Income Tax Assessment Act 1936) or a recognised large credit union (as defined in that section) for the income year.

PDFs are not common Australian corporate tax entities

       (6) An entity is not a *common Australian corporate tax entity at a time during an income year if the entity is a *PDF at the end of the income year.

Non-profit companies are not common Australian corporate tax entities

       (7) An entity is not a *common Australian corporate tax entity at a time if, at the time, the entity:

       (a) is a non-profit company (as defined in the Income Tax Rates Act 1986); and

       (b) is not a registered organisation (as defined in that Act).

168-80 Subsidiary member of a consolidated group or consolidatable group
        An entity is a subsidiary member of a *consolidated group or *consolidatable group while the entity is a *100% Australian subsidiary of the *head entity of the group.

Note:       Only an Australian resident company, corporate limited partnership or trust can be a subsidiary member of a consolidated group or consolidatable group.

168-85 100% Australian subsidiary of a common Australian corporate tax entity
 
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(1) At a particular time, a *common Australian corporate tax entity (the subsidiary entity) is a 100% Australian subsidiary of another common Australian corporate tax entity (the holding entity) if all the *membership interests in the subsidiary entity are owned by:

       (a) the holding entity; or

       (b) one or more 100% Australian subsidiaries of the holding entity; or

       (c) the holding entity and one or more 100% Australian subsidiaries of the holding entity.

       (2) At a particular time in an income year, an Australian resident trust (also the subsidiary entity) that is not a *common Australian corporate tax entity at the time is a 100% Australian subsidiary of a common Australian corporate tax entity (also the holding entity) if each *member of the subsidiary entity is:

       (a) the holding entity; or

       (b) a 100% Australian subsidiary of the holding entity.

       (3) However, the subsidiary entity is not a 100% Australian subsidiary of the holding entity at the time if a person is *in a position to affect rights, in relation to the subsidiary entity, of:

       (a) the holding entity; or

       (b) a 100% Australian subsidiary of the holding entity.

       (4) The subsidiary entity is also not a 100% Australian subsidiary of the holding entity if at some future time a person will be *in a position to affect rights as described in subsection (3).

       (5) An entity (other than the subsidiary entity) is a 100% Australian subsidiary of the holding entity if, and only if:

       (a) it is a 100% Australian subsidiary of the holding entity; or

       (b) it is a 100% Australian subsidiary of a 100% Australian subsidiary of the holding entity;

because of any other application or applications of this section.

168-90 Entities treated as 100% Australian subsidiaries by disregarding finance and employee shares
       (1) The object of this section is to ensure that an entity is not prevented from being a *subsidiary member of a *consolidated group or *consolidatable group merely because:

       (a) one or more *shares in a company have the character of debt rather than equity; or

       (b) there are minor holdings of shares in a company issued under *arrangements for employee shareholdings.

It does not matter whether the company is the entity or is interposed between the entity and a *common Australian corporate tax entity.

       (2) This Division operates as if a company that meets the requirement of subsection (3) at a particular time were a *100% Australian subsidiary of a *common Australian corporate tax entity at the time.

Note:       This section can also have the effect of ensuring that a trust that would not otherwise be a 100% Australian subsidiary is treated as one, if there is interposed between a common Australian corporate tax entity and the trust a company that is treated as a 100% Australian subsidiary of the common Australian corporate tax entity because of this section.

       (3) The company must be one that would be a *100% Australian subsidiary of the *common Australian corporate tax entity at the time if the *shares in the company that are to be disregarded under subsection (4) or (5) did not exist.

       (4) Disregard the finance shares (as defined in section 160APHBC of the Income Tax Assessment Act 1936), if any.

       (5) Disregard each of the *shares described in subsection (6) if the total number of those shares is not more than 1% of the number of ordinary shares in the company.

       (6) A *share in the company that is owned by an entity may be disregarded under subsection (5) if:

       (a) the entity acquired (as defined in section 139G of the Income Tax Assessment Act 1936) the share either:

       (i) in the circumstances described in subsection 139C(1) or (2) of that Act; or

       (ii) by exercising a right the entity acquired (as so defined) in those circumstances; and


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       (b) all the shares in the company available for acquisition in those circumstances are ordinary shares and all the rights available for acquisition in those circumstances are rights to acquire ordinary shares; and

       (c) if the entity acquired the share in those circumstances--at the time of the acquisition, 75% of the permanent employees (as defined in section 139GB of that Act) of the employer (as defined in section 139GA of that Act) were or had earlier been entitled to acquire in those circumstances:

       (i) shares in the company or rights to acquire shares in the company; or

       (ii) shares in a holding company (as defined in section 139GC of that Act) of the company or rights to acquire such shares; and

       (d) the conditions in subsections 139CD(6) and (7) of that Act are met in relation to the acquisition of the share by the entity; and

       (e) the company is not covered by section 139DF of that Act.

Note:       Section 139CD of the Income Tax Assessment Act 1936 sets out certain preconditions for shares and rights acquired under employee share schemes to be qualifying shares and qualifying rights. Section 139C of that Act explains when a share or right is acquired under an employee share scheme. Section 139DF prevents shares and rights relating to certain companies from being qualifying shares and rights.

       (7) The *share may be disregarded under subsection (5) even though the condition in paragraph (6)(c) is not met, if the Commissioner has made a determination under subsection 139CD(8) in relation to the share.

Choice to consolidate a consolidatable group

168-95 Head entity may choose to consolidate a consolidatable group
       (1) The *head entity of a *consolidatable group may make a choice in the *approved form given to the Commissioner that the group be consolidated on and after a day specified in the choice.

Choice is irrevocable

       (2) The choice cannot be revoked and the specification of the day cannot be amended.

When choice starts to have effect

       (3) The choice starts to have effect on the day specified. However, if the Commissioner received the choice on a day (the receipt day) that is after the 28th day after the day specified, the choice starts to have effect on the 28th day before the receipt day, unless the Commissioner decides that it should start to have effect on the day specified in the choice.

Choice has no effect after entity stops being head entity

       (4) The choice does not have effect after the entity that made it ceases to be a *head entity.

Choice does not start to have effect if no consolidatable group

       (5) The choice does not have effect if, on the day on which it would otherwise start to have effect under subsection (3), the entity that made the choice does not have any *100% Australian subsidiaries.

Choice does not have effect if notice is wrong

       (6) The choice does not have effect (and is taken not to have had effect) if the Commissioner is satisfied that the choice contains information that is incorrect in a material particular.

Note:       The choice does not have effect if the choice omitted material information, because the notice would not have been in the approved form.

Commissioner may give effect to choice despite wrong notice

       (7) Subsection (6) does not prevent the choice from having effect as described in subsection (3) if the Commissioner gives the *head entity written notice that the choice has effect despite the incorrect information.

Notice of events affecting consolidated group

168-100 Notice of events affecting consolidated group
        Within 28 days of an event described in an item of the table, the entity described in column 3 of the item must give the Commissioner notice in the *approved form of the event.
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Notice of events

Column 1

Item

Column 2

If this event happens:

Column 3

Notice must be given by:

1

An entity becomes a *subsidiary member of a pre-existing *consolidated group

The *head entity of the consolidated group

2

An entity ceases to be a *subsidiary member of a *consolidated group

The *head entity of the group, or the person (if any) who was its public officer just before it was wound up if the former subsidiary member ceases to be a member of the group because the head entity is wound up

3

An entity ceases to be *head entity of a *consolidated group

The entity, or the person (if any) who was its public officer just before it was wound up if it ceases to be head entity of the group because it is wound up

[The next Subdivision is Subdivision 168-E.]

Subdivision 168-E--Consequences for asset treatment if entities become members of a consolidated group: basic case

Guide to Subdivision 168-E

168-200 What this Subdivision is about
When an entity becomes a subsidiary member of an existing consolidated group, the head entity of the group is treated as if it purchased the entity's assets for a payment that reflects the cost to the group of acquiring those assets. This cost consists of the group's cost of acquiring the membership interests in the entity and the amount of liabilities of the entity, which become liabilities of the group.

Table of sections

Object of this Subdivision

168-205       Object of this Subdivision

When this Subdivision operates

168-210       When this Subdivision operates

Treatment of joining entity

168-215       Consequences for asset treatment for joining

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entity

168-220       What is the joining value of a CGT asset?

Treatment of head entity

168-225       Deemed purchase by head entity of CGT assets of joining entity

168-230       Amount to be treated as payment for a retained cost base asset

168-235       Amount to be treated as payment for a reset cost base asset

168-240       Restriction on amount to be treated as payment for certain assets

How to work out the allocable cost amount

168-245       What is the joined group's allocable cost amount for the joining entity?

168-250       Cost base of membership interests in the joining entity--step 1 in working out allocable cost amount

168-255       Liabilities of the joining entity--step 2 in working out allocable cost amount

168-260       Distributions by the joining entity after the joining time--step 3 in working out allocable cost amount

168-265       If distributions exceed ultimate acquirer's stake in joining entity's profits in the acquisition phase--step 4 in working out allocable cost amount

168-270       The acquisition phase and when membership interests are held in certain cases

168-275       Allocable cost amount is lower if joining entity has certain losses--step 5 in working out allocable cost amount

168-280       If an asset that was over-depreciated on 1 July 2001--step 6 in working out allocable cost amount

168-285       If joining entity transfers a loss to the head entity--step 7 in working out allocable cost amount

How to work out a pre-CGT factor for certain CGT assets of joining entity

168-290       Pre-CGT factor for certain CGT assets of joining entity

[This is the end of the Guide.]

Object of this Subdivision

168-205 Object of this Subdivision
        The object of this Subdivision is to align:

       (a) the sum of the joining values (see section 168-220) of the *CGT assets of an entity (the joining entity) at the time (the joining time) it becomes a *subsidiary member of a *consolidated group (the joined group ); and

       (b) the sum of the *cost bases of all *membership interests in the joining entity held by *members of the joined group, increased by the joining entity's liabilities;

so that:

       (c) consistent leaving values (see section 168-1000) can be worked out for membership interests in a member of the joined group that are later *disposed of outside the group, based on the cost bases of that member's assets; and

       (d) double taxation of gains and duplication of losses can be prevented in other circumstances when the cost of the asset is relevant (such as depreciation or disposal of the asset); and

       (e) assets can be transferred between members of the joined group without requiring adjustments to cost bases for membership interests to prevent incorrect amounts of gains or losses through value shifting.

When this Subdivision operates

168-210 When this Subdivision operates
        This Subdivision operates if none of the following exceptions applies when the joining entity becomes a *member of the joined group:

       (a) the first exception is where the joining entity becomes a member of the joined group because it is a member of that group at the time it comes into existence as a *consolidated group;

Note:       See Subdivision 168-F for rules about the treatment of assets if entities become members in circumstances covered by this

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exception.

       (b) the second exception is where:

       (i) the joining entity is a member of another consolidated group; and

       (ii) all of the members of that group become members of the joined group at the same time;

Note:       See Subdivision 168-G for rules about the treatment of assets if entities become members in circumstances covered by this exception.

       (c) the third exception is where:

       (i) the joining entity and one or more other entities become members of the joined group at the same time; and

       (ii) on joining, one of the entities holds, either alone or together with one or more existing members of the joined group, all of the *membership interests in the other entities; and

       (iii) the case is not covered by the second exception.

Note:       See Subdivision 168-H for rules about the treatment of assets if entities become members in circumstances covered by this exception.

Treatment of joining entity

168-215 Consequences for asset treatment for joining entity
        If this Subdivision operates then, for the purposes of applying this Act to the joining entity for the income year that, in accordance with section 168-45, ends at the joining time, any *trading stock of the joining entity on hand at the end of the income year is to be brought to account under Division 70 at its joining value.

168-220 What is the joining value of a CGT asset?
       (1) If a *CGT asset of the joining entity is *trading stock, its joining value is:

       (a) if the trading stock was on hand at the beginning of the income year which ends at the joining time--the value at which it was taken into account by the joining entity at that time under Division 70; or

       (b) if the joining entity *acquired the trading stock during that income year--the amount of the outgoing incurred by the joining entity in connection with the acquisition of the trading stock or, if there was no such outgoing, nil.

       (2) If a *CGT asset of the joining entity is a *depreciating asset, its joining value is equal to its *adjustable value at the joining time.

       (3) If a *CGT asset of the joining entity is neither *trading stock nor a *depreciating asset, its joining value is equal to its *cost base at the joining time.

Treatment of head entity

168-225 Deemed purchase by head entity of CGT assets of joining entity
Deemed purchase

       (1) If this Subdivision operates, then, for the purposes of applying section 168-40 in relation to the *head entity, the head entity is taken to purchase, at the joining time, each of the *CGT assets of the joining entity for a payment worked out under this Subdivision.

Note:       This does not mean that the joining entity is taken to dispose of the assets--it would still hold them at the end of the income year that, in accordance with section 168-45, occurs at the joining time.

Rules are to be developed to provide that the payment under this Subdivision is a different amount for the purposes of working out the reduced cost base of the assets in specified cases.

Goodwill

       (2) This Division operates in relation to the goodwill arising from control and ownership of the joining entity by the *head entity in the same way as it operates in relation to a *CGT asset of the joining entity.

Note 1:       The goodwill arising from control and ownership of the joining entity by the head entity consists of:


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(a)       the joining entity's goodwill (if any); and

(b)       goodwill reflecting an increase (if any) in the value of the businesses of other group members because of synergy between those members and the joining entity.

Note 2:       This section does not deem a double payment for purchase of the joining entity's goodwill by treating it once as an asset of the joining entity at the joining time and again as part of the goodwill arising from control and ownership of the joining entity by the head entity.

pre-CGT assets

       (3) If any of the *CGT assets is a *pre-CGT asset, it is a pre-CGT asset when the deemed purchase by the *head entity has taken place.

168-230 Amount to be treated as payment for a retained cost base asset
       (1) For each *CGT asset that is a retained cost base asset, the payment is equal to the joining entity's *cost base for the asset at the joining time.

Debts

       (2) However, if the retained cost base asset is a debt owed to the joining entity and, in the opinion of the *head entity of the group joined, the full amount of the debt will not be repaid, the payment for the debt is instead equal to the *market value of the debt.

Note:       If the total amount to be treated as payment for retained cost base assets exceeds the joined group's allocable cost amount for the joining entity, the head entity makes a capital gain equal to the excess. See CGT event XX [to be drafted].

Retained cost base asset

       (3) A retained cost base asset is:

       (a) Australian currency, other than *trading stock or *collectables of the joining entity; or

       (b) a right to receive a specified amount of such Australian currency, other than a right that is a marketable security within the meaning of section 70B of the Income Tax Assessment Act 1936.

Example:       A debt or a bank deposit.

168-235 Amount to be treated as payment for a reset cost base asset
       (1) For each *CGT asset of the joining entity that is a reset cost base asset, work out the payment for its deemed purchase by the *head entity in this way.

Amount to be treated as payment for each reset cost base asset

Step 1.       Work out the joined group's allocable cost amount for the joining entity under section 168-245.

Step 2.       Reduce the amount in step 1 by the total of the payments in accordance with section 168-230 for each retained cost base asset (but not below zero).

       Note: The amount to be treated as payment for each reset cost base asset will be nil if the result of step 2 is zero.

Step 3.       Allocate the result of step 2 to each of the joining entity's reset cost base assets in proportion to their market values. If subsection (3) applies to any one or more of the assets, reduce the *market values used for such assets by their respective amounts mentioned in subsection (4).

       Note: If there are no reset cost base assets, the result of step 2 is instead treated as a capital loss of the head entity. See CGT event XX [to be drafted].

Step 4.       The amount allocated under step 3 to each reset cost base asset is the payment for its deemed purchase.

Reset cost base asset

       (2) A reset cost base asset is any *CGT asset that is not a retained cost base asset.

Over-depreciated assets whose market value is to be reduced

       (3) This subsection applies to a reset cost base asset if:

       (a) in working out the group's allocable cost amount for the joining entity, an amount worked out under section 168-280 is subtracted in accordance with step 6 of the table in section 168-245; and

       (b) the asset was covered by subsection 168-280(3) or (4).

Reduction in market value of over-depreciated asset

       (4) For the purposes of step 3 in the method statement in subsection (1), the amount for each reset cost base asset to which subsection (3) applies is:


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       (a) if the amount worked out under section 168-280 is the amount under subsection (7) of that section--the amount applicable to the asset in applying that subsection; or

       (b) if the amount worked out under section 168-280 is the amount under subsection (8) or (9) of that section--the part of that amount that would be allocated to the asset if it were allocated to all of the assets covered by subsection 168-280(3) or (4) in proportion to the amounts applicable to each in applying subsection (7) of that section.

168-240 Restriction on amount to be treated as payment for certain assets
Section covers certain reset cost base assets

       (1) This section applies to a reset cost base asset if, assuming the *head entity were to *dispose of it after the joining time, any gain or loss on the disposal would be taken into account in determining the taxable income or *tax loss of the head entity, but any *capital gain or *capital loss on the disposal would be disregarded.

Note:       For example, trading stock and depreciating assets.

Reduction in payment for particular reset cost base asset

       (2) If the payment worked out under section 168-235 would exceed both the *market value and the joining entity's joining value (see section 168-220) for the reset cost base asset, the payment under that section is reduced so that it equals the greater of those 2 amounts (or equals each, if they are the same).

Increase in payment for other reset cost base assets

       (3) Also, the amount by which the payment is reduced is then allocated to each of the reset cost base assets, whose deemed purchase payment is not reduced under subsection (2), in proportion to their *market values. The deemed purchase payment for each such asset is increased by the amount allocated to it.

Note:       If there are no reset cost base assets covered by subsection (3), the amount by which the payment is reduced is instead treated as a capital loss of the head entity. See CGT event XX [to be drafted].

How to work out the allocable cost amount

168-245 What is the joined group's allocable cost amount for the joining entity?
        Work out the joined group's allocable cost amount for the joining entity in this way:

Working out the allocable cost amount

Step

What the step requires

Purpose of the step

1

Start with the amount worked out under section 168-250, which is about the *cost base of *membership interests in the joining entity held by *members of the joined group

To ensure that the allocable cost amount includes the cost of acquiring the membership interests

2

Add to the result of step 1 the amount worked out under section 168-255, which is about the value of the joining entity's liabilities

To ensure that the joining entity's liabilities at the joining time, which are part of the joined group's cost of acquiring the joining entity's assets, are reflected in the allocable cost amount

3

Add to the result of step 2 the amount worked out under section 168-260, which is about the value of later distributions of taxed profits

To increase the allocable cost amount to reflect the undistributed, taxed profits and so prevent double taxation

4

Subtract from the result of step 3 the amount worked out under section 168-265, which is about distributions by the joining entity to a *member of the joined group holding a *membership interest in the joining entity exceeding the amount of profit accruing to the interest while it is so held

To prevent the allocable cost amount reflecting return of part of the amount paid to *acquire the interests

5

Subtract from the result of step 4 the amount worked out under section 168-275, which is about losses the joining entity incurred after *members of the joined group *acquired *membership interests in it

To reflect the losses and to prevent a double benefit from them

6

Subtract from the result of step 5 the amount worked out under section 168-280, which is about over-depreciated assets of the joining entity

To limit deferral of tax resulting from over-depreciation of the assets

7

Subtract from the result of step 6 the amount worked out under section 168-285, which is about losses that the joining entity transferred to the *head entity under Subdivision 168-J where the losses did not accrue to *membership interests in the entity held by *members of the joined group

To stop the joined group getting benefits both through higher deemed purchase payments for the joining entity's assets and through losses of the joining entity to which the head entity was not exposed through its direct or indirect holding of membership interests in the joining entity


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168-250 Cost base of membership interests in the joining entity--step 1 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to start with under step 1 is worked out in accordance with this section.

Sum of cost bases of membership interests

       (2) Add up the *cost bases of all the *membership interests that *members of the joined group hold in the joining entity.

Adjustment if group members do not hold all membership interests

       (3) However, if the *members of the joined group do not hold all the *membership interests in the joining entity, the amount is worked out using the formula:

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where:

cost base of group's membership interests in joining entity is the sum of the *cost bases of all *membership interests in the joining entity held by *members of the joined group.

market value of group's membership interests in joining entity is the *market value of all the *membership interests in the joining entity held by the *members of the joined group.

Note:       This may be relevant if the joining entity is a company and shares in it are finance shares or employee shares that are disregarded under section 168-90 for the purpose of working out whether an entity is a 100% Australian subsidiary.

Adjustment if value shifting or loss transfer provision could apply

       (4) If the *members of the joined group had, just before the joining time, *disposed of their *membership interests in the joining entity and, as a result, the *cost base of the membership interests would have been changed by:

       (a) section 160ZP, or Division 19A or 19B of Part IIIA, of the Income Tax Assessment Act 1936;

       (b) Division 138, 139 or 140, or Subdivision 170-B or 170-C, of this Act;

then the cost base of the membership interests that is to be used in subsection (2) or (3) of this section is instead the cost base as changed in that way.

       (5) Also, if a provision mentioned in subsection (4) would, because of events that happened before the joining time, apply to a *CGT event that happens after the joining time in relation to the *members' *membership interests in the joining entity, the provision does not so apply.

Adjustment if cost base is greater than market value

       (6) If the *cost base of a *membership interest to be used in subsection (2) or (3) (after any application of subsection (4)) is more than its *market value, the cost base of the membership interests that is to be used in subsection (2) or (3) is instead the greater of:

       (a) the market value of the interest; and

       (b) the holding *member's *reduced cost base for the interest.

Market value of membership interests

       (7) For the purposes of this section, the *market value of a *membership interest is its market value at the joining time.

A rule is to be developed, where the head entity and the joining entity are both trusts, to preserve the entitlements to a 50% discount for CGT purposes in the case of CGT assets acquired before 23 December 1999.

168-255 Liabilities of the joining entity--step 2 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be added under step 2 is worked out in accordance with this section.

Sum of joining entity's liabilities

       (2) Add up the amounts of all the joining entity's liabilities (if any) at the joining time that, in accordance with accounting standards or statements of accounting concepts made by the Australian Accounting Standards Board, can or must be identified in reports of the entity's financial position.

Reduction in liability

       (3) However, if some or all of a liability will be a deduction to the *head entity, the amount of the liability to be taken into account is reduced by the following amount:

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Exclusion of liability


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       (4) Also, an amount is not to be added for a liability that arises because of the joining entity's ownership of a *CGT asset if, on *disposal of the asset, the liability will transfer to the new owner.

Example:       A liability to rehabilitate a mine site, where, under legislation or a licence, the liability will be transferred to the new owner on disposal of the mine.

Adjustment of liability

       (5) Further, if:

       (a) a liability of the joining entity is a debt or other liability owed to a *member of the joined group; and

       (b) the member's *cost base in respect of the debt or other liability owed is less than the amount of the joining entity's liability;

the amount to be added for the liability instead equals the cost base.

168-260 Distributions by the joining entity after the joining time--step 3 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be added under step 3 is worked out in accordance with this section.

Distributions that add to the allocable cost amount

       (2) Add up the amounts of all distributions by the joining entity, in the period described in subsection (3), of its pre-joining time profits to *members of the joined group (except the amount of a distribution described in subsection (4)).

Period for purposes of subsection (2)

       (3) The period starts at the joining time and ends:

       (a) when the joining entity lodges its *income tax return for the income year ending at the joining time; or

       (b) at the time that return is required to be lodged, if it is not lodged by then.

Distributions that do not add to the allocable cost amount

       (4) For the purposes of subsection (2), disregard so much of a distribution by the joining entity as could not have been a fully franked dividend (within the meaning of subsection 46FA(11) of the Income Tax Assessment Act 1936) if:

       (a) the distribution had been made before the joining time; and

       (b) the joining entity's franking account balance (within the meaning of section 160APA of the Income Tax Assessment Act 1936) just before the joining time were the amount it would have been if the income tax payable, or *refund of income tax due, on the joining entity's taxable income for the income year ending at the joining time had been paid or received just before the joining time.

168-265 If distributions exceed ultimate acquirer's stake in joining entity's profits in the acquisition phase--step 4 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be subtracted under step 4 is worked out in accordance with this section.

Amount to be subtracted

       (2) The amount is the excess (if any) of the amount worked out under subsection (3) to reflect the joining entity's distributions over the amount of the joining entity's after-tax profits worked out under subsection (6).

Amount reflecting joining entity's distributions

       (3) For the purposes of subsection (2), work out the amount to reflect the joining entity's distributions in this way:

Method statement

Step 1.       Identify the day (the step 1 day):

       (a) on which the joining entity lodged its *income tax return for the income year ending at the joining time; or

       (b) by which the return was required to be lodged, if it was not lodged by then.

Step 2.       Add up the distributions (if any) made by the joining entity before the step 1 day to the entity (the ultimate acquirer) that is the *head entity of the joined group at the joining time.

       Note: The ultimate acquirer may not, throughout the acquisition phase (see section 168-270), have been the head entity of the group of which it was a member.

Step 3.       Add up the amounts the ultimate acquirer would have received if the amounts of distributions (if any) made by

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the joining entity before the step 1 day to entities interposed between the ultimate acquirer and the joining entity had been successively distributed without delay by:

       (a) each recipient of a distribution made by the joining entity; and

       (b) each entity interposed between such a recipient and the ultimate acquirer.

Step 4.       Add up the amounts of distributions made:

       (a) by the joining entity before the step 1 day; and

       (b) to *associates of the ultimate acquirer not interposed between the joining entity and the ultimate acquirer; and

       (c) on account of *membership interests in the joining entity held by the ultimate acquirer directly or indirectly through one or more interposed entities.

Step 5.       Add up the results of steps 2, 3 and 4.

Distributions where membership interest not continuously held

       (4) For the purposes of step 2, 3 and 4 in the method statement in subsection (3), disregard so much of a distribution made by the joining entity as the ultimate acquirer would have received in respect of a *membership interest in the joining entity that the ultimate acquirer does not hold continuously (either directly or indirectly through one or more interposed entities) until the joining time.

Note:       Section 168-270 explains when the continuity in holding is broken.

Distributions that could not have been fully franked

       (5) For the purposes of steps 2, 3 and 4 in the method statement in subsection (3), disregard so much of a distribution made by the joining entity after the joining time as could not have been fully franked if:

       (a) the distribution had been made before the joining time; and

       (b) the balance of the joining entity's franking account before the joining time were the amount it would have been if the income tax payable, or *refund of income tax due, on the joining entity's taxable income for the income year ending at the joining time had been paid or received just before the joining time.

Note:       This amount is disregarded for the purposes of this section because subsection 168-260(4) prevents the amount from increasing the consolidated group's allocable cost amount for the joining entity under step 4 of the method statement in subsection 168-245(1).

Amount of the joining entity's after-tax profits

       (6) Take into account in subsection (2) the amount of the joining entity's after-tax profits:

       (a) accrued during the acquisition phase (see section 168-270); and

       (b) realised during or at the end of the phase;

that reflects the ultimate acquirer's rights (either directly or through one or more interposed entities) at the time of the accrual to the joining entity's profits.

       (7) In working out the amount under subsection (6), count the amount of the joining entity's profits realised during or at the end of the acquisition phase, less income tax that was paid or is or will be payable on them, that the ultimate acquirer would have received if they had been distributed without delay as they accrued by:

       (a) the joining entity; and

       (b) each entity (if any) interposed between the joining entity and the ultimate acquirer.

       (8) However, do not count an amount the ultimate acquirer would have received in respect of a *membership interest in the joining entity that the ultimate acquirer does not hold continuously (either directly or indirectly through one or more interposed entities) until the joining time.

       (9) Work out the amount of the joining entity's profits that accrue in a period before being realised using the most reasonable basis for estimation of the amount.

168-270 The acquisition phase and when membership interests are held in certain cases
Acquisition phase

       (1) The acquisition phase is the period that:

       (a) starts when the ultimate acquirer (mentioned in section 168-275 or 168-265) starts to hold directly or indirectly through one or more interposed entities any *membership interest in the joining entity that the ultimate acquirer holds (either directly or indirectly)

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continuously until the joining time; and

       (b) ends at the joining time.

Start of acquisition phase

       (2) The acquisition phase may start before either or both of these events:

       (a) the choice is made to consolidate the joined group;

       (b) the commencement of this section.

Effect of certain disposals of membership interests on continuity of holding

       (3) If:

       (a) the ultimate acquirer holds directly or indirectly through one or more interposed entities a *membership interest in the joining entity; and

       (b) one or more membership interests in the joining entity or in any of the interposed entities are *disposed of at the same time as one or more membership interests in one or more entities are *acquired (whether or not the latter entities are the same entities as those in which the membership interests are disposed of); and

       (c) if not for the acquisition of the membership interests at that time, the ultimate acquirer would cease to hold directly or indirectly through one or more interposed entities the membership interest in the joining entity; and

       (d) section 160ZZO of the Income Tax Assessment Act 1936 does not apply to the disposal and there is no roll-over for the disposal under Subdivision 126-B of this Act;

then, for the purposes of this Subdivision, the ultimate entity is taken not to hold at that time directly or indirectly through one or more interposed entities the membership interest in the joining entity, but is taken to *acquire it just after that time.

Certain deemed acquisitions under CGT provisions to have effect for purposes of this Subdivision

       (4) If, under:

       (a) section 160ZZS, Subdivision C of Division 20 of Part IIIA, paragraph 160ZZOA(1)(e) or subsection 160M(12) of the Income Tax Assessment Act 1936; or

       (b) subsection 104-175(8), 136-40(3), 149-30(1)or 149-70(2) of this Act;

a *membership interest that an entity holds in another entity is taken to have been *acquired or reacquired by the first entity at a particular time, it is taken for the purposes of this Subdivision to have been acquired by the first entity at that time, and not to have been previously held by it before that time. If 2 or more of the provisions apply, the time is the latest of the times under those provisions.

168-275 Allocable cost amount is lower if joining entity has certain losses--step 5 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be subtracted under step 5 is worked out in accordance with this section.

Amounts relating to losses

       (2) Work out the amount to be subtracted in this way:

Method statement

Step 1.       Work out how much of each *tax loss or *net capital loss, that the joining entity had for an income year wholly or partly in the acquisition phase (see section 168-270), accrued during the acquisition phase.

Step 2.       Identify the entity (the ultimate acquirer) that is the *head entity of the joined group at the joining time.

       Note: The ultimate acquirer may not, throughout the acquisition phase, have been the head entity of the group of which it was a member.

Step 3.       Deduct from the result of step 1 any part of the loss if it is reasonable to conclude that the part does not reflect the ultimate acquirer's interest in the loss through the *membership interests in the joining entity that the ultimate acquirer held (directly or indirectly through one or more interposed entities) continuously:

       (a) while the loss accrued; and

       (b) for the rest of the acquisition phase.

       Note: Section 168-270 explains when the continuity in holding is broken.

Step 4.       Add up all the amounts worked out up to the end of step 3 for each *tax loss and *net capital loss of the joining entity.

Note 1:       For the purposes of step 1, the amount of a net capital loss that accrues in the acquisition phase cannot be more than the net capital loss. For example, suppose that:


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(a)       the joining entity buys an asset for $100 before the acquisition phase; and

(b)       the asset's market value at the start of the acquisition phase was $115; and

(c)       the entity sells the asset for $90 during an income year in the acquisition phase; and

(d)       no other CGT events happened in relation to the entity in that year.

       The entity's net capital loss would be $10 (= $100 minus $90), and the whole of the net capital loss is taken to have accrued during the acquisition phase.

Note 2:       The losses are taken into account regardless of whether they are transferred to the head entity of the joined group under Subdivision 168-J.

Note 3:       The portion of those losses that does not reflect the head entity's interest may be taken into account in reducing the allocable cost amount under section 168-285.

168-280 If an asset that was over-depreciated on 1 July 2001--step 6 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be subtracted under step 6 is worked out in accordance with this section.

When this section is relevant

       (2) Subtract an amount in accordance with this section if:

       (a) the *consolidated group's allocable cost amount for the joining entity worked out up to the end of step 5 is more than the sum of the joining values (see section 168-220) at the joining time of all of the *CGT assets of the joining entity then; and

       (b) a CGT asset of the joining entity is covered by subsection (3) or (4); and

       (c) the joining entity paid an unfranked dividend during the period starting when it first *acquired any CGT asset covered by subsection (3) or (4) and finishing at the end of 30 June 2001.

       (3) This subsection covers a *CGT asset if:

       (a) it was an over-depreciated asset at the start of 1 July 2001; and

       (b) it was an asset of the joining entity continuously from then to the joining time; and

       (c) it was an over-depreciated asset at the joining time.

Note:       This has the effect that this section may operate if the asset was over-depreciated at the start of 1 July 2001 (see paragraph (3)(a)) and the over-depreciation was not reversed later by:

(a)       the gain that the joining entity would have made by disposing of the asset (see paragraph (3)(b)); or

(b)       increased income or reduced losses because of under-depreciation (see paragraph (3)(c)).

       (4) This subsection covers a *CGT asset if:

       (a) the asset was over-depreciated at the start of 1 July 2001; and

       (b) at that time, the asset was an asset of an entity (the original owner) that:

       (i) was at that time a *member of a group that, before 1 July 2002, became a *consolidated group (the original group) other than the joined group; and

       (ii) became a member of the original group; and

       (c) the asset was over-depreciated when the original group became a consolidated group; and

       (d) because of a choice made under section 168-7 of the Income Tax (Transitional Provisions) Act 1997, an amount other than the asset's *adjustable value was treated as the leaving value of the asset in applying step 1 of section 168-995; and

       (e) the asset was an asset of an entity (the leaving entity), whether the original owner or not, when the leaving entity ceased to be a member of the original group; and

       (f) the leaving entity is the joining entity; and

       (g) the asset was continuously held by the joining entity from when it ceased to be a member of the original group until the joining time; and

       (h) the asset was an over-depreciated asset at the joining time.

When an asset is over-depreciated


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       (5) A *CGT asset is over-depreciated at a particular time if:

       (a) the asset is a *depreciating asset then; and

       (b) the asset's *market value then exceeds its *adjustable value; and

       (c) the asset's *cost then exceeds its adjustable value.

The over-depreciation of the asset then is the lesser of the 2 excesses (or either of them if they are the same).

Amount worked out under this section is the least of the amounts in subsections (7) to (9)

       (6) If an amount is to be worked out in accordance with this section, it is the least of the amounts under subsections (7) to (9).

Over-depreciation amount for assets

       (7) The amount under this subsection is worked out by adding up, for each *CGT asset covered by subsection (3) or (4), the lesser of these amounts:

       (a) the over-depreciation of the asset at 1 July 2001;

       (b) the over-depreciation of the asset at the joining time;

If the amount in paragraph (a) is not known and cannot reasonably be estimated, the amount in paragraph (b) applies.

Excess of allocable cost amount over joining values of assets

       (8) The amount under this subsection is the amount by which the allocable cost amount for the joining entity, worked out up to the end of step 5, exceeds the sum of the joining values of all of the *CGT assets of the joining entity.

Unfranked dividend amount

       (9) The amount under this subsection is the amount of any unfranked dividend (within the meaning of section 160APA of the Income Tax Assessment Act 1936) where:

       (a) the dividend was paid by the joining entity during the period that began when that entity first *acquired any *CGT asset covered by subsection (3) or (4) and ended at the start of 1 July 2001; and

       (b) the following conditions are satisfied:

       (i) the recipient of the dividend was entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 on the dividend; and

       (ii) no distribution representing the dividend was made, before the joining time, directly or indirectly through one or more interposed entities, to a taxpayer who was not entitled to such a rebate.

168-285 If joining entity transfers a loss to the head entity--step 7 in working out allocable cost amount
       (1) For the purposes of working out the allocable cost amount in accordance with the table in section 168-245, the amount to be subtracted under step 7 is worked out in accordance with this section.

When an amount is to be subtracted

       (2) Subtract an amount in accordance with this section if the joined group's allocable cost amount for the joining entity worked out up to the end of step 6 in section 168-245 exceeds the sum of the joining values of the joining entity's *CGT assets at the joining time.

Note:       For this purpose, goodwill arising from control and ownership of the joining entity by the head entity is treated like an asset of the joining entity at the joining time. See subsection 168-225(2).

The amount to be subtracted

       (3) The amount worked out in accordance with this section is the lesser of that excess and the amount worked out in this way:

Method statement

Step 1.       Identify each of the joining entity's *tax losses (if any) and *net capital losses (if any) that are transferred to the *head entity under Subdivision 168-J.

Step 2.       Subtract from each loss identified in step 1 the amount (if any) of that loss that, under subsection 168-275(2), was added when applying step 4 of the method statement in that subsection.

Step 3.       Add up the amounts worked out up to the end of step 2 for all the losses.

How to work out a pre-CGT factor for certain CGT assets of joining entity


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168-290 Pre-CGT factor for certain CGT assets of joining entity
       (1) This section applies to each *CGT asset of the joining entity that is not:

       (a) money; or

       (b) a CGT asset that, in the ordinary course of the *consolidated group's operations in the 12 months after that time, will:

       (i) be converted to money; or

       (ii) cease to embody future economic benefits.

       (2) Each *CGT asset to which this section applies has a pre-CGT factor worked out in this way:

Note:       The factor is relevant in determining under section 168-1010 whether any membership interests in an entity that actually holds the assets when it leaves the group are taken to have been purchased before 20 September 1985.

Pre-CGT factor

Step 1.       Add up the *market values of all *membership interests in the joining entity that:

       (a) are held by *members of the joined group; and

       (b) are *pre-CGT assets of the members.

Step 2.       Add up the *market values at the joining time of all of the joining entity's *CGT assets to which this section applies then.

       Note: Goodwill arising from control and ownership of the joining entity by the head entity of the joined group is treated as an asset of the joining entity at the joining time. See section 168-225.

Step 3.       Divide the result of step 1 by the result of step 2.

Step 4.       If the result of step 3 is more than 1, reduce it to 1.

       Note: The treatment of membership interests in an entity ceasing to be a member of the joined group as pre-CGT assets of members of the group could be manipulated to produce too many pre-CGT assets if the pre-CGT factor of an asset were more than 1. Step 4 is to prevent this.

Subdivision 168-F--Consequences for asset treatment if entities become members of a consolidated group: group formation case

Guide to Subdivision 168-F

168-400 What this Subdivision is about
When a consolidated group comes into existence, the *head entity of the group is to be treated as if it purchased the CGT assets of each subsidiary member for a payment that reflects the cost to the group of acquiring those assets. To achieve this, the rules in Subdivision 168-E (which deal with an entity joining an existing consolidated group) are applied subject to modifications.

Table of sections

Object of this Subdivision

168-405       Object of this Subdivision

When and how this Subdivision operates

168-410       When this Subdivision operates

168-415       Subdivision operates to apply Subdivision 168-E with modifications

Modifications of Subdivision 168-E for the purposes of this Subdivision

168-420       Order of application of section 168-225 to subsidiary members

168-425       Adjustment of cost base, in step 1 of section 168-245 table, where pre-formation time roll-over to 100% subsidiary

168-430       Modification of step 3 in section 168-245 table where distribution represents pre-formation time profits

168-435       Order of application of section 168-290 to subsidiary members

[This is the end of the Guide.]

Object of this Subdivision

168-405 Object of this Subdivision
        The object of this Subdivision is to modify the rules in
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Subdivision 168-E (which deal with the case of an entity joining an existing *consolidated group) so that they take account of different circumstances that apply when a consolidated group comes into existence. For example, if a *subsidiary member has *membership interests in another subsidiary member, it is necessary to apply certain of the rules to the entity holding the membership interests before applying them to the other entity.

When and how this Subdivision operates

168-410 When this Subdivision operates
        The Subdivision operates if one or more *subsidiary members become *members of a *consolidated group at the time (the formation time) it comes into existence as a consolidated group.

Note:       This is the first exception to Subdivision 168-E: see paragraph 168-210(a).

168-415 Subdivision operates to apply Subdivision 168-E with modifications
       (1) Subdivision 168-E operates in relation to each entity becoming a *subsidiary member of the *consolidated group at the formation time in the same way as that Subdivision operates in relation to an entity becoming a subsidiary member of a consolidated group in circumstances covered by that Subdivision.

       (2) However, that operation of Subdivision 168-E is subject to modifications set out in this Subdivision.

Modifications of Subdivision 168-E for the purposes of this Subdivision

168-420 Order of application of section 168-225 to subsidiary members
       (1) The object of this section is to ensure that, where *subsidiary members hold *CGT assets consisting of *membership interests in other subsidiary members, the correct allocable cost amount will be used in working out the payment for the deemed purchase of all CGT assets.

Note:       Under section 168-430, distributions after formation time will affect the calculation of the allocable cost amount required by this section.

       (2) If *subsidiary members of the *consolidated group hold *membership interests in another subsidiary member, section 168-225 must be applied to deem there to be a purchase of the *CGT assets of the subsidiary members holding the membership interests before that section is applied to deem there to be a purchase of the CGT assets of the other subsidiary member.

A rule is to be developed to deal with the allocable cost amount to be used in respect of the deemed purchase of CGT assets where there is cross-ownership among subsidiary members.

168-425 Adjustment of cost base, in step 1 of section 168-245 table, where pre-formation time roll-over to 100% subsidiary
Object

       (1) The object of this section is to ensure that, in working out the allocable cost amount for subsidiaries at the formation time, an adjustment is made to the *cost base of *membership interests to take account of roll-overs under Subdivision 126-B before formation time.

When section applies

       (2) This section applies if:

       (a) before formation time, there is a roll-over under Subdivision 126-B for a *CGT event that happens in relation to a *CGT asset; and

       (b) a *member of the *consolidated group was the recipient company in relation to the roll-over and was a *100% subsidiary of another member of the consolidated group that was the originating company in relation to the roll-over; and

       (c) between the CGT event mentioned in paragraph (a) and the formation time, CGT event J1 did not happen in relation to the member that was the recipient company; and

       (d) the CGT asset is not a *pre-CGT asset at the formation time.

Cost base to be changed


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       (3) If this section applies, the *cost base of *membership interests that *members of the *consolidated group hold in:

       (a) the recipient company; or

       (b) any company interposed between the originating company and the recipient company;

that is required to be taken into account in accordance with subsection 168-250(2), in applying step 1 in section 168-245 for the purpose of working out the consolidated group's allocable cost amount for that company, is to be changed in accordance with subsection (4).

Change to cost base

       (4) The *cost base is to be reduced by the amount worked out as follows (if the amount is positive) or increased by the amount so worked out (if the amount is negative):

Click here for Picture

The above section may need to be modified to take account of the case where, after the CGT event, there is change of ownership within the consolidated group of membership interests in the recipient company, or in a company interposed between that company and the originating company.

168-430 Modification of step 3 in section 168-245 table where distribution represents pre-formation time profits
Object

       (1) The object of this section is to allow for the allocable cost amounts for *subsidiary members to be increased by the amounts of distributions made after the formation time directly, or indirectly through other intra-group distributions, out of profits earned by subsidiary members before the formation time.

When section applies

       (2) This section applies if:

       (a) step 3 in the table in section 168-245 applies (including in accordance with a previous application of this subsection), in working out the *consolidated group's allocable cost amount for a *subsidiary member, to add an amount in respect of a distribution (the first distribution) made by a subsidiary member to another subsidiary member (the second subsidiary) of the consolidated group; and

       (b) the second subsidiary makes, during the period described in subsection (3), a distribution (the second distribution) to another subsidiary member of the consolidated group out of profits that include the first distribution.

Period for purposes of paragraph (2)(b)

       (3) The period mentioned in paragraph (2)(b) starts at the formation time and ends:

       (a) when the second subsidiary lodges its *income tax return for the income year ending at the formation time; or

       (b) at the time that return is required to be lodged, if it is not lodged by then.

Income in allocable cost amount

       (4) If this section applies, the amount of the second distribution, to the extent that it is made of profits that include the first distribution, is added in applying step 3 in the table in section 168-245 for the purpose of working out the *consolidated group's allocable cost amount for the second subsidiary.

168-435 Order of application of section 168-290 to subsidiary members
       (1) The object of this section is to ensure that, where *subsidiary members hold *CGT assets consisting of *membership interests in other subsidiary members, the correct pre-CGT factor will be worked out.

       (2) If a *subsidiary member of the *consolidated group holds *membership interests in another subsidiary member, section 168-290 must be applied to work out a pre-CGT factor for applicable *CGT assets of the subsidiary member holding the membership interests before that section is applied to work out the pre-CGT factor for applicable CGT assets of the other subsidiary member.

A rule is to be developed to deal with working out the pre-CGT factor where there is cross-ownership of subsidiary members.

[The next Subdivision is Subdivision 168-J.]

Subdivision 168-J--Transfer of previously unutilised losses to head entity

Guide to Subdivision 168-J


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168-550 What this Subdivision is about
A loss made but not utilised by an entity before the time it becomes a member of a consolidated group is transferred to the head entity of the group just after that time, if the entity could have utilised the loss had the entity not become a member of the group.

Table of sections

168-555       Overview of effect on the entity and the head entity

Object

168-560       Object of this Subdivision

Application

168-565       What losses this Subdivision applies to

Transfer of loss from joining entity to head entity

168-570       Transfer of loss from joining entity to head entity

168-575       Modified same business test for post-1999 losses

Effect of transfer of loss

168-580       Effect of transfer of loss

What happens if the loss cannot be transferred?

168-585       Loss cannot be utilised for income year ending after the joining time

168-555 Overview of effect on the entity and the head entity
       (1) If the loss is transferred:

       (a) the head entity is treated for income years ending after the transfer as having made the loss, so the head entity may be able to utilise the loss for those income years; and

       (b) the entity that transferred the loss is treated for income years ending after the transfer as if that entity had not made the loss, so that entity cannot utilise the loss for those income years.

       (2) If the loss is not transferred, then, for an income year ending after the time the entity became a member of the consolidated group, the loss cannot be utilised by any entity.

Note:       The loss will not be transferred if the entity would not have been able to utilise it or if the loss is cancelled under section 168-925 for the purpose of increasing the loss factor for another entity's losses.

[This is the end of the Guide.]

Object

168-560 Object of this Subdivision
       (1) The main object of this Subdivision is to provide for the transfer of a loss from an entity (the joining entity) becoming a *member of a *consolidated group to the *head entity of the group (so the entity to which the loss is transferred can *utilise it), if the joining entity:

       (a) could have utilised the loss if it had not become a member of the group; and

       (b) became a member of the group for commercial purposes (and not for the purpose of enabling the earlier or greater utilisation of the loss than would have been likely if the joining entity had not become a member of the group).

Utilising a loss

       (2) An entity utilises a loss:

       (a) in the case of a *tax loss--to the extent it is deducted from an amount of the entity's assessable income or exempt income (whether or not that amount is only part of the entity's assessable or exempt income); and

       (b) in the case of a *net capital loss--to the extent that it is applied to reduce an amount of the entity's capital gains (whether or not that amount is only part of the entity's capital gains); and

       (c) in the case of an overall foreign loss in respect of a class of assessable foreign income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936)--to the extent that the loss is taken into account in reducing the entity's income of that class (whether or not that income has previously been reduced on account of another amount).

Application


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168-565 What losses this Subdivision applies to
       (1) This Subdivision applies to a loss if:

       (a) an entity (the joining entity) becomes a *member of a *consolidated group (the group joined) at a time (the joining time); and

       (b) the loss was made by the joining entity for an income year ending before or at the joining time; and

       (c) the loss is:

       (i) a *tax loss (whether or not it is or includes a *film loss); or

       (ii) a *net capital loss; or

       (iii) an overall foreign loss in respect of a class of assessable foreign income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936).

Note:       If the joining entity had a loss transferred to it by a previous operation of this Subdivision (when the entity was the head entity of a consolidated group), this Subdivision operates later as if the joining entity had made the loss. See section 168-580.

       (2) This Subdivision applies to the loss to the extent that it has not been *utilised or otherwise reduced for an income year ending before or at the joining time.

Note:       A loss may be reduced for an income year, without being utilised, under Schedule 2C to the Income Tax Assessment Act 1936.

Transfer of loss from joining entity to head entity

168-570 Transfer of loss from joining entity to head entity
       (1) Just after the joining time, the loss is transferred from the joining entity to the *head entity of the group joined (even if they are the same entity), to the extent (if any) that the loss could have been *utilised by the joining entity for an income year consisting of the *trial year if:

       (a) at the joining time:

       (i) the joining entity had not become a *member of the group joined at the joining time, even though the joining entity was a *100% Australian subsidiary of the head entity of the group joined at the joining time; and

       (ii) an earlier income year of the joining entity had ended; and

       (b) the amount of the loss that could be utilised was not limited by the joining entity's income or gains for the trial year.

Note 1:       The provisions governing whether a loss can be utilised include:

(a)       Divisions 165, 166, and 175 (for tax losses and net capital losses of companies); and

(b)       Schedule 2F to the Income Tax Assessment Act 1936 (for tax losses of certain trusts); and

(c)       section 160AFD of that Act (for overall foreign losses).

Note 2:       Section 168-575 modifies the same business test for the purposes of working out whether a loss made for an income year starting after 30 June 1999 is transferred.

Note 3:       If the loss had been transferred to the joining entity, work out whether that entity could have utilised the loss on the basis that that entity had made it for the income year identified in section 168-580.

What is the trial year?

       (2) The trial year is the period:

       (a) starting at the latest of these times:

       (i) the time 12 months before the joining time;

       (ii) the time the joining entity came into existence;

       (iii) the time the joining entity became the *head entity of a *consolidated group, if the joining entity was the head entity of that consolidated group just before the joining time; and

       (b) ending just after the joining time.

Transferring loss that was transferred to joining entity as SBT loss

       (3) If the loss had been transferred to the joining entity (under a previous application of this Subdivision) as an *SBT loss before the joining time, the loss is not transferred from the joining entity to the *head entity of the group joined (despite subsection (1)), unless:


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       (a) if the joining entity is a company--it satisfies the *same business test for the *trial year (the same business test period) and the time (the test time) just before the end of the income year in which the loss was transferred to the joining entity; or

       (b) if the joining entity is a trust--it passes the same business test (as defined in section 269-100 in Schedule 2F to the Income Tax Assessment Act 1936) during the trial year in relation to the time just before the end of the income year in which the loss was transferred to the joining entity.

Note:       The loss will be transferred if it can be transferred under subsection (1) because the joining entity satisfies or passes the same business test.

What is an SBT loss?

       (4) The loss is transferred to an entity as an SBT loss if the transfer occurs under this Subdivision because the entity from which the loss was transferred carried on during a particular period the same business as it carried on at a particular time.

Example:       A company transfers a tax loss to a trust as an SBT loss if the transfer occurs because the company could have utilised the loss for the trial year because the company satisfies the same business test.

Same business test involving trial year

       (5) When working out whether the joining entity carried on the same business throughout the *trial year (or a period including the trial year) as it carried on at another time, assume that the entity carried on at and just after the joining time the same business that it carried on just before that time.

Same business test for head entity of consolidated group

       (6) This Subdivision operates as if the *head entity of a *consolidated group carried on at a particular time the business carried on by the group at that time.

       (7) However, subsection (6) does not apply for the purposes of working out whether a loss is transferred from the joining entity to the head entity of the group joined if the joining entity is the head entity of the group joined.

Note:       This means that for those purposes the entity is treated as carrying on at and just after the joining time the business it carried on just before that time, and not the business of the group joined.

Transfer of loss for income year ending at joining time

       (8) To avoid doubt, if the loss was made by the joining entity for the income year ending at the joining time, the transfer of the loss under subsection (1) is not prevented by the fact that the loss was made for that year.

168-575 Modified same business test for post-1999 losses
       (1) This section operates if:

       (a) the joining entity made the loss for an income year starting after 30 June 1999; and

       (b) under subsection 168-570(1) of this Act, subsection 165-13(3) or 166-5(4) or (5) or section 165-15 of this Act or paragraph 266-125(2)(b) in Schedule 2F to the Income Tax Assessment Act 1936 is relevant to working out whether the loss is transferred from the joining entity.

Note:       If, because of a previous operation of this Subdivision, the loss had been transferred to the entity that is the joining entity, the operation of this section depends on the income year that section 168-580 treats the entity as having made the loss for.

Joining entity is a company

       (2) If the joining entity is a company, work out whether the loss is transferred on the basis that subsection 165-13(3) required the joining entity to satisfy the *same business test for:

       (a) the period (the same business test period) consisting of:

       (i) the *trial year; and

       (ii) the income year in which the continuity period ended, if that income year started before the trial year; and

       (b) the time (the test time) just before the end of the income year for which the loss was made by the joining entity.

Note:       Subsection 165-13(2) explains what the continuity period is.

       (3) If the joining entity is a company, work out whether the loss is transferred on the basis that:

       (a) subsection 165-15(2) specified that the period (the same business test period) for the *same business test consisted of:

       (i) the *trial year; and

       (ii) the income year in which the person began to

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control, or became able to control, the voting power in the company, if that income year started before the trial year; and

       (b) subsection 165-15(3) required the same business test to be applied to the company's business immediately before the time (the test time) just before the end of the income year for which the loss was made by the joining entity.

Note:       Subsection (3) is not relevant to corporate limited partnerships (despite section 94J of the Income Tax Assessment Act 1936), because section 165-15 is not relevant to those partnerships. See section 94X of that Act.

       (4) If Subdivision 166-A applies to the joining entity for the income year ending at the joining time, work out whether the loss is transferred on the basis that:

       (a) subsection 166-5(4) treated the joining entity as having satisfied the condition in section 165-13 if the joining entity satisfied the *same business test for the period (the same business test period) consisting of:

       (i) the *trial year; and

       (ii) the income year in which occurred the first time covered by paragraph 166-5(2)(a) or (b) for which there was no *substantial continuity of ownership of the joining entity as between the start of the income year for which the joining entity had made the loss and that time, if that income year started before the trial year; and

       (b) subsection 166-5(5) required the same business test to be applied to the *business that the joining entity carried on at the time (the test time) just before the end of the income year for which the loss was made by the joining entity.

Note:       Subdivision 166-A applies to public listed companies and their 100% subsidiaries unless they choose that Subdivision 165-A apply to them without the modifications made by Subdivision 166-A.

Joining entity is a listed widely held trust

       (5) If the joining entity is a trust to which section 266-110 in Schedule 2F to the Income Tax Assessment Act 1936 applies, work out whether the loss is transferred on the basis that paragraph 266-125(2)(b) in that Schedule required the trust to pass the same business test (as defined in section 269-100 in that Schedule):

       (a) during the period that starts at the earlier of these times (or either of them if they are the same):

       (i) the time of the abnormal trading mentioned in that paragraph;

       (ii) the start of the *trial year;

        and ends at the end of the trial year; and

       (b) in relation to the time just before the end of the income year for which the loss was made by the joining entity.

Consideration is being given to modifying the pattern of distributions test in Schedule 2F to the Income Tax Assessment Act 1936 for the purposes of working out whether a loss is transferred under this Subdivision.

Effect of transfer of loss

168-580 Effect of transfer of loss
       (1) To the extent that the loss is transferred under section 168-570 from the joining entity to the *head entity of the group joined, this Act operates (except so far as the contrary intention appears) for the purposes of income years ending after the transfer as if:

       (a) the *head entity had made the loss:

       (i) if the loss is transferred to the head entity as a *COT loss--for the income year for which the joining entity made the loss; or

       (ii) if the loss is transferred to the head entity, but not as a COT loss--for the income year in which the transfer occurs; and

       (b) the joining entity had not made the loss.

Note 1:       Subparagraph (1)(a)(i) will operate as if the joining entity had made the loss for an income year identified by the previous application of this section if, because of a previous operation of this Subdivision, the loss had been transferred to the entity that is the joining entity.

Note 2:       General rules (outside this Division) about losses made by entities apply to a loss that an entity is treated by this section as having made because the loss was transferred to it. Special rules in Subdivision 168-R about transferred losses also affect utilisation of the loss by supplementing and modifying the general rules.

Note 3:       The head entity may be able to utilise for an income year a loss this section treats it as having made for that income year. See section 168-890.


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       (2) Paragraph (1)(a) has effect despite paragraph (1)(b) if the *head entity of the group joined is the same entity as the joining entity.

What is a COT loss?

       (3) The loss is transferred to an entity as a COT loss if the transfer occurs under this Subdivision, unless the transfer occurs because:

       (a) the entity from which the loss was transferred carried on during a particular period the same business as it carried on at a particular time; or

       (b) there are no restrictions outside this Division on the joining entity *utilising the loss for the *trial year.

What happens if the loss cannot be transferred?

168-585 Loss cannot be utilised for income year ending after the joining time
        To the extent that the loss is not transferred under section 168-570 from the joining entity to the *head entity of the group joined, the loss cannot be *utilised by any entity for an income year ending after the joining time.

[The next Subdivision is Subdivision 168-R.]

There will also be provisions modifying rules about an entity maintaining the same ownership so far as they affect whether it can utilise a loss that:

       (a) it is treated as having made because the loss was transferred to it as a COT loss; and

       (b) was actually made by a company.

Subdivision 168-R--Amount of transferred losses that can be utilised

Guide to Subdivision 168-R

168-865 What this Subdivision is about
Losses transferred to an entity can be utilised for an income year only after losses that were not transferred to the entity. There are also further limits on the amount of transferred losses that can be utilised for an income year.

Table of sections

168-870       Overview

Object       

168-875       Object of this Subdivision

Order for utilising losses

168-885       Order for utilising losses

168-890       Utilising losses made in the year they were transferred

Limiting amount of concessional transferred losses utilised

168-895       Limits on utilising certain pre-2000 transferred COT losses

Limiting amount of standard transferred losses utilised

168-900       Limit on applying standard transferred net capital losses

168-905       Limit on taking into account standard transferred overall foreign losses

168-910       Deducting standard transferred film losses

168-915       Deducting standard transferred tax losses

168-918       Limit on utilising standard transferred losses transferred during the income year

Loss factor for a bundle of losses       

168-920       What is the loss factor for a bundle of losses transferred for the first time?

168-922       Modified market value of a member of a consolidated group

168-925       Additions to modified market value of the real loss-maker

168-930       If real loss-maker's modified market value was used to work out loss factor for losses made by another company

168-935       Adjusting the loss factor for a bundle of losses when other losses are transferred

168-938       Adjusting the loss factor following a capital injection

168-940       Calculating the loss factor for a bundle when losses in it are transferred for the second or later time

168-945       Use the loss factor as at the end of the

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income year

Relationship with other provisions about utilising losses

168-950       Other provisions are subject to this Subdivision

168-870 Overview
       (1) This Subdivision sets out rules about the order of utilisation of losses that have been transferred to an entity under Subdivision 168-J and the amounts of those losses that can be utilised. The rules are additional to, and in some cases override, the general rules about utilising losses outside this Subdivision.

       (2) This Subdivision deals with transferred losses:

       (a) by sort, so as to reflect rules outside this Subdivision that "quarantine" losses by allowing them to be utilised only to reduce certain kinds of income or gains; and

       (b) by bundles that group losses originally made by the same entity and having the same history of transfer (which means that the losses transferred to an entity may consist of several bundles, each containing losses of various sorts and ages).

       (3) Losses of a particular sort that have been transferred to an entity must be used after losses of that sort that have not, but the general rule about utilising losses in the order in which they are made still applies to each sort of loss within a bundle.

See section 168-885.

       (4) Generally, there is a limit on the amount of losses of a particular sort within a bundle that can be utilised for an income year. The limit is usually set on the basis of multiplying the entity's income or gains of the kind that can be reduced using losses of that sort by the loss factor for the bundle.

See sections 168-900, 168-905, 168-910, 168-915 and 168-918.

       (5) The loss factor for a bundle reflects the market value of the entity that originally made the losses as a proportion of the market value of the group to whose head entity the losses in the bundle have been transferred.

Note 1:       Therefore the loss factor for a bundle of losses cannot be more than 1.

Note 2:       The market value (and therefore the loss factor) should indicate the potential of the entity to produce income.

       (6) Thus the limit on utilising losses of a particular sort in a bundle generally reflects the proportion of the relevant kind of income or gains made for the income year by the entity to which the losses have been transferred that is attributable to the entity that originally made the losses in the bundle.

Note:       The limit therefore broadly approximates the amount of losses that could have been utilised for the income year had no consolidation occurred.

       (7) To ensure that the loss factor for a bundle continues to set a limit indicating that proportion, there are special rules for adjusting the loss factors of bundles of losses transferred to the head entity of a consolidated group when capital is later injected by another entity into the head entity or another member of the group.

See section 168-938.

       (8) To ensure that the utilisable amount of losses of a particular sort in all bundles of losses transferred to an entity does not exceed the amount of the entity's income or gains of the relevant kind for the income year, there are special rules for:

       (a) adjusting the loss factors of bundles of losses transferred to an entity when losses in another bundle are later transferred to the entity (see section 168-935); and

       (b) calculating the loss factor of a bundle when the losses in it are transferred again (see section 168-940).

[This is the end of the Guide.]

Object

168-875 Object of this Subdivision
       (1) The main object of this Subdivision is to identify how much of the losses made by the *head entity (the transferee) of a *consolidated group because of a transfer under Subdivision 168-J can be *utilised for an income year, by:

       (a) requiring those losses to be utilised after other losses made by the transferee; and

       (b) specifying limits broadly intended to reflect

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the amount of transferred losses that could have been utilised by the entity that actually made them (disregarding section 168-580) if it had not become a member of a consolidated group.

       (2) Another object of this Subdivision is to ensure *loss factors for *bundles of losses of an entity cannot be manipulated in a way that would let the losses be *utilised sooner than the entity that actually made them (disregarding section 168-580) could have utilised them if it had not become a member of a *consolidated group.

[The next section is section 168-885.]

Order for utilising losses

168-885 Order for utilising losses
Transferred losses utilised after other losses of the same sort

       (1) A loss made by an entity because it was transferred to the entity under Subdivision 168-J may be *utilised for an income year only after the utilisation for that year of all losses (if any) that:

       (a) the entity made; and

       (b) were not transferred to the entity under that Subdivision; and

       (c) are of the same *sort.

Concessional transferred losses before standard transferred losses

       (2) An entity may *utilise for an income year the entity's *standard transferred losses of a particular *sort only after the utilisation for that year of the entity's *concessional transferred losses of that sort (if any).

Choice of order of use of standard transferred tax losses

       (3) An entity may deduct its *standard transferred *tax losses in different *bundles from its assessable income for an income year in the order the entity chooses, but not so as to deduct its standard transferred tax losses in a single bundle in an order other than the order in which they were made.

What is a sort of loss?

       (4) Each of these paragraphs identifies a sort of loss:

       (a) *tax loss;

       (b) *film loss;

       (c) *net capital loss;

       (d) overall foreign loss in respect of interest income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936);

       (e) overall foreign loss in respect of modified passive income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936);

       (f) overall foreign loss in respect of offshore banking income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936);

       (g) overall foreign loss in respect of other assessable foreign income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936).

What is a standard transferred loss?

       (5) An entity's loss is a standard transferred loss if:

       (a) the entity made it because it was transferred to the entity under Subdivision 168-J; and

       (b) the loss is not a *concessional transferred loss of the entity.

What is a concessional transferred loss?

       (6) An entity's loss is a concessional transferred loss if section 168-895 affects the entity's *utilisation of the loss.

Note:       Section 168-895 affects the utilisation of a loss by the entity (the transferee) if:

(a)       the transferee made the loss for an income year ending on or before 21 September 1999 because of a transfer as a COT loss from an entity that became a member of the consolidated group headed by the transferee before 1 July 2002; and

(b)       the transferee has chosen that that section affect the utilisation of all the transferee's losses described in paragraph (a).

What is a bundle of losses?

       (7) A bundle of losses of an entity consists of all the losses for which both of these conditions are met:

       (a) the losses were transferred to the entity at the same time under Subdivision 168-J (and were transferred at the same time

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in each of the earlier transfers, if any, of those losses under that Subdivision to an entity);

       (b) the losses were actually made by one entity (disregarding section 168-580).

A single loss transferred to an entity under Subdivision 168-J constitutes a bundle if it is not included in a bundle (as defined in the first sentence of this subsection) with another loss.

168-890 Utilising losses made in the year they were transferred
       (1) This section applies to a loss made by an entity (because of section 168-580) in its income year (the transfer year) in which the loss was transferred to the entity (whether as a *COT loss or otherwise).

       (2) The entity may *utilise for the transfer year the loss to the extent (if any) to which the entity could do so apart from the entity not having made the loss for an income year before the transfer year.

Limiting amount of concessional transferred losses utilised

168-895 Limits on utilising certain pre-2000 transferred COT losses
Application

       (1) This section affects the *utilisation by an entity (the transferee) of a loss if:

       (a) the loss was actually made (disregarding section 168-580) by a company (the real loss-maker) for an income year ending on or before 21 September 1999; and

       (b) the loss was transferred as a *COT loss under Subdivision 168-J to the transferee:

       (i) when the real loss-maker became a member of a *consolidated group whose *head entity was the transferee; and

       (ii) before 1 July 2002; and

       (c) the loss had not been transferred under that Subdivision before it was transferred to the transferee; and

       (d) the transferee has chosen under subsection (5) that this section apply to the *utilisation of all losses that meet the conditions in paragraphs (a), (b) and (c) (regardless of the *sort of those losses and the income year in which the utilisation occurs).

Note:       If the entity does not make this choice, sections 168-900, 168-905, 168-910, 168-915 and 168-918 will set limits for the utilisation of the loss.

Limit on utilising the loss

       (2) The amount of the loss that the transferee may *utilise for an income year cannot exceed the amount worked out for the loss and the year using the table.

Limit on utilising transferee's concessional transferred loss

Item

For this income year:

The amount of the loss that the transferee may utilise cannot exceed:

1

The first income year ending after the loss was transferred to the transferee

1/3 of the loss

2

The second income year ending after the loss was transferred to the transferee

The difference between:

(a) 2/3 of the amount of the loss that was transferred to the transferee; and

(b) the amount of the loss that was:

(i) *utilised for the income year mentioned in item 1; or

(ii) reduced under Schedule 2C to the Income Tax Assessment Act 1936 by application of the total net forgiven amount for the income year mentioned in item 1

3

The third income year ending after the loss was transferred to the transferee, or a later income year

The difference between:

(a) the whole of the amount of the loss that was transferred to the transferee; and

(b) the amount of the loss that was:

(i) *utilised for an earlier income year ending after the loss was transferred to the transferee; or

(ii) reduced under Schedule 2C to the Income Tax Assessment Act 1936 by application of the total net forgiven amount for an earlier income year ending after the loss was transferred to the transferee

 
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     (3) However, the transferee cannot *utilise the loss for an income year if the amount worked out for the loss and the year under paragraph (b) of item 2 or 3 of the table in subsection (2) is more than the amount worked out under paragraph (a) of that item for the loss and the year.

Utilising the loss before older losses are fully utilised

       (4) The transferee is not prevented from *utilising for an income year (the utilisation year) the loss merely because the transferee made it for an income year later than the income year for which the transferee made another loss:

       (a) whose utilisation is affected by this section; and

       (b) that has not been fully utilised;

as long as the transferee utilises for the utilisation year the other loss to the maximum extent (if any) allowed by this section.

Time for making choice

       (5) The transferee may make the choice only before lodging its *income tax return for the first income year for which the transferee could *utilise any losses transferred to it under Subdivision 168-J (as described in paragraph (1)(b) or otherwise).

When choice has effect

       (6) The choice has effect for that income year and all later income years (and cannot be revoked).

Future transfer of concessional transferred losses not affected

       (7) This section does not limit the transfer under Subdivision 168-J of the loss from the transferee to another entity.

Limiting amount of standard transferred losses utilised

168-900 Limit on applying standard transferred net capital losses
       (1) The amount of *standard transferred *net capital losses in a *bundle of losses of an entity that may be applied for an income year cannot exceed the amount worked out using the formula:

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Note:       If the amount worked out using the formula exceeds the total of the standard transferred net capital losses in the bundle, then:

(a)       all of those net capital losses may be applied; and

(b)       under section 168-915, the entity may be able to deduct from its assessable income an amount of tax losses in the bundle equal to the excess.

       (2) In subsection (1):

capital gains remaining after application of net capital losses other than standard transferred losses means the amount that would be the result of:

       (a) step 2 of the method statement in subsection 102-5(1); or

       (b) step 3 of the method statement in section 165-111;

(as appropriate) for the entity and the income year if the entity had not had any *standard transferred *net capital losses.

168-905 Limit on taking into account standard transferred overall foreign losses
       (1) The amount of *standard transferred overall foreign losses in respect of a class of assessable foreign income (within the meaning of section 160AFD of the Income Tax Assessment Act 1936) in a *bundle of an entity's losses that may be taken into account for an income year cannot exceed the amount worked out using the formula:

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Note:       If the amount worked out using the formula exceeds the total of the standard transferred overall foreign losses in respect of that class in the bundle, then:

(a)       all of those overall foreign losses may be taken into account; and

(b)       under section 168-915, the entity may be able to deduct from its assessable income an amount of tax losses in the bundle equal to the excess.

       (2) In subsection (1):

assessable foreign income of that class (disregarding standard transferred losses) reduced by foreign income deductions is the amount

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worked out by:

       (a) working out the amount that would have been the entity's assessable foreign income of the class for the income year if the entity had not had any *standard transferred overall foreign losses; and

       (b) reducing the amount worked out under paragraph (a) by the total of the entity's foreign income deductions (if any) for the income year in relation to the class.

168-910 Deducting standard transferred film losses
Limit on deducting film losses from net exempt film income

       (1) The amount of *standard transferred *film losses in a *bundle of losses of an entity that may be deducted from the entity's *net exempt film income for an income year cannot exceed the amount worked out using the formula:

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       (2) In subsection (1):

net exempt film income reduced by film losses other than standard transferred losses is the amount of the entity's *net exempt film income for the income year remaining after deduction of the entity's *film losses (if any) that are not *standard transferred losses.

Note:       The entity's losses that are not standard transferred losses could be either losses that have been made by, but not transferred under Subdivision 168-J to, the entity, or concessional transferred losses of the entity.

Limit on deducting film losses from net assessable film income

       (3) The amount of *standard transferred *film losses in a *bundle of losses of an entity that may be deducted from the entity's *net assessable film income for an income year cannot exceed the amount worked out using the formula:

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Note:       If the amount worked out using the formula exceeds the total of the standard transferred film losses remaining in the bundle after deduction from net exempt film income, then:

(a)       all of those film losses may be deducted from net assessable film income; and

(b)       under section 168-915, the entity may be able to deduct from its assessable income an amount of tax losses in the bundle equal to the excess.

       (4) In subsection (3):

net assessable film income reduced by film losses other than standard transferred losses is the amount of the entity's *net assessable film income for the income year remaining after deduction of the entity's *film losses (if any) that are not *standard transferred losses.

Note:       The entity's losses that are not standard transferred losses could be either losses that have been made by, but not transferred under Subdivision 168-J to, the entity, or concessional transferred losses of the entity.

Deducting from assessable income while exempt income remains

       (5) An entity may deduct an amount of one or more of its *standard transferred *film losses in a *bundle from its *net assessable film income for an income year if it has deducted from its *net exempt film income for the year an amount of those losses equal to the maximum amount of those losses subsection (1) lets it deduct from that income.

Note:       This lets the entity deduct standard transferred film losses from its net assessable film income even though its net exempt film income for the income year has not been reduced to nil by deductions.

       (6) Subsection (5) has effect subject to subsection (3).

168-915 Deducting standard transferred tax losses
Limit on deducting tax losses from net exempt income

       (1) The amount of *standard transferred *tax losses in a *bundle of losses of an entity that may be deducted from the entity's *net exempt income for an income year cannot exceed the amount worked out using the formula:

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       (2) In subsection (1):

net exempt income reduced by tax losses other than standard transferred

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losses
is the amount of the entity's *net exempt income for the income year remaining after deduction of the entity's *tax losses (if any) that are not *standard transferred losses.

Note:       The entity's losses that are not standard transferred losses could be either losses that have been made by, but not transferred under Subdivision 168-J to, the entity, or concessional transferred losses of the entity.

       (3) Despite subsection (1), if:

       (a) a *bundle of losses of an entity includes one or more *standard transferred *film losses and one or more standard transferred *tax losses; and

       (b) the entity has *net exempt film income for an income year;

the amount of those tax losses in the bundle that may be deducted from the entity's *net exempt income for the income year cannot exceed the amount worked out in this way:

Method statement

Step 1.       Subtract the entity's net exempt film income reduced by film losses other than standard transferred losses (as defined in subsection 168-910(2)) for the income year from the entity's *net exempt income for the income year.

Step 2.       Reduce the result of step 1 by the amount of the entity's *tax losses, other than *standard transferred losses, that can be deducted for the income year.

Step 3.       Multiply the result of step 2 by the *loss factor for the *bundle.

Step 4.       Work out the difference (if any) between:

       (a) the amount worked out under subsection 168-910(1) in relation to the *bundle; and

       (b) the amount of *standard transferred *film losses in the bundle that were deducted from *net exempt film income for the income year.

Step 5.       Add up the results of steps 3 and 4.

Limit on deducting tax losses from assessable income

       (4) The amount of an entity's *standard transferred *tax losses in a *bundle that may be deducted from the relevant amount of the entity's assessable income for an income year cannot exceed the amount worked out using the formula:

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Note:       The relevant amount of the entity's assessable income is identified by provisions of this Act outside this Division, such as Division 36 or Subdivision 165-B, and may be an amount of assessable income reduced by some other amount and therefore called something other than assessable income.

       (5) In subsection (4):

excesses of other limits on utilising losses over losses available for utilisation is the amount worked out by adding up:

       (a) the difference (if any) between:

       (i) the amount worked out for the *bundle for the income year using the formula in subsection 168-900(1) (which limits the amount of *standard transferred *net capital losses in the bundle that may be applied for the income year); and

       (ii) the amount of those losses that were applied in that way; and

       (b) the difference (if any) between:

       (i) the amount worked out for the *bundle for the income year using the formula in subsection 168-910(3) (which limits the amount of *standard transferred *film losses in the bundle that may be deducted from *net assessable film income for the income year); and

       (ii) the amount of those losses that were deducted in that way; and

       (c) if the entity has made an election under section 79DA of the Income Tax Assessment Act 1936--each difference (if any) between:

       (i) the amount worked out for the *bundle and *standard transferred overall foreign losses in respect of a class of assessable foreign income for the income year using the formula in subsection 168-905(1) (which limits the amount of those losses in the bundle that may be taken into account for the income year); and

       (ii) the amount of those losses in the bundle that were taken into account for the income year.

Note:       Section 79DA of the Income Tax Assessment Act 1936 prevents deduction of tax losses from assessable foreign income for an income year unless an election is made under that section for the income year.

hypothetical taxable income is the amount (if any) that would have been the entity's taxable income (if any) for the income year if the

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entity had not had:

       (a) any *net capital gain for the income year; or

       (b) any assessable foreign income or foreign income deductions (as defined in section 160AFD of the Income Tax Assessment Act 1936) for the income year; or

       (c) any *net assessable film income for the income year; or

       (d) any *standard transferred *tax losses that it could deduct for the income year.

Deducting from assessable income while exempt income remains

       (6) An entity may deduct an amount of one or more of its *standard transferred *tax losses in a *bundle from the relevant amount of its assessable income for an income year if it has deducted from its *net exempt income for the year an amount of those losses equal to the maximum amount of those losses subsection (1) or (3) (as appropriate) lets it deduct from that income.

Note:       This lets the entity deduct standard transferred tax losses from its assessable income even though its exempt income for the income year has not been reduced to nil by deductions.

       (7) Subsection (6) has effect subject to subsection (4).

168-918 Limit on utilising standard transferred losses transferred during the income year
       (1) This section limits the amount of an entity's *standard transferred losses of a particular *sort in a *bundle that the entity may *utilise for an income year if the entity made the losses because they were transferred under Subdivision 168-J to the entity during the income year.

       (2) The amount of those losses that the entity may utilise cannot exceed the amount worked out using the formula:

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       (3) In subsection (2):

full-year limit on utilising those losses is the limit on the entity's *utilisation for the income year of those losses set by whichever one of sections 168-900, 168-905, 168-910 and 168-915 applies.

       (4) This section has effect despite sections 168-900, 168-905, 168-910 and 168-915.

Loss factor for a bundle of losses

168-920 What is the loss factor for a bundle of losses transferred for the first time?
       (1) This section explains how to work out the *loss factor for a *bundle of losses of an entity if:

       (a) the entity was the *head entity of a *consolidated group (the group joined) at the time (the joining time) the entity (the real loss-maker) that actually made the losses (disregarding section 168-580) became a *member of the group joined; and

       (b) there had been no earlier transfer of any of the losses under Subdivision 168-J since the time or times they were actually made by the real loss-maker.

Note 1:       The loss factor is adjusted if:

(a)       one or more losses in another bundle are later transferred to the head entity of the group joined (see section 168-935); or

(b)       capital is later injected into the head entity or another member of the group joined (see section 168-938).

Note 2:       The loss factor is recalculated later if one or more of the losses in the bundle are later transferred again. See section 168-940.

       (2) The loss factor for the *bundle is the amount worked out using the formula:

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where:

altered market value of the real loss-maker is:

       (a) the *modified market value of the real loss-maker at the joining time; or

       (b) if section 168-925 applies--the sum of:

       (i) the modified market value of the real loss-maker at the joining time; and

       (ii) each amount worked out for the real loss-maker under that section; or


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       (c) if section 168-930 applies--the amount worked out for the real loss-maker under that section.

Note:       Sections 168-925 and 168-930 apply only if 2 or more companies that are members of the same wholly-owned group became members of the group joined at the joining time before 1 July 2002.

market value at the joining time of the group joined is the market value at the joining time of the group joined:

       (a) worked out assuming that the group joined continued to carry on a *business; and

       (b) reduced by the amount of that value that reflects income tax attributes of the *head entity of the group joined, including ones that arise wholly or partly from the real loss-maker becoming a *member of the group joined (even if they arise from a transfer occurring just after the joining time).

Example:       Examples of an entity's income tax attributes include its losses and franking account balance.

       (3) However, the loss factor for the *bundle is zero if the market value at the joining time of the group joined is nil.

168-922 Modified market value of a member of a consolidated group
       (1) Work out the modified market value of an entity that becomes a *member of a *consolidated group at a particular time in this way:

Modified market value of an entity

Step 1.       Work out the amount that would be the market value of the entity at the time, assuming that the entity:

       (a) continued to carry on a *business; and

       (b) did not hold any membership interests in another *member of the *consolidated group.

Step 2.       Work out how much (if any) of the result of step 1 reflects income tax attributes of the entity.

       Example: Examples of an entity's income tax attributes include its losses and franking account balance.

Step 3.       Work out how much (if any) of the result of step 1 reflects the goodwill that is attributable to:

       (a) the control and ownership of the entity by the *head entity of the *consolidated group; and

       (b) an increase in the value of businesses of *members of the group (other than the entity).

Step 4.       Add up the results of steps 2 and 3.

Step 5.       Reduce the result of step 1 by the result of step 4.

Modified market value reduced by capital injections

       (2) However, the modified market value of an entity that becomes a *member of a *consolidated group at a particular time (the valuation time) is the amount worked out for the entity under subsection (4) if:

       (a) the entity had made one or more losses (the unrecouped losses) for an income year ending at or before the valuation time that had not been totally *utilised (or reduced under Schedule 2C to the Income Tax Assessment Act 1936) for an income year ending at or before that time; and

       (b) there had been one or more injections of capital into the entity by another entity for any reason during the period:

       (i) starting at the time worked out under subsection (3); and

       (ii) ending at the valuation time.

       (3) The period starts:

       (a) at the start of the earliest income year for which one or more of the unrecouped losses were made; or

       (b) 2 years before the valuation time, if the start of that income year was less than 2 years before the valuation time.

However, the period starts on 21 September 1999, if it would otherwise start earlier under paragraph (a) or (b).

       (4) Work out the entity's modified market value by reducing the amount worked out for the entity under subsection (1) for the valuation time by the total capital injected into the entity by other entities during the period.

168-925 Additions to modified market value of the real loss-maker
Object

       (1) The object of this section is to provide a concession (by increasing the altered market value of the real loss-maker for the purposes of section 168-920) in working out the *loss factor for a *bundle of losses of an entity if the real

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loss-maker:

       (a) becomes a *member of the group joined when that group comes into existence before 1 July 2002; and

       (b) could have transferred a *tax loss or *net capital loss in the bundle to another company in that group under Subdivision 170-A or 170-B in certain circumstances if those Subdivisions had not been repealed.

Conditions for concessional increase

       (2) When working out under section 168-920 the *loss factor for a *bundle of losses of the *head entity of the group joined containing a loss (the test loss) that meets the requirements in subsection (3), the altered market value of the real loss-maker is increased by the amount worked out under subsection (8) of the *modified market value of another company (the potential transferee) if:

       (a) the joining time is:

       (i) when the group joined comes into existence as a *consolidated group; and

       (ii) before 1 July 2002; and

       (b) the applicable requirements in subsection (4) are met in relation to the real loss-maker; and

       (c) the potential transferee meets the requirements in subsection (5); and

       (d) both the real loss-maker and the potential transferee meet the requirements in subsection (7).

       (3) The test loss must be a *tax loss or *net capital loss that:

       (a) is actually made (disregarding section 168-580) by the real loss-maker for an income year (the year of loss); and

       (b) is not a *concessional transferred loss of the *head entity of the group joined.

       (4) For the altered market value of the real loss-maker to be increased:

       (a) the real loss-maker must be a company; and

       (b) the requirement in the relevant item of the table must be met, if the year of loss is the income year ending at the joining time:

Requirements relating to the test loss and the real loss-maker

Item

If the test loss is:

The requirement is:

1

A *tax loss

The real loss-maker must not have been required to calculate the test loss under section 165-70 or 175-35

2

A *net capital loss

The real loss-maker must not have been required to calculate the test loss under Subdivision 165-CB or section 175-75

       (5) For the altered market value of the real loss-maker to be increased, the potential transferee:

       (a) must have become a *member of the group joined at the joining time; and


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       (b) must not have been a *dual resident investment company in either the year of loss or the income year ending at the joining time; and

       (c) must have been able to have transferred the test loss to the *head entity of the group joined under Subdivision 168-J had the potential transferee made the test loss for the year of loss; and

       (d) must not have had a tax loss or net capital loss for an income year ending at or before the joining time or must have had all such losses cancelled by the *head entity of the group joined.

       (6) The *head entity of the group joined may cancel a loss of the potential transferee for the purposes of paragraph (5)(d). If the head entity does so, the loss cannot be *utilised by any entity for an income year ending after the joining time.

       (7) For the altered market value of the real loss-maker to be increased, both the real loss-maker and the potential transferee must:

       (a) have been *in existence for at least part of each of these income years:

       (i) the year of loss;

       (ii) the income year of the real loss-maker ending at the joining time;

       (iii) each income year (if any) between the income years described in subparagraphs (i) and (ii); and

       (b) have been members of the same *wholly-owned group during the whole or part of the income years mentioned in paragraph (a) when both the real loss-maker and the potential transferee were in existence.

Amount of increase

       (8) Work out the amount of the increase in this way:

Amount of increase

Step 1.       Work out the *modified market value at the joining time of the potential transferee on the basis described in subsection (9).

Step 2.       Identify the amount of the result of step 1 that the *head entity of the group joined chooses to use for working out the increase for the purpose of working out the *loss factor for the *bundle.

Step 3.       Add up the amount of each loss that is in the *bundle just after the joining time and in relation to which the conditions in subsections (3), (4), (5) and (7) are met in relation to the real loss-maker and the potential transferee.

Step 4.       Add up the amounts of all the losses (except *concessional transferred losses) in the *bundle just after the joining time.

Step 5.       Divide the result of step 3 by the result of step 4.

Step 6.       Multiply the result of step 2 by the result of step 5.

       (9) For the purposes of step 1 of the method statement in subsection (8), work out the potential transferee's *modified market value on the basis that the potential transferee:

       (a) had made each loss:

       (i) that was actually made (disregarding section 168-580) by another company (whether or not that other company is the real loss-maker of the losses in the *bundle whose *loss factor is being worked out); and

       (ii) for which the conditions in subsections (3), (4), (5) and (7) are met in relation to that other company (as the real loss-maker of that loss) and the potential transferee; and

       (b) had made all the losses it actually made, except those described in paragraph (c); and

       (c) had not made any of the losses that it actually made and were cancelled for the purposes of paragraph (5)(d).

Note:       Treating the potential transferee as having made some losses but not others may affect what capital injections need to be taken into account in working out the potential transferee's modified market value at the joining time.

Choosing amounts of potential transferee's modified market value

       (10) The *head entity of the group joined cannot choose to use for the purposes of working out *loss factors for different *bundles of losses amounts of the potential transferee's *modified market value worked out under step 1 of the method statement in subsection (8) that total more than the result of that step for the potential transferee.


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168-930 If real loss-maker's modified market value was used to work out loss factor for losses made by another company
       (1) This section explains how to work out the altered market value of the real loss-maker, for the purposes of working out under subsection 168-920(2) the *loss factor for a *bundle of losses actually made (disregarding section 168-580) by a company, if:

       (a) the real loss-maker is the company; and

       (b) under section 168-925, the *head entity of the group joined chose to use some or all of the company's *modified market value worked out under subsection 168-925(8) for working out the loss factor for one or more other bundles of losses actually made (disregarding section 168-580) by one or more other companies.

Note 1:       The head entity of the group joined could have made this choice only if the company had no losses other than overall foreign losses (either because it did not make any tax losses or net capital losses or because all such losses that it made were cancelled by the head entity).

Note 2:       Therefore this section applies only for the purposes of working out a loss factor for a bundle of losses only if the bundle consists purely of one or more overall foreign losses.

       (2) The altered market value of the real loss-maker is so much of the company's *modified market value worked out under step 1 of the method statement in subsection 168-925(8) as has not been identified under step 2 of the method statement.

168-935 Adjusting the loss factor for a bundle of losses when other losses are transferred
If losses in only one new bundle are transferred at one time

       (1) The loss factor for a *bundle (the old bundle) of losses of an entity is the amount worked out using the formula in subsection (2) if:

       (a) the entity makes the losses in one other bundle (the new bundle) because of the transfer (the later transfer) to the entity of losses in the new bundle under Subdivision 168-J; and

       (b) the later transfer occurs after the transfer under that Subdivision to the entity of the losses in the old bundle.

       (2) The formula for working out the loss factor for the old bundle in the circumstances described in subsection (1) is:

Click here for Picture

Note:       The loss factor for the new bundle just after the later transfer will be worked out under:

(a)       section 168-920, if the losses in the new bundle had not been transferred before the later transfer; or

(b)       section 168-940, if the losses in the new bundle had been transferred before the later transfer.

If losses in 2 or more new bundles are transferred at the same time

       (3) The loss factor for a *bundle (the old bundle) of losses of an entity is the amount worked out using the formula in subsection (4) if:

       (a) the entity makes the losses in 2 or more other bundles (the new bundles) because the losses in the new bundles are all transferred to entity under Subdivision 168-J at the same time (the later transfer time); and

       (b) the later transfer time is after the time of the transfer under that Subdivision to the entity of the losses in the old bundle.

       (4) The formula for working out the loss factor for the old bundle in the circumstances described in subsection (3) is:

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Note:       The loss factor for each of the new bundles just after the later transfer time will be worked out under:

(a)       section 168-920, if the losses in the new bundles had not been transferred before the later transfer time; or

(b)       section 168-940, if the losses in the new bundles had been transferred before the later transfer time.

168-938 Adjusting the loss factor following a capital injection
       (1) This section sets the loss factor for a *bundle of losses of an entity if, after the losses were transferred to the entity under Subdivision 168-J, capital is injected by another entity for any reason into:

       (a) the entity; or

       (b) if the entity is the *head entity of a *consolidated group--another entity that is a *member

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of the group.

       (2) The loss factor for the *bundle is the amount worked out using the formula:

Click here for Picture

       (3) However, if the entity (whose losses are in the *bundle) is not the *head entity of a *consolidated group at the time of the capital injection, the loss factor for the bundle is the amount worked out using the formula:

Click here for Picture

       (4) This section does not apply to an injection of capital into a *member of a *consolidated group by another member of the group.

168-940 Calculating the loss factor for a bundle when losses in it are transferred for the second or later time
       (1) This section explains how to work out the *loss factor for a *bundle of losses of an entity (the transferee) if:

       (a) there was a transfer (the later transfer) of the losses under Subdivision 168-J to the transferee when it was the *head entity of a *consolidated group (the transferee group); and

       (b) the later transfer occurred because another entity (the old head entity) became a *subsidiary member of the transferee group at a time (the joining time); and

       (c) the losses had earlier been included in a bundle (the previous bundle) of losses of the old head entity.

       (2) The loss factor for the *bundle of the losses of the transferee is the amount worked out using the formula:

Click here for Picture

Note:       The loss factor is adjusted if:

(a)       one or more losses in another bundle are later transferred to the head entity of the transferee group (see section 168-935); or

(b)       capital is later injected into the head entity or another member of the transferee group (see section 168-938).

       (3) If the old head entity was the *head entity of a *consolidated group just before the joining time, work out the loss factor for the *bundle of losses of the transferee as if the old head entity had had:

       (a) all the assets of *members of that group; and

       (b) all the liabilities of members of that group.

168-945 Use the loss factor as at the end of the income year
        In working out how much of the losses of a particular *sort in a *bundle can be *utilised for an income year, use the *loss factor for the *bundle as at the end of the year.

Relationship with other provisions about utilising losses

168-950 Other provisions are subject to this Subdivision
        The rules in this Subdivision are additional to the provisions of this Act about *utilising the loss for the income year that are outside this Subdivision. Those provisions have effect subject to this Subdivision.

Note:       Provisions of this Act outside this Subdivision about utilising losses include:

(a)       Divisions 36, 165 and 375 of this Act and Schedule 2F to the Income Tax Assessment Act 1936 (for tax losses, including film losses); and

(b)       Divisions 102 and 165 of this Act (for net capital losses); and

(c)       section 160AFD of the Income Tax Assessment Act 1936 (for overall foreign losses).

[The next Subdivision is Subdivision 168-U.]


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Subdivision 168-U--Consequences for asset treatment if entities cease to be members of a consolidated group: basic case

Guide to Subdivision 168-U

168-975 What this Subdivision is about
Before an entity leaves a consolidated group, the head entity is treated as if it had purchased the group's membership interests in the leaving entity for an amount that reflects the group's cost for the net assets of the leaving entity. The leaving entity is treated as having acquired its assets after leaving the group for an amount reflecting their treatment in the hands of the head entity.

Table of sections

Object of this Subdivision

168-980       Object of this Subdivision

When the Subdivision operates

168-985       When this Subdivision operates

Treatment of head entity

168-990       Consequences for asset treatment for head entity

168-995       Payment for deemed purchase of membership interests in leaving entity

168-1000       What is the leaving value of a CGT asset of the head entity?

168-1005       Special rule if more than one entity ceases to be a member of the old group at the same time

168-1010       Membership interests treated as having been acquired before 20 September 1985

168-1015       Deemed purchase of debts

168-1020       Deemed sale of trading stock and depreciating assets

Treatment of leaving entity

168-1025       Deemed purchase of CGT assets

168-1030       Debt consequences for leaving entity

[This is the end of the Guide.]

Object of this Subdivision

168-980 Object of this Subdivision
        The object of this Subdivision is to ensure that, at the time (the leaving time) an entity (the leaving entity) ceases to be a *subsidiary member of a *consolidated group (the old group):

       (a) for the old group:

       (i) the costs of its *membership interests in the leaving entity are based on the leaving values (see section 168-1000) of *CGT assets held by the leaving entity, reduced by the leaving entity's liabilities; and

       (ii) appropriate *pre-CGT asset status is accorded to those membership interests; and

       (iii) an appropriate *cost applies for any debts owed to *members by the leaving entity; and

       (iv) there is a deemed *disposal of *trading stock and *depreciating assets for a tax-neutral amount; and

       (b) for the leaving entity:

       (i) the costs of its CGT assets (including membership interests in another entity that also ceases to be a member at the leaving time) are based on their leaving values; and

       (ii) an appropriate cost applies for any debts owed to it by members of the old group.

When the Subdivision operates

168-985 When this Subdivision operates
        This Subdivision operates if neither of the following exceptions applies when the leaving entity ceases to be a *member of the old group:

       (a) the first exception is where another entity that ceases to be a member of the old group at the same time has *membership interests in the leaving entity just before it leaves, or the reverse applies;


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Note:       See Subdivision 168-V for rules about the treatment of assets if entities cease to be members in circumstances covered by this exception.

       (b) the second exception is where the leaving entity ceases to be a member because the old group ceases to exist or to be a consolidated group.

Note:       See Subdivision 168-W for rules about the treatment of assets if entities cease to be members in circumstances covered by this exception.

Treatment of head entity

168-990 Consequences for asset treatment for head entity
        For the purposes of applying section 168-40 in relation to the *head entity, the head entity is taken to have purchased, just before the leaving time, each *membership interest in the leaving entity that *members of the old group actually held at that time, for a payment worked out under this Subdivision.

168-995 Payment for deemed purchase of membership interests in leaving entity
       (1) Work out the amount to be treated as the payment for the deemed purchase by the *head entity of each *membership interest in the leaving entity in this way:

Note:       This Subdivision does not affect a membership interest in the leaving entity held by someone other than a member of the old group before the leaving time. Such an interest can be held because finance and employee shares are disregarded under section 168-90.

Payment for membership interest in leaving entity

Step 1.       Add up the leaving values of all the *CGT assets that the *head entity holds at the leaving time because the leaving entity is taken by section 168-40 to be a division or part of the head entity.

       Note: Goodwill arising from control and ownership of the leaving entity by the head entity at the time the leaving entity became a member of the head entity's consolidated group is treated as an asset of the leaving entity. See section 168-225.

Step 2.       Add to the result of step 1 the total, for all debts actually owed by *members of the old group to the leaving entity at the leaving time, of the lesser of each debt and its *cost base.

Step 3.       Work out the amount that would apply under section 168-255 if that section applied to the leaving entity at the leaving time in the same way as it applies to a joining entity at the joining time.

       Note: Step 3 deals with liabilities of the leaving entity. It covers not only liabilities owed to outsiders but also, because of section 168-1015, liabilities consisting of debts owed to other members of the old group.

Step 4.       Subtract the result of step 3 from the result of step 2. The difference is the net asset value of the leaving entity. If this would be negative, it is instead taken to be nil.

       Note: If the amount would be negative, the head entity is taken to have made a capital gain equal to the amount. See CGT event XX [to be drafted]

Step 5.       Divide the net asset value of the leaving entity by the number of *membership interests in the leaving entity.

       (2) However, if there is more than one class of *membership interests in the leaving entity just before the leaving time, work out the amount to be treated as the payment for the deemed purchase by the *head entity of a membership interest in one of the classes (the relevant class) of membership interests in this way:

Payment for membership interest in leaving entity

Step 1.       For each of the classes of *membership interests, add up the *market values of all the membership interests in the class.

Step 2.       Add up the results of step 1 for all the classes.

Step 3.       Divide the result of step 1 for the relevant class by the result of step 2.

Step 4.       Multiply the net asset value of the leaving entity (see subsection (1)) by the result of step 3.

Step 5.       Divide the result of step 4 by the number of *membership interests in the relevant class.


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168-1000 What is the leaving value of a CGT asset of the head entity?
       (1) If a *CGT asset of the *head entity is *trading stock, its leaving value is:

       (a) if the trading stock was on hand at the beginning of the income year in which the leaving time occurred--the *value at which it was taken into account by the head entity at that time under Division 70; or

       (b) if the head entity *acquired the trading stock during that income year--the amount of the outgoing incurred by the head entity in connection with the acquisition of the trading stock or, if there was no such outgoing, nil.

       (2) If a *CGT asset of the *head entity is a *depreciating asset, its leaving value is equal to its *adjustable value at the leaving time.

       (3) If a *CGT asset of the *head entity is neither *trading stock nor a *depreciating asset, its leaving value is equal to its *cost base at the leaving time.

168-1005 Special rule if more than one entity ceases to be a member of the old group at the same time
       (1) Work out the payments for the deemed purchase of *membership interests in the leaving entity under section 168-990 in accordance with this section if:

       (a) the leaving entity is one of 2 or more entities that cease to be *subsidiary members of the old group at the leaving time; and

       (b) at the leaving time, the leaving entity holds, directly or indirectly through one or more interposed entities, a membership interest in one of the other entities (the subordinate entity) that ceased to be subsidiary members of the old group then.

       (2) Work out the payment for the deemed purchase of the *membership interests in each subordinate entity under section 168-995 before working out the payment for membership interests in the leaving entity under that section. In working out the payment for membership interests in the leaving entity under that section, take account of the payment for membership interests in each subordinate entity under that section.

Note:       This may require several successive rounds of calculation of payments for the deemed purchase of membership entities under section 168-990.

Example:       Before the leaving time, the leaving entity owned shares in company B and company C, and company B owned shares in companies D and E. The companies were all members of the old group.

       The leaving entity and all those companies ceased to be members of the old group at the leaving time.

       First, work out the payment for membership interests in companies C, D and E under section 168-990.

       Next, work out the payment for membership interests in company B under section 168-990, taking into account the payment just worked out under that section for its assets consisting of shares in companies D and E.

       Finally, work out the payment for membership interests in the leaving entity under section 168-990, taking into account the payments worked out under that section for companies B and C.

A rule is to be developed to deal with the case where there is cross-ownership among subsidiary members.

168-1010 Membership interests treated as having been acquired before 20 September 1985
When this section applies

       (1) This section applies if any of the *CGT assets (a pre-CGT factor asset) that the *head entity of the old group holds at the leaving time because the leaving entity is taken by section 168-40 to be a division or part of the head entity has a pre-CGT factor under section 168-290.

Interests treated as if purchased before 20 September 1985

       (2) If this section applies, a number of the *membership interests in the leaving entity that the *head entity is taken by section 168-990 to have purchased are taken to have been purchased before 20 September 1985.

Note:       Because of the deemed purchase of the membership interests under section 168-990, this section is the only basis on which any of these interests can be pre-CGT assets.

Number of pre-CGT membership interests


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       (3) The number is the result of the formula in subsection (4), rounded down to:

       (a) the nearest whole number if the result is not already a whole number; or

       (b) zero if the result is a number more than zero but less than one.

Formula

       (4) The formula is:

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where:

leaving entity's pre-CGT proportion is the amount worked out under subsection (5).

pre-CGT proportion

       (5) Work out the leaving entity's pre-CGT proportion in this way:

Leaving entity's pre-CGT proportion

Step 1.       For each pre-CGT factor asset, multiply its *market value before the leaving time by its pre-CGT factor.

Step 2.       Add up all the results of step 1.

Step 3.       Add up the *market values of all the *CGT assets that the *head entity holds at the leaving time because the leaving entity is taken by section 168-40 to be a division or part of the head entity.

Step 4.       Divide the result of step 2 by the result of step 3.

Dealing with classes of membership interests

       (6) If there are 2 or more classes of *membership interests in the leaving entity, this section operates separately in relation to each class as if the interests in that class were all the interests in the entity.

168-1015 Deemed purchase of debts
        If, at the leaving time, the leaving entity actually owed a debt to another *member of the old group, the *head entity is taken to have purchased the debt at that time for a payment equal to the amount of the debt.

168-1020 Deemed sale of trading stock and depreciating assets
        The *head entity of the old group is taken to have sold, for a payment equal to its leaving value (see section 168-1000), any *trading stock and *depreciating asset that the head entity holds because the leaving entity is taken by section 168-40 to be a division or part of the head entity.

Treatment of leaving entity

168-1025 Deemed purchase of CGT assets
       (1) The leaving entity is taken to purchase, at the leaving time, each *CGT asset that it actually held just before the leaving time for a payment equal to its asset's leaving value.

pre-CGT assets

       (2) For the purposes of subsection (1), if any of the *CGT assets was a *pre-CGT asset, it is a pre-CGT asset when the deemed purchase by the leaving entity has taken place.

168-1030 Debt consequences for leaving entity
        If, at the leaving time, a *member of the old group actually owed a debt to the leaving entity, the leaving entity is taken to have purchased the debt just after the leaving time for a payment equal to the amount of the debt.

Part 2--Consequential amendment of the Income Tax Assessment Act 1997

2 At the end of subsection 4-10(2)

Add:

       ; (c) for an entity that during the relevant period described in paragraph (a) or (b) becomes or ceases to be a *member of a *consolidated group as described in

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section 168-45, there are 2 or more income years as worked out under that section.

3 Subsection 9-5(1) (after table item 1)

Insert:

1A

An entity that becomes or ceases to be a *member of a *consolidated group as described in section 168-45 is liable to pay income tax of the sum of the amounts of income tax worked out by reference to its taxable income for each of the income years identified in that section

section 168-50

4 At the end of subsection 9-5(2)

Add:

       ; (c) for an entity that during the relevant period described in paragraph (a) or (b) becomes or ceases to be a *member of a *consolidated group as described in section 168-45, there are 2 or more income years as worked out under that section.

5 Application

The amendments made by this Part apply on and after 1 July 2001.

These amendments of the Income Tax Assessment Act 1997 deal only with changes needed to make new Subdivision 168-B work. Amendments of the Dictionary (Chapter 6 of that Act) consequential on the consolidation provisions are in Part 6 of this Schedule. Further amendments of that Act and other Acts may be needed, consequential on other provisions about consolidation.

Part 3--Amendment of the Income Tax (Transitional Provisions) Act 1997

6 Section 149-5 (link note)

Repeal the link note, substitute:

[The next Division is Division 168.]

Part 3-7--Corporate taxpayers and corporate distributions

Division 168--Consolidating groups of companies and trusts

Subdivision 168-A--Application of Division 168 of Income Tax Assessment Act 1997

168-1 Application of Division 168 of Income Tax Assessment Act 1997
Division 168 of the Income Tax Assessment Act 1997 applies on and after 1 July 2001.

Subdivision 168-F--Consequences for asset treatment if entities become members of a consolidated group: group formation case

168-2 Application of Subdivision to consolidated groups formed in 2001-2002 financial year
        This Subdivision has effect for the purposes of applying Subdivision 168-F of the Income Tax Assessment Act 1997 in relation to a *consolidated group. The Subdivision operates if:

       (a) the consolidated group comes into existence during the *financial year commencing on 1 July 2001; and

       (b) one or more of the *subsidiary members are *100% Australian subsidiaries of the *head entity at all times from the end of 30 June 2001 until the consolidated group comes into existence.

168-3 Head entity may choose to replace purchase payment for CGT assets of certain subsidiaries
       (1) The *head entity of the *consolidated group may choose that the payment that would otherwise apply under section 168-230 or 168-235 of the Income Tax Assessment Act 1997, in its operation in accordance with Subdivision 168-F of that Act, for the deemed purchase of each *CGT asset of one or more of the *subsidiary members mentioned in paragraph 168-2(b) of this Act is to be replaced by the amount in subsection (2) of this section.


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       (2) For the purposes of subsection (1), the amount is the *CGT asset's joining value under section 168-220 of the Income Tax Assessment Act 1997, in its operation in accordance with Subdivision 168-F of that Act.

168-4 No operation of value shifting and loss transfer provisions to membership interests in subsidiaries covered by choice
        Also, if any of the following provisions:

       (a) section 160ZP, or Division 19A or 19B of Part IIIA, of the Income Tax Assessment Act 1936;

       (b) Division 138, 139 or 140, or Subdivision 170-B or 170-C, of this Act;

would, because of events that happened before the time the *consolidated group comes into existence, apply to a *CGT event that happens after that time in relation to any *membership interest that, at that time, a *member held in a *subsidiary member covered by the choice, the provision does not so apply.

168-5 Transfer of residual unrealised net loss of members to head entity covered by choice
        If at the formation time, a *subsidiary member covered by a choice made under section 168-3 of this Act had a residual unrealised net loss as defined by subsection 165-115B(8) of the Income Tax Assessment Act 1997, then, for the purposes of Subdivision 165-CC of the Income Tax Assessment Act 1997:

       (a) the residual unrealised net loss is taken to be a residual unrealised net loss of the *head entity that it had at the changeover time as defined by subsection 165-115C(1) of that Act; and

       (b) the head entity is taken to have owned, at the changeover time, the *CGT assets that the *member owned at that time, provided they were still owned by the member at the joining time.

Rules are yet to be developed to deal with the application of the "same business test" to the head entity.

Subdivision 168-U--Treatment of assets if members leave consolidated group: basic case

168-6 Application of Subdivision to consolidated groups formed in 2001-2002 financial year
        This Subdivision has effect for the purposes of applying Subdivision 168-U of the Income Tax Assessment Act 1997 where a leaving entity ceases to be a *member of a *consolidated group. The Subdivision operates if:

       (a) the consolidated group came into existence during the *financial year commencing on 1 July 2001; and

       (b) one or more of the *subsidiary members were *100% Australian subsidiaries of the *head entity at all times from the end of 30 June 2001 until the consolidated group comes into existence.

168-7 Head entity may choose to work out leaving values of over-depreciated assets in a special way for purposes of step 1 in section 168-995
       (1) For the purposes of applying section 168-995 of the Income Tax Assessment Act 1997 in relation to the leaving entity, if:

       (a) just before the leaving time, the *head entity of the *consolidated group holds a *CGT asset because the leaving entity is taken by section 168-40 of the Income Tax Assessment Act 1997 to be a division or part of the head entity; and

       (b) the CGT asset:

       (i) was an over-depreciated asset at the start of 1 July 2001; and

       (ii) was held continuously from then until the joining time by a *subsidiary member that is not covered by a choice made by the head entity under section 168-3 of this Act; and

       (iii) was an over-depreciated asset at the joining time; and

       (c) the head entity does not make a choice under subsection 168-3(1) of this Act that covers the leaving entity;

the head entity may choose that step 1 of section 168-995 of the Income Tax Assessment Act 1997 be applied as mentioned in subsection (2) of this section.

       (2) If the *head entity makes the choice,

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then the leaving value of the *CGT asset that is to be used in applying step 1 of section 168-995 of the Income Tax Assessment Act 1997 is replaced by the amount that would be the leaving value if step 6 in section 168-245 of that Act had not been applied in relation to the CGT asset for the purposes of working out the payment for its purchase under section 168-235 of that Act.

Note:       The leaving value of the CGT asset that applies under this subsection will reflect the decline in the value of the asset during the period the asset was treated as being held by the head entity.

168-8 Head entity may choose to use formation time market values, instead of leaving values, for certain pre-CGT assets for purposes of step 1 in section 168-995
       (1) If:

       (a) just before the *consolidated group came into existence, the *head entity held *pre-CGT assets; and

       (b) if the head entity *acquired, or last acquired, the pre-CGT assets during the period starting at 11.45 am by legal time in the Australian Capital Territory on 21 September 1999 and finishing at the end of 30 June 2001--there was no roll-over under Subdivision 126-B of the Income Tax Assessment Act 1997 for the *CGT event constituting the acquisition; and

       (c) at the leaving time, the pre-CGT assets were held by the head entity only because the leaving entity is taken by section 168-40 to be a division or part of the head entity;

the head entity may choose that the leaving values for the pre-CGT assets that are to be used in applying step 1 in section 168-995 are replaced in accordance with subsection (2).

       (2) If the *head entity makes the choice, the leaving value of each of the *pre-CGT assets that is to be so used is replaced by its *market value just before the *consolidated group came into existence.

Part 4--Removal of intercorporate dividend rebate

Division 1--Removing rebate for dividends paid after 30 June 2001

Income Tax Assessment Act 1936

7 Before subsection 46(1)

Insert:

       (1AAAA) A shareholder is not entitled to, and must not be allowed, an amount of rebate under this section for a dividend paid after 30 June 2001.

8 Before subsection 46A(1)

Insert:

       (1AAA) A shareholder is not entitled to, and must not be allowed, an amount of rebate under this section for net income derived from a dividend paid after 30 June 2001.

Division 2--Consequential changes

Income Tax Assessment Act 1936

9 At the end of subsection 6BA(3)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

10 At the end of subsections 45Z(1), (2), (3) and (4)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

11 At the end of subsections 45ZB(2) and (6)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

12 At the end of subsection 46FA(1)

Add:

Note:       A rebate is not available under section 46 for a dividend paid after 30 June 2001.

13 At the end of subsection 46FB(4)

Add:

Note:       A rebate is not available under section 46 for a dividend paid after 30 June 2001.

14 At the end of subsection 46G(1)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

15 At the end of subsection 46M(1)

Add:

Note:       A rebate is not available under section 46

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or 46A for a dividend paid after 30 June 2001.

16 Subsection 67AA(2)

After "dividend paid", insert "before 1 July 2001".

17 At the end of subsection 102L(2)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

18 At the end of subsection 102T(2)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

19 At the end of subsection 159GZZZQ(9)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

20 At the end of subsection 160APHB(2)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

21 Section 160APHD (at the end of the definitions of rebateable distribution and rebateable dividend)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

22 At the end of subsection 160AQCBA(16)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

23 At the end of subsection 177EA(18)

Add:

Note:       A rebate is not available under section 46 or 46A for a dividend paid after 30 June 2001.

Income Tax Assessment Act 1997

24 Section 13-1 (table item headed "corporate unit trusts")

Repeal the item.

25 Section 13-1 (table item headed "dividends")

Omit

received by:


company as shareholder        

46(2)

company as shareholder, part of dividend stripping operation


46A

company through a partnership or trust

45Z

corporate unit trusts

102L

public trading trust

102T

26 Section 13-1 (table item headed "inter-corporate dividends")

Repeal the item.

27 Section 13-1 (table item headed "public trading trust")

Repeal the item.

28 Section 13-1 (table item headed "public unit trust")


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Repeal the item.

29 Section 13-1 (table item headed "unit trusts")

Repeal the item.

30 At the end of subsection 70-45(2)

Add:

Note:       A rebate is not available under section 46 of the Income Tax Assessment Act 1936 for a dividend paid after 30 June 2001.

31 At the end of subsection 110-55(7)

Add:

Note:       A rebate is not available under section 46 or 46A of the Income Tax Assessment Act 1936 for a dividend paid after 30 June 2001.

32 At the end of subsection 110-60(5)

Add:

Note:       A rebate is not available under section 46 or 46A of the Income Tax Assessment Act 1936 for a dividend paid after 30 June 2001.

33 Subsection 375-872(4) (at the end of the note)

Add "However, a rebate is not available under section 46 or 46A of that Act for a dividend paid after 30 June 2001.".

Part 5--Repeal of company loss transfer provisions

Income Tax Assessment Act 1997

34 Subdivisions 170-A, 170-B and 170-C

Repeal the Subdivisions.

35 Application provisions

Application of repeal of Subdivisions 170-A and 170-B

(1)       The repeal of Subdivisions 170-A and 170-B of the Income Tax Assessment Act 1997 applies to assessments for the 2001-02 income year and later income years.

Application of repeal of Subdivision 170-C

(2)       The repeal of Subdivision 170-C of the Income Tax Assessment Act 1997 does not prevent an increase or reduction under that Subdivision in a cost base or reduced cost base in relation to a transfer to which Subdivision 170-A or 170-B of that Act applies.

36 Transitional provisions for late balancers

Object

(1)       The object of this item is to ensure that a company whose 2000-01 income year ends after 30 June 2001 can either:

       (a) transfer under Subdivision 170-A or 170-B of the Income Tax Assessment Act 1997 a loss it makes for that income year only so far as the loss is attributable to the part of the income year before 1 July 2001; or

       (b) utilise a loss transferred under one of those Subdivisions to reduce income or gains for that income year only so far as the income or gains are attributable to the part of the income year before 1 July 2001.

Loss for 2000-01 income year ending after 30 June 2001

(2)       Despite section 170-45 of the Income Tax Assessment Act 1997, the amount of a tax loss made for the 2000-01 income year by a company whose 2000-01 income year ends after 30 June 2001 that can be transferred under Subdivision 170-A of that Act cannot exceed the amount worked out using the formula:

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(3)       Despite section 170-145 of the Income Tax Assessment Act 1997, a net capital loss made for the 2000-01 income year by a company whose 2000-01 income year ends after 30 June 2001:

       (a) can be transferred under Subdivision 170-B of that Act only if the sum of the capital losses made by the company during the income year before 1 July 2001 exceeds the sum of the capital gains made by the company during the income year before 1 July 2001; and

       (b) cannot be transferred under that Subdivision to an extent greater than that excess.

Limit based on income or gains for 2000-01 income year

(4)       Despite section 170-45 of the Income Tax Assessment Act 1997, the amount of a tax loss (for any income year) that can be transferred under Subdivision 170-A of that Act for the 2000-01 income year to a company whose 2000-01 income year ends after 30 June 2001 cannot exceed the amount worked out using the formula:

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(5)       Despite section 170-145 of the Income Tax Assessment Act 1997, a net capital loss (for any income year) can be transferred under Subdivision 170-B of that Act for the 2000-01 income year to a company whose 2000-01 income year ends after 30 June 2001:

       (a) only if the company would have had a net capital

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gain for its 2000-01 income year apart from that section had that income year ended on 30 June 2001; and

       (b) only to the extent to which it could have been transferred consistently with subsection 170-145(6) of that Act if the result of step 1 of the method statement had been the amount of the company's net capital gain worked out on the basis described in paragraph (a) of this subitem.

37 Saving provisions for early balancers

Object

(1)       The object of this item is to ensure that, despite the repeal of Subdivisions 170-A and 170-B of the Income Tax Assessment Act 1997 for the 2001-02 income year, a company for which that income year starts before 1 July 2001 can either:

       (a) transfer under one of those Subdivisions a loss it makes for that income year so far as the loss is attributable to the part of that income year before 1 July 2001; or

       (b) utilise a loss transferred under one of those Subdivisions to reduce income or gains for that income year so far as the income or gains are attributable to the part of the income year before 1 July 2001.

Loss for part of 2001-02 income year before 1 July 2001

(2)       The repeal of Subdivision 170-A of the Income Tax Assessment Act 1997 does not prevent a company whose 2001-02 income year starts before 1 July 2001 from transferring under that Subdivision an amount of a tax loss for that income year not exceeding the amount worked out using the formula:

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(3)       The repeal of Subdivision 170-B of the Income Tax Assessment Act 1997 does not prevent a company whose 2001-02 income year starts before 1 July 2001 from transferring under that Subdivision an amount of its net capital loss for that year not more than the excess (if any) of the sum of the company's capital losses made in that year before 1 July 2001 over the sum of its capital gains made in that year before 1 July 2001.

(4)       Subitems (2) and (3) allow a transfer to a company for its 2000-01 income year only.

Limit based on income or gains for 2001-02 income year

(5)       The repeal of Subdivision 170-A of the Income Tax Assessment Act 1997 does not prevent the transfer under that Subdivision for the 2001-02 income year to a company for which that year starts before 1 July 2001 of an amount of a tax loss (for any income year before the 2002-03 income year) not exceeding the amount worked out using the formula:

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(6)       The repeal of Subdivision 170-B of the Income Tax Assessment Act 1997 does not prevent the transfer under that Subdivision for the 2001-02 income year to a company for which that year starts before 1 July 2001 of a net capital loss (for any income year before the 2002-03 income year):

       (a) if the company would have had a net capital gain for its 2001-02 income year apart from that Subdivision had that income year ended on 30 June 2001; and

       (b) to the extent to which it could have been transferred consistently with subsection 170-145(6) of that Act if the result of step 1 of the method statement had been the amount of the company's net capital gain worked out on the basis described in paragraph (a) of this subitem.

Amendments consequential on the repeal of Subdivisions 170-A, 170-B and 170-C of the Income Tax Assessment Act 1997 will be drafted later.

Part 6--Dictionary amendments

Income Tax Assessment Act 1997

38 Section 975-150 (heading)

Repeal the heading, substitute:

975-150 In a position to affect rights in relation to an entity
39 Subsection 975-150(1)

Omit "company" (wherever occurring), substitute "entity".

40 Paragraphs 975-150(1)(a) and (b)

Omit "companies", substitute "entities".

41 Subsection 975-150(2)

Omit "the *constitution of one or other of those companies", substitute "rules or a document constituting one or other of those entities or governing its activities (including its memorandum and articles of association if it is a company)".


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42 Subsection 995-1(1)

Insert:

100% Australian subsidiary of a *common Australian corporate tax entity has the meaning given by section 168-85.

43 Subsection 995-1(1)

Insert:

bundle of losses of an entity has the meaning given by section 168-885.

44 Subsection 995-1(1)

Insert:

common Australian corporate tax entity has the meaning given by section 168-78.

45 Subsection 995-1(1)

Insert:

concessional transferred: a loss is a concessional transferred loss in the circumstances described in section 168-885.

46 Subsection 995-1(1)

Insert:

consolidatable group has the meaning given by section 168-65.

47 Subsection 995-1(1)

Insert:

consolidated group has the meaning given by section 168-60.

48 Subsection 995-1(1)

Insert:

COT loss has the meaning given by section 168-580.

49 Subsection 995-1(1)

Insert:

head entity has the meaning given by section 168-75.

50 Subsection 995-1(1) (definition of income year)

After "9-5(2)", insert "and section 168-45".

51 Subsection 995-1(1)

Insert:

loss factor for a *bundle of losses of an entity has the meaning given by section 168-920, 168-935, 168-938 or 168-940.

52 Subsection 995-1(1)

Insert:

modified market value of an entity at a time has the meaning given by section 168-922.

53 Subsection 995-1(1)

Insert:

member of a *consolidated group or *consolidatable group has the meaning given by section 168-70.

54 Subsection 995-1(1) (definition of same business test period)

Omit "and 166-40", substitute ", 166-40, 168-570 and 168-575".

55 Subsection 995-1(1)

Insert:

SBT loss has the meaning given by section 168-570.

56 Subsection 995-1(1)

Insert:

sort of loss has the meaning given by section 168-885.

57 Subsection 995-1(1)

Insert:

standard transferred: a loss is a standard transferred loss in the circumstances described in section 168-885.

58 Subsection 995-1(1)

Insert:

subsidiary member of a *consolidated group or *consolidatable group has the meaning given by section 168-80.

59 Subsection 995-1(1) (definition of test time)

Omit "and 166-86", substitute ", 166-85, 168-570 and 168-575".

60 Subsection 995-1(1)

Insert:

trial year has the meaning given by section 168-570.

61 Subsection 995-1(1)

Insert:

utilise a loss has the meaning given by section 168-560.

62 Application

The amendments made by this Part apply on and after 1 July 2001.