Commonwealth: New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (Cth)

New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 Act No. 117 of 2002 as amended This compilation was prepared on 18 August 2010 taking into account amendments up to Act No. 75 of 2010 The text of any of those amendments not in force on that date is appended in the Notes section The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section Prepared by the Office of Legislative Drafting and Publishing, Attorney‑General's Department, Canberra Contents 1 Short title [see Note 1] 2 Commencement 3 Schedule(s) Schedule 1—Consolidation: assessable income and deductions spread over several membership or non‑membership periods Income Tax Assessment Act 1997 Schedule 2—Consolidation: group continues when shelf company becomes new head company Income Tax Assessment Act 1997 Schedule 3—Consolidation: effect on cost base rules etc. of loss of pre‑CGT status of membership interests Part 1—Basic amendments Income Tax Assessment Act 1997 Part 2—Consequential CGT amendments Income Tax Assessment Act 1997 Part 3—Transitional provisions Income Tax (Transitional Provisions) Act 1997 Schedule 4—Consolidation: new Subdivisions 705‑C (where a consolidated group is acquired by another) and 705‑D (where multiple entities are linked by membership interests) Income Tax Assessment Act 1997 Schedule 5—Consolidation: allocable cost amount for a joining trust Part 1—New provisions inserted in the Income Tax Assessment Act 1997 Part 2—Consequential amendment Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Schedule 6—Consolidation: losses Part 1—Maintaining same ownership to utilise transferred losses Income Tax Assessment Act 1997 Part 2—Utilising losses head company transfers to itself Income Tax Assessment Act 1997 Part 3—Effect of exit history rule Income Tax Assessment Act 1997 Schedule 7—Consolidation: foreign tax credits and exit history rule Income Tax Assessment Act 1997 Schedule 8—Consolidation: MEC groups Income Tax Assessment Act 1997 Schedule 9—Consolidation: application provision and transitional provisions about trading stock and internally‑generated assets Income Tax (Transitional Provisions) Act 1997 Schedule 10—Consolidation: transitional rules for MEC tax cost setting provisions Income Tax (Transitional Provisions) Act 1997 Schedule 11—Consolidation: consequential provisions for research and development Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Schedule 12—Consolidation: amendments relating to Division 170 Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Schedule 13—Consolidation: thin capitalisation Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Schedule 14—Consolidation: consequential provisions for removal of grouping Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Wool Services Privatisation Act 2000 Schedule 15—Consolidation: foreign tax credits Income Tax (Transitional Provisions) Act 1997 New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 Schedule 16—Application of sections 46 and 46A of the Income Tax Assessment Act 1936 after 30 June 2002 Income Tax Assessment Act 1936 Schedule 17—Changes to the imputation system Income Tax Assessment Act 1997 Schedule 18—Imputation system transitionals Income Tax (Transitional Provisions) Act 1997 Notes An Act to implement a New Business Tax System, and for related purposes 1 Short title [see Note 1] This Act may be cited as the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, on the day or at the time specified in column 2 of the table. Commencement information Column 1 Column 2 Column 3 Provision(s) Commencement Date/Details 1. Sections 1 to 4 and anything in this Act not elsewhere covered by this table The day on which this Act receives the Royal Assent 2 December 2002 2. Schedules 1 and 2 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 3. Schedule 3, Parts 1 and 2 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 4. Schedule 3, Part 3 Immediately after the commencement of Schedule 10 to this Act 24 October 2002 5. Schedule 4 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 6. Schedule 5, items 1 to 12 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 7. Schedule 5, item 13 Immediately after the commencement of Schedule 10 to this Act 24 October 2002 8. Schedule 5, item 14 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 9. Schedules 6 to 15 Immediately after the commencement of Schedule 1 to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 24 October 2002 10. Schedule 16 The day on which this Act receives the Royal Assent 2 December 2002 11. Schedules 17 and 18 Immediately after the commencement of the New Business Tax System (Imputation) Act 2002 29 June 2002 Note: This table relates only to the provisions of this Act as originally passed by the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent. (2) Column 3 of the table is for additional information that is not part of this Act. This information may be included in any published version of this Act. 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. Schedule 1—Consolidation: assessable income and deductions spread over several membership or non‑membership periods Income Tax Assessment Act 1997 1 At the end of subsection 701‑30(3) Add: ; and (c) so that each relevant item is either: (i) allocated to only one of the non‑membership periods or to a period that is all or part of the rest of the income year; or (ii) apportioned among such periods (for example, by Subdivision 716‑A (see note to this subsection)). 2 Subsection 701‑30(3) (note) Repeal the note, substitute: Note: Other provisions of this Part are to be applied in working out the taxable income or loss, for example: * section 701‑40 (Exit history rule); and * Subdivision 716‑A (about assessable income and deductions spread over several membership or non‑membership periods); and * section 716‑850 (about grossing up threshold amounts for periods of less than 365 days). Subdivision 716 also affects the tax position of the head company of a group of which the entity has been a subsidiary member for some but not all of the income year. 3 Before Division 717 Insert: Division 716—Miscellaneous special rules Table of Subdivisions 716‑A Assessable income and deductions spread over several membership or non‑membership periods 716‑Z Other Subdivision 716‑A—Assessable income and deductions spread over several membership or non‑membership periods Guide to Subdivision 716‑A 716‑1 What this Division is about Some items of assessable income, and some deductions, are in effect spread over 2 or more income years. This Division apportions the assessable income or deduction for each of those income years among periods within the income year when an entity is, or is not, a subsidiary member of a consolidated group. This Division also apportions in a similar way some items of assessable income, and some deductions, for a single income year. Table of sections Operative provisions 716‑15 Assessable income spread over 2 or more income years 716‑25 Deductions spread over 2 or more income years 716‑70 Capital expenditure that is fully deductible in one income year Assessable income and deductions arising from share of net income of a partnership or trust, or from share of partnership loss 716‑75 Application 716‑80 Head company's assessable income and deductions 716‑85 Entity's assessable income and deductions for a non‑membership period 716‑90 Entity's share of assessable income or deductions of partnership or trust 716‑95 Special rule if not all partnership or trust's assessable income or deductions taken into account in working out amount 716‑100 Spreading period [This is the end of the Guide.] Operative provisions 716‑15 Assessable income spread over 2 or more income years (1) This section applies if, apart from this Part, a provision of this Act would spread an amount (the original amount) over 2 or more income years (whether or not because of a choice) by including part of the original amount in the same entity's assessable income for each of those income years. Head company's assessable income (2) If: (a) for some but not all of an income year, an entity is a *subsidiary member of a *consolidated group; and (b) a part of the original amount: (i) would have been included in the assessable income of the *head company of the group for that income year if the entity had been a subsidiary member of the group throughout that income year; but (ii) would have been included in the entity's assessable income for that income year if throughout that income year the entity had not been a subsidiary member of any *consolidated group; the head company's assessable income for that income year includes a proportion of that part. Note 1: Examples of when paragraph (2)(b) could be satisfied are: * the head company is the entity referred to in subsection (1), but its connection with the original amount passes to the entity when the entity ceases to be a subsidiary member of the group (see section 701‑40 (Exit history rule)); * the entity is the entity referred to in subsection (1) but joins a consolidated group part way through the income year, so that its connection with the original amount passes to the head company of the group (see section 701‑5 (Entry history rule)). Note 2: If the entity is a subsidiary member of the group throughout the income year, the part of the original amount will be included in the head company's assessable income for the income year, either: * because the head company is the entity referred to in subsection (1); or * because of section 701‑1 (Single entity rule); or * because of section 701‑5 (Entry history rule). (3) The proportion is worked out by multiplying that part of the original amount by: • the number of days that are in both the income year and the *spreading period, and on which the entity was a *subsidiary member of the group; divided by: • the number of days that are in both the income year and the spreading period. Entity's assessable income for a non‑membership period (4) If: (a) for some but not all of an income year, an entity is a *subsidiary member of a *consolidated group; and (b) a part of the original amount would have been included in the entity's assessable income for that income year if throughout that income year the entity had not been a subsidiary member of any *consolidated group; the assessable income of the entity for a part of the income year that is a non‑membership period for the purposes of section 701‑30 includes a proportion of that part. Note 1: Section 701‑30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Note 2: If throughout the income year the entity is not a subsidiary member of any consolidated group, this section does not affect the part of the original amount that is assessable income of the entity for the income year either: * because the entity is the entity referred to in subsection (1); or * because of section 701‑40 (Exit history rule). (5) The proportion is worked out by multiplying that part of the original amount by: • the number of days that are in both the non‑membership period and the *spreading period; divided by: • the number of days that are in both the income year and the spreading period. Spreading period (6) The spreading period for the original amount is the period by reference to which the respective parts of the original amount that, apart from this Part, would be included in an entity's assessable income for the 2 or more income years are worked out. 716‑25 Deductions spread over 2 or more income years (1) This section applies if, apart from this Part, a provision of this Act would spread an amount (the original amount) over 2 or more income years (whether or not because of a choice) by entitling the same entity to deduct part of the original amount for each of those income years. (2) However, this section does not apply if the deductions would be for the decline in value of a *depreciating asset. Note: Such deductions arise under Division 40 (Capital allowances) and Division 328 (Simplified tax system). Head company's deduction (3) If for some but not all of an income year an entity is a *subsidiary member of a *consolidated group, and: (a) the *head company of the group could have deducted for that income year a part of the original amount if the entity had been a subsidiary member of the group throughout that income year; but (b) the entity could have deducted that part for that income year if throughout that income year the entity had not been a subsidiary member of any *consolidated group; the head company can deduct for that income year a proportion of that part. Note 1: Examples of when paragraphs (3)(a) and (b) could be satisfied are set out in note 1 to subsection 716‑15(2). Note 2: If the entity is a subsidiary member of the group throughout the income year, the head company can deduct that part for the income year, either: * because the head company is the entity referred to in subsection (1) of this section; or * because of section 701‑1 (Single entity rule); or * because of section 701‑5 (Entry history rule). (4) The proportion is worked out by multiplying that part of the original amount by: • the number of days that are in both the income year and the *spreading period, and on which the entity was a *subsidiary member of the group; divided by: • the number of days that are in both the income year and the spreading period. Entity's deduction for a non‑membership period (5) If: (a) for some but not all of an income year, an entity is a *subsidiary member of a *consolidated group; and (b) the entity could have deducted for that income year a part of the original amount if throughout that income year the entity had not been a subsidiary member of any *consolidated group; the entity can deduct a proportion of that part for a part of the income year that is a non‑membership period for the purposes of section 701‑30. Note 1: Section 701‑30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Note 2: If throughout the income year the entity is not a subsidiary member of any consolidated group or MEC group, this section does not affect the part of the original amount that the entity can deduct for the income year either: * because the entity is the entity referred to in subsection (1); or * because of section 701‑40 (Exit history rule). (6) The proportion is worked out by multiplying that part of the original amount by: • the number of days that are in both the non‑membership period and the *spreading period; divided by: • the number of days that are in both the income year and the spreading period. Spreading period (7) The spreading period for the original amount is the period by reference to which the respective parts of the original amount that, apart from this Part, an entity could deduct for the 2 or more income years are worked out. Note: For example, under section 82KZMD of the Income Tax Assessment Act 1936 an item of expenditure on something is spread over the period over which that thing is to be provided, which is called the eligible service period. Deductions for the item for a sequence of income years are worked out by reference to how much of that period falls within each of those income years. [The next section is section 716‑70] 716‑70 Capital expenditure that is fully deductible in one income year (1) This section applies if, apart from this Part, an entity could deduct for a single income year the whole of an amount (the original amount) of capital expenditure by the entity. (2) If for some but not all of an income year an entity is a *subsidiary member of a *consolidated group or *MEC group, and: (a) the *head company of the group could have deducted the original amount for that income year if the entity had been a subsidiary member of the group throughout that income year; but (b) the entity could have deducted the original amount for that income year if throughout that income year the entity had not been a subsidiary member of any consolidated group or MEC group; the head company can deduct for that income year a proportion of the original amount. Note 1: Examples of when paragraphs (2)(a) and (b) could be satisfied are set out in note 1 to subsection 716‑15(2). Note 2: If the entity is a subsidiary member of the group throughout the income year, the head company can deduct the original amount for the income year, either: * because the head company is the entity referred to in subsection (1) of this section; or * because of section 701‑1 (Single entity rule); or * because of section 701‑5 (Entry history rule). (3) The proportion is worked out by multiplying the original amount by: • the number of days that are in the *spreading period, and on which the entity was a *subsidiary member of the group; divided by: • the number of days that are in the spreading period. Entity's deduction for a non‑membership period (4) If: (a) for some but not all of an income year, an entity is a *subsidiary member of a *consolidated group or *MEC group; and (b) the entity could have deducted the original amount for that income year if throughout that income year the entity had not been a subsidiary member of any consolidated group or MEC group; the entity can deduct a proportion of the original amount for a part of the income year that is a non‑membership period for the purposes of section 701‑30. Note 1: Section 701‑30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Note 2: If throughout the income year the entity is not a subsidiary member of any consolidated group or MEC group, this section does not affect the entity's ability to deduct the original amount for the income year either: * because the entity is the entity referred to in subsection (1); or * because of section 701‑40 (Exit history rule). (5) The proportion is worked out by multiplying the original amount by: • the number of days that are in both the non‑membership period and the *spreading period; divided by: • the number of days that are in the spreading period. Spreading period (6) The spreading period for the original amount: (a) starts when, apart from this Part, an entity would become entitled to deduct the amount for an income year; and (b) ends at the end of the income year. Assessable income and deductions arising from share of net income of a partnership or trust, or from share of partnership loss 716‑75 Application Sections 716‑80 to 716‑100 apply if, apart from this Part: (a) an amount would be included in an entity's assessable income for an income year under section 92 (about income and deductions of partner) of the Income Tax Assessment Act 1936 in respect of a partnership; or (b) an entity could deduct an amount for an income year under section 92 of that Act in respect of a partnership; or (c) an amount would be included in an entity's assessable income for an income year under section 97 (Beneficiary of a trust estate who is not under a legal disability) of that Act in respect of a trust; or (d) an amount would be included in an entity's assessable income for an income year under section 98A (Non‑resident beneficiaries assessable in respect of certain income) of that Act in respect of a trust. 716‑80 Head company's assessable income and deductions (1) If for some but not all of the income year the entity is a *subsidiary member of a *consolidated group or *MEC group: (a) the assessable income for that income year of the head company of the group includes the entity's share (worked out under section 716‑90) of each of these: (i) the total assessable income of the partnership or trust for the income year so far as it is reasonably attributable to a period, during the income year, throughout which the entity was a *subsidiary member of the group but the partnership or trust was not; (ii) a proportion (worked under subsection (2) of this section) of the total assessable income of the partnership or trust for the income year so far as it is not reasonably attributable to a particular period within the income year; and (b) the head company of the group can deduct for that income year the entity's share (worked out under section 716‑90) of each of these: (i) the total deductions of the partnership or trust for the income year so far as they are reasonably attributable to a period covered by subparagraph (a)(i) of this subsection; (ii) a proportion (worked under subsection (2) of this section) of the total deductions of the partnership or trust for the income year so far as they are not reasonably attributable to a particular period within the income year. Note 1: If the entity is a subsidiary member of the group throughout the income year, the amount referred to in section 716‑75 will be included in the head company's assessable income, or the head company can deduct that amount, for the income year because of section 701‑1 (Single entity rule). Note 2: While the entity, and the partnership or trust, are both subsidiary members of the group, section 701‑1 (Single entity rule) attributes to the head company all assessable income and deductions giving rise to the amount referred to in section 716‑75. (2) The proportion is worked out by multiplying the amount concerned by: • the number of days that are in the *spreading period, and on which the entity was a *subsidiary member of the group but the partnership or trust was not; divided by: • the number of days that are in the spreading period. 716‑85 Entity's assessable income and deductions for a non‑membership period (1) The assessable income of the entity for a part of the income year that is a non‑membership period for the purposes of section 701‑30 includes the entity's share (worked out under section 716‑90) of each of these: (a) the total assessable income of the partnership or trust for the income year so far as it is reasonably attributable to the non‑membership period; (b) a proportion (worked under subsection (3) of this section) of the total assessable income of the partnership or trust for the income year so far as it is not reasonably attributable to a particular period within the income year. Note 1: Section 701‑30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Note 2: If throughout the income year the entity is not a subsidiary member of any consolidated group or MEC group, this section does not affect the amount referred to in section 716‑75 being assessable income of the entity for the income year. (2) For a part of the income year that is a non‑membership period for the purposes of section 701‑30, the entity can deduct the entity's share (worked out under section 716‑90) of each of these: (a) the total deductions of the partnership or trust for the income year so far as they are reasonably attributable to the non‑membership period; (b) a proportion (worked under subsection (3) of this section) of the total deductions of the partnership or trust for the income year so far as they are not reasonably attributable to a particular period within the income year. Note: If throughout the income year the entity is not a subsidiary member of any consolidated group or MEC group, this section does not affect the entity's ability to deduct for the income year the amount referred to in section 716‑75. (3) The proportion is worked out by multiplying the amount concerned by: • the number of days that are in both the non‑membership period and the *spreading period; divided by: • the number of days that are in the spreading period. 716‑90 Entity's share of assessable income or deductions of partnership or trust (1) If paragraph 716‑75(a) or (b) applies, the entity's share is worked out by dividing: • the entity's individual interest as a partner in the net income of the partnership or in the partnership loss; by: • the amount of that net income or partnership loss; and expressing the result as a percentage. (2) If paragraph 716‑75(c) or (d) applies, the entity's share is worked out by dividing: • the share of the income of the trust to which the entity is presently entitled; by: • the amount of that income; and expressing the result as a percentage. 716‑95 Special rule if not all partnership or trust's assessable income or deductions taken into account in working out amount (1) To the extent that the assessable income of the partnership or trust for the income year was not taken into account in working out the amount referred to in section 716‑75, it is disregarded in applying paragraph 716‑80(1)(a) or subsection 716‑85(1). Note: For example, if a trust's net income for an income year must be worked out under section 268‑45 in Schedule 2F to the Income Tax Assessment Act 1936, the trust's assessable income attributed to a period (in the income year) for which it has a notional loss under section 268‑30 of that Act is not taken into account. (2) To the extent that the deductions of the partnership or trust for the income year were not taken into account in working out the amount referred to in section 716‑75, they are disregarded in applying paragraph 716‑80(1)(b) or subsection 716‑85(2). Note: For example, in the case described in the note to subsection (1) of this section, the trust's deductions attributed to that period are not taken into account in working out the trust's net income for the income year. 716‑100 Spreading period The spreading period for the amount referred to in section 716‑75 is made up of each period: (a) that is all or part of the income year; and (b) throughout which the entity is a partner in the partnership or a beneficiary of the trust, as appropriate. [The next Subdivision is Subdivision 716‑Z] Subdivision 716‑Z—Other Table of sections 716‑800 Allocating amounts to periods if head company and subsidiary member have different income years 716‑850 Grossing up threshold amounts for periods of less than 365 days 716‑800 Allocating amounts to periods if head company and subsidiary member have different income years (1) The principles in this section apply if: (a) an entity becomes, or stops being, a *subsidiary member of a *consolidated group; and (b) the entity has an income year that starts and ends at a different time from when the income year of the *head company of the group starts and ends. (2) Items are to be allocated to, or apportioned among, periods (whether consisting of all or part of an income year of the entity or *head company): (a) in the most appropriate way having regard to the objects of this Part, and of particular provisions of this Part; and (b) in particular, so as to ensure that what is in substance the same item is recognised only once for what is in substance the same purpose. 716‑850 Grossing up threshold amounts for periods of less than 365 days (1) Under some provisions of this Act, something that is relevant to working out: (a) an entity's taxable income (if any); or (b) the income tax (if any) payable on an entity's taxable income; or (c) an entity's loss (if any) of a particular *sort; is determined on the basis of a comparison between an amount worked out for an income year, or an amount derived from 2 or more such amounts, and another amount. Note: The other amount assumes an income year of 365 days. (2) This section affects how such a provision (the threshold provision) operates for the purposes of subsection 701‑30(3), which requires each thing covered by paragraph (1)(a), (b) or (c) of this section to be worked out for an entity for a non‑membership period (under section 701‑30) during an income year. Note: A non‑membership period is a period (of less than an income year) when the entity is not a subsidiary member of any consolidated group. (3) An amount that would otherwise be worked out for the non‑membership period, for the purposes of the comparison under the threshold provision, is instead: (a) to be worked out by reference to the period (the reference period) starting at the start of the income year and ending at the end of the non‑membership period; and (b) then to be grossed up by multiplying it by this fraction: 4 Subsection 995‑1(1) Insert: spreading period for an amount has the meaning given by sections 716‑15, 716‑25, 716‑70 and 716‑100. Note: Those sections deal with assessable income and deductions spread over several periods of membership or non‑membership of a consolidated group or MEC group. Schedule 2—Consolidation: group continues when shelf company becomes new head company Income Tax Assessment Act 1997 1 Paragraph 103‑25(3)(a) Omit "124‑380(5)", substitute "124‑380(7)". 2 At the end of section 124‑360 Add: (2) You are taken to have chosen to obtain the roll‑over if: (a) immediately before the time referred to in section 124‑365 as the completion time, the original company is the *head company of a *consolidated group; and (b) immediately after the completion time, the interposed company is the head company of the group. Note: The consolidated group continues in existence because of section 703‑70. 3 After subsection 124‑370(1) Insert: (1A) You are taken to have chosen to obtain the roll‑over if: (a) immediately before the time referred to in section 124‑375 as the completion time, the original company is the *head company of a *consolidated group; and (b) immediately after the completion time, the interposed company is the head company of the group. Note: The consolidated group continues in existence because of section 703‑70. 4 Subsection 124‑380(5) Repeal the subsection, substitute: Choice to be made by interposed company (5) If: (a) immediately before the completion time, the original company is the *head company of a *consolidated group; and (b) immediately after the completion time, the interposed company is the head company of a *consolidatable group consisting only of itself and the *members of the group immediately before the completion time; the interposed company must choose that the consolidated group is to continue in existence at and after the completion time. Note: Sections 703‑65 to 703‑80 deal with the effects of the choice for the consolidated group. (6) If subsection (5) of this section does not apply, the interposed company must choose that section 124‑385 apply. (7) In either case, the interposed company must make the choice within 2 months after the completion time, or within such further time as the Commissioner allows. The choice cannot be revoked. Note: This is an exception to the general rule about choices in section 103‑25. 5 Group heading before section 124‑385 Repeal the group heading, substitute: Consequences for the interposed company unless consolidated group continues 6 Before subsection 124‑385(1) Insert: (1A) This section applies if the interposed company so chooses under subsection 124‑380(6). 7 At the end of Subdivision 124‑G Add: Additional consequences for member if shares are trading stock or revenue assets 124‑390 Deferral of profit or loss on shares (1) There are additional consequences if: (a) under subsection 124‑360(2), you are taken to obtain the roll‑over and, at the time immediately before you *dispose of your *shares in the original company, some or all of them are your *trading stock or *revenue assets; or (b) under subsection 124‑370(1A), you are taken to obtain the roll‑over and, at the time immediately before the original company redeems or cancels your shares in it, some or all of them are your trading stock or revenue assets. Trading stock (2) The amount included in your assessable income because of the *disposal, redemption or cancellation of each of your *shares in the original company that is your *trading stock at that time is equal to: (a) if the share has been your trading stock ever since the start of the income year in which that time occurs—the total of: (i) its *value as trading stock at the start of the income year; and (ii) the amount (if any) by which its cost has increased since the start of the income year; or (b) otherwise—its cost at that time. (3) For each of the *shares in the interposed company that you acquired in return for those of your shares in the original company that were your *trading stock at that time, you are taken to have paid: Note: The amount worked out under the formula becomes the cost of each of those shares in the interposed company. Revenue assets (4) For each of your *shares in the original company that is a *revenue asset at that time, your assessable income includes the total of the amounts that (apart from this subsection) would be subtracted from the gross disposal proceeds in calculating any profit or loss on your disposing of, or ceasing to own, that share at that time. (5) For each of the *shares in the interposed company that you acquired in return for those of your shares in the original company that were *revenue assets at that time, you are taken to have paid: 8 At the end of subsection 703‑5(2) Add: Note: The group does not cease to exist in some cases where a shelf company is interposed between the head company and its former members: see subsection 124‑380(5) and section 703‑70. 9 Subsection 703‑60(3) (link note) Repeal the link note. 10 After section 703‑60 Insert: Effects of choice to continue group after shelf company becomes new head company 703‑65 Application Sections 703‑70 to 703‑80 set out the effects if a company (the interposed company) chooses under subsection 124‑380(5) that a *consolidated group is to continue in existence at and after the time referred to in that subsection as the completion time. Note: The choice is one of the conditions for a compulsory roll‑over under Subdivision 124‑G on an exchange of shares in the head company of a consolidated group for shares in the interposed company. 703‑70 Consolidated group continues in existence with interposed company as head company and original company as a subsidiary member (1) The *consolidated group is taken not to have ceased to exist under subsection 703‑5(2) because the company referred to in subsection 124‑380(5) as the original company ceases to be the *head company of the group. (2) To avoid doubt, the interposed company is taken to have become the *head company of the *consolidated group at the completion time, and the original company is taken to have ceased to be the head company at that time. Note: A further result is that the original company is taken to have become a subsidiary member of the group at that time. Section 703‑80 deals with the original company's tax position for the income year that includes the completion time. (3) A provision of this Part that applies on an entity becoming a *subsidiary member of a *consolidated group does not apply to an entity being taken to have become such a member as a result of this section, unless the provision is expressed to apply despite this subsection. Note: An example of the effect of this subsection is that there is no resetting under section 701‑10 of the tax cost of assets of the original company that become assets of the interposed company because of subsection 701‑1(1) (the single entity rule). (4) To avoid doubt, subsection (3) does not affect the application of subsection 701‑1(1) (the single entity rule). 703‑75 Interposed company treated as substituted for original company at all times before the completion time (1) Everything that happened in relation to the original company before the completion time: (a) is taken to have happened in relation to the interposed company instead of in relation to the original company; and (b) is taken to have happened in relation to the interposed company instead of what would (apart from this section) be taken to have happened in relation to the interposed company before that time; just as if, at all times before the completion time: (c) the interposed company had been the original company; and (d) the original company had been the interposed company. Note: This section treats the original company and the interposed company as having in effect exchanged identities throughout the period before the completion time, but without affecting any of the original company's other attributes. (2) To avoid doubt, subsection (1) also covers everything that, immediately before the completion time, was taken, because of: (a) section 701‑1 (Single entity rule); or (b) section 701‑5 (Entry history rule); or (c) one or more previous applications of this section; or (d) section 719‑90 (about the effects of a change of head company of a MEC group); to have happened in relation to the original company. (3) Subsections (1) and (2) have effect: (a) for the head company core purposes in relation to an income year ending after the completion time; and (b) for the entity core purposes in relation to an income year ending after the completion time; and (c) for the purposes of determining the respective balances of the *franking accounts of the original company and the interposed company at and after the completion time. (4) Subsections (1) and (2) have effect subject to: (a) section 701‑40 (Exit history rule); and (b) a provision of this Act to which section 701‑40 is subject because of section 701‑85 (about exceptions to the core rules in Division 701). Note: An example of provisions covered by paragraph (b) of this subsection is Subdivision 717‑E (about transferring to a company leaving a consolidated group various surpluses under the CFC and FIF rules in Parts X and XI of the Income Tax Assessment Act 1936). 703‑80 Effects on the original company's tax position In applying section 701‑30 to the original company for the income year that includes the completion time, disregard a non‑membership period that starts before the completion time. Note 1: Section 701‑30 is about working out an entity's tax position for a period when it is not a subsidiary member of any consolidated group. Its application can also affect the entity's tax position in later income years. Note 2: Under section 703‑75 the interposed company inherits the original company's tax position for the part of the income year that ends before the completion time, with the consequence that the original company's taxable income, income tax payable, and losses of any sort, for that part are each nil. Because of section 703‑75 and this section, the only tax payable by the original company for the income year arises because of the application of section 701‑30 to non‑membership periods in the income year after the completion time. [The next Division is Division 705.] 11 Application of certain amendments The amendments made by items 1 to 7 apply on and after 1 July 2002. Schedule 3—Consolidation: effect on cost base rules etc. of loss of pre‑CGT status of membership interests Part 1—Basic amendments Income Tax Assessment Act 1997 1 After section 705‑55 Insert: 705‑57 Adjustment to tax cost setting amount where loss of pre‑CGT status of membership interests in joining entity Object (1) The object of this section is to ensure that provisions that cause *membership interests in the joining entity to stop being *pre‑CGT assets, with a resultant increase in their *cost base and *reduced cost base, do not increase *tax cost setting amounts for *trading stock, *depreciating assets or *revenue assets of the joining entity, where those amounts are above the joining entity's *terminating values for the assets. When section applies (2) This section applies if: (a) a *membership interest that a *member of the joined group holds in the joining entity at the joining time had previously stopped being a *pre‑CGT asset in the circumstances covered by any of subsections (3) to (5); and (b) the *cost base or *reduced cost base of the membership interest just after it stopped being a pre‑CGT asset exceeded (the excess being the loss of pre‑CGT status adjustment amount) its cost base or reduced cost base just before it stopped being a pre‑CGT asset; and (c) an asset (a revenue etc. asset) that is *trading stock, a *depreciating asset or a *revenue asset becomes that of the *head company of the joined group because subsection 701‑1(1) (the single entity rule) applies when the joining entity becomes a *subsidiary member of the group; and (d) the revenue etc. asset's *tax cost setting amount (after any application of section 705‑40, 705‑45 or 705‑50) exceeds the joining entity's *terminating value for the asset. Loss of pre‑CGT status because Division 149 etc. applied while interest held by member (3) The first circumstance for the purpose of paragraph (2)(a) is where Division 149 of this Act, subsection 160ZZS(1) of the Income Tax Assessment Act 1936 or Subdivision C of Division 20 of Part IIIA of that Act applied to cause the *membership interest to stop being a *pre‑CGT asset while the *member held the membership interest. Loss of pre‑CGT status because Division 149 etc. applied before current holding by member (4) The second circumstance for the purpose of paragraph (2)(a) is where: (a) either: (i) the *member *acquired the *membership interest directly from another entity; or (ii) the member acquired the membership interest indirectly from another entity or from itself as a result of 2 or more acquisitions; and (b) Division 149 of this Act, subsection 160ZZS(1) of the Income Tax Assessment Act 1936 or Subdivision C of Division 20 of Part IIIA of that Act applied to cause the membership interest to stop being a *pre‑CGT asset while the other entity held the membership interest or while the member held the membership interest on the previous occasion; and (c) if subparagraph (a)(i) applies—at the time of the acquisition, the member *controlled (for value shifting purposes) the other entity, or vice versa, or a third entity controlled (for value shifting purposes) the member and the other entity; and (d) if subparagraph (a)(ii) applies—the same entity: (i) was a party to each acquisition and at the time of the acquisition controlled (for value shifting purposes) the other party; or (ii) was a party to each acquisition and at the time of the acquisition was controlled (for value shifting purposes) by the other party; or (iii) was not a party to each acquisition but, at the time of the acquisition, controlled (for value shifting purposes) the parties to the acquisition; or any combination of subparagraphs (i) to (iii) occurred in relation to different acquisitions. Loss of pre‑CGT status because of acquisition from another entity (5) The third circumstance for the purpose of paragraph (2)(a) is where: (a) either: (i) the *member acquired the *membership interest after 16 May 2002 directly from another entity; or (ii) the member acquired the membership interest indirectly from another entity or from itself as a result of 2 or more acquisitions, all of which took place after 16 May 2002; and (b) the membership interest stopped being a *pre‑CGT asset because of the acquisition from the other entity or from the member while the member held the membership interest on a previous occasion; and (c) if subparagraph (a)(i) applies—at the time of the acquisition, the member *controlled (for value shifting purposes) the other entity, or vice versa, or a third entity controlled (for value shifting purposes) the member and the other entity; and (d) if subparagraph (a)(ii) applies—the same entity: (i) was a party to each acquisition and at the time of the acquisition controlled (for value shifting purposes) the other parties; or (ii) was a party to each acquisition and at the time of the acquisition was controlled (for value shifting purposes) by the other party; or (iii) was not a party to each acquisition but, at the time of the acquisition, controlled (for value shifting purposes) the parties to the acquisition; or any combination of subparagraphs (i) to (iii) occurred in relation to different acquisitions. Reduction in revenue etc. asset's tax cost setting amount (6) The revenue etc. asset's *tax cost setting amount (after any application of section 705‑40, 705‑45 or 705‑50) is instead the amount that would apply if, in working out the step 1 amount in the table in section 705‑60, the *cost base and *reduced cost base of the *membership interest were reduced by the sum of the loss of pre‑CGT status adjustment amounts for the membership interest and all other membership interests that have loss of pre‑CGT status adjustment amounts. Limit on reduction (7) However, the reduction only takes place to the extent that it does not result in the asset's *tax cost setting amount being less than the joining entity's *terminating value for the asset. Note: The reduction under this section is converted into a capital loss available over a period of 5 income years starting with the income year in which the joining time occurs: see CGT event L1. 2 After section 705‑160 Insert: 705‑163 Modified application of section 705‑57 Object (1) The object of this section is to ensure that, in working out *tax cost setting amounts for *trading stock, *depreciating assets or *revenue assets of entities that become *subsidiary members of the group at the formation time, section 705‑57 (about loss of pre‑CGT status of certain *membership interests) only applies if the *membership interests held directly by the *head company of the group are affected. Modified application of section 705‑57—basic modification (2) For the purposes of applying section 705‑57 in accordance with this Subdivision, a reference in that section to a *membership interest that a *member of the joined group holds in the joining entity at the joining time is taken to be a reference to a *membership interest that the *head company of the *consolidated group holds directly in an entity becoming a *subsidiary member at the formation time. Modified application of section 705‑57—additional modifications where section 705‑145 applies (3) Also, if an entity (the first entity) that becomes a *subsidiary member holds a *membership interest (the subject membership interest) in another entity (the second entity) that becomes a subsidiary member, section 705‑57 (as modified in accordance with subsection (2)) is to be applied in relation to the subject membership interest as follows. (4) First work out whether there would be a reduction under that section in the *tax cost setting amount for the subject membership interest that is used as mentioned in subsection 705‑145(3) (the subsection 705‑145(3) tax cost setting amount) if: (a) the subject membership interest, if it is not a revenue etc. asset of the first entity, were taken to be such an asset; and (b) paragraphs 705‑57(2)(c) and (d) and subsection 705‑57(7) did not apply to the subject membership interest. (5) Next, if there would be such a reduction (whose amount is the notional section 705‑57 reduction amount): (a) apply section 705‑57 to reduce the *tax cost setting amount for any revenue etc. asset of the second entity; and (b) if the second entity holds a *membership interest in another entity that becomes a *subsidiary member—apply section 705‑57 in relation to that interest in accordance with subsection (3) of this section; and for those purposes: (c) the subject membership interest is taken to be a membership interest that the *head company of the group holds directly in the second entity at the formation time; and (d) the requirements of paragraphs 705‑57(2)(a) and (b) are taken to be satisfied in relation to the subject membership interest; and (e) the subject membership interest is taken to have a *cost base and *reduced cost base equal to the subsection 705‑145(3) tax cost setting amount; and (f) the subject membership interest is taken to have a loss of pre‑CGT status adjustment amount equal to the notional section 705‑57 reduction amount. Note: If the head company actually held any membership interests in the second entity, or if other entities becoming subsidiary members held membership interests in the second entity to which this subsection also applied, those membership interests would also be taken into account in working out the reduction under paragraph (a) and in applying paragraph (b). Section 705‑57 not to apply where membership interests effectively acquired on normal market basis (6) If: (a) apart from this subsection, subsection 705‑57(6) would apply in accordance with this Subdivision to the revenue etc. assets of an entity (the subject entity) that becomes a *subsidiary member of the group at the formation time; and (b) at the formation time, the *head company of the group holds all of the *membership interests in the subject entity; and (c) subsection 705‑57(6) would apply because a circumstance covered by subsection 705‑57(4) (about loss of pre‑CGT status because Division 149 etc. applied) existed; and (d) the application of Division 149 of this Act, or the provision of the Income Tax Assessment Act 1936, as mentioned in paragraph 705‑57(4)(b) of this Act happened because the entity that became the *head company of the group (the potential head entity) *acquired all of the *membership interests in the other entity mentioned in that paragraph directly or indirectly from another entity (the vendor); and (e) at the time of the acquisition, the potential head entity did not control (for value shifting purposes) the vendor, and vice‑versa, and another entity did not control (for value shifting purposes) the potential head entity and the vendor; and (f) the acquisition, or each of the acquisitions, mentioned in subsection 705‑57(4) was a *same asset roll‑over or was one to which any of sections 160ZZN to 160ZZOC, 160ZZPA and 160ZZPJ of the Income Tax Assessment Act 1936 applied; then subsection 705‑57(6) does not apply as mentioned in paragraph (a) of this subsection. Part 2—Consequential CGT amendments Income Tax Assessment Act 1997 3 Section 100‑15 (at the end of the note) Add "or CGT event L1". 4 Section 102‑30 (after table item 7) Insert: 7A The head company of a consolidated group The head company of a consolidated group must apply the capital loss from CGT event L1 over at least 5 income years section 104‑500 5 Section 104‑5 (after table row relating to event number K8) Insert: L1 Reduction under section 705‑57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group Just after entity becomes subsidiary member no capital gain amount of reduction [See section 104‑500] 6 At the end of Division 104 Add: Subdivision 104‑L—Consolidated groups Table of sections 104‑500 Loss of pre‑CGT status of membership interests in entity becoming subsidiary member: CGT event L1 104‑500 Loss of pre‑CGT status of membership interests in entity becoming subsidiary member: CGT event L1 (1) CGT event L1 happens if, under section 705‑57 (including in its application in accordance with Subdivisions 705‑B to 705‑E), there is a reduction in the *tax cost setting amount of assets of an entity that becomes a *subsidiary member of a *consolidated group. (2) The time of the event is just after the entity becomes a *subsidiary member of the group. (3) For the head company core purposes mentioned in subsection 701‑1(2), the *head company makes a capital loss equal to the reduction. (4) The amount of the capital loss that can be applied to reduce the head company's *capital gains for the first income year ending after the entity becomes a *subsidiary member of the group (the first income year) cannot exceed 1/5 of the *capital loss. (5) The amount of the *net capital loss from the first income year, to the extent the amount is attributable to the *capital loss (the extent being the event L1 attributable loss), that can be applied to reduce the head company's *capital gains for a later income year cannot exceed the amount worked out for the year using the following table: Limit on applying event L1 attributable loss Item For this income year: The amount of the event L1 attributable loss that can be applied cannot exceed: 1 For the second income year ending after the entity became a *subsidiary member The difference between: (a) 2/5 of the *capital loss; and (b) the amount of the capital loss that was applied in accordance with subsection (4) for the first income year. 2 For the third income year ending after the entity became a *subsidiary member The difference between: (a) 3/5 of the *capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amount of the event L1 attributable loss that was applied to reduce the entity's *capital gains for the next income year after the first income year. 3 For the fourth income year ending after the entity became a *subsidiary member The difference between: (a) 4/5 of the *capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amounts of the event L1 attributable loss that were applied to reduce the entity's *capital gains for earlier income years ending after the first income year. 4 For the fifth income year ending after the entity became a *subsidiary member, or for any later income year The difference between: (a) the *capital loss; and (b) the sum of the amount mentioned in paragraph (b) of item 1 and the amounts of the event L1 attributable loss that were applied to reduce the entity's *capital gains for earlier income years ending after the first income year. 7 Section 110‑10 (after table row relating to event number K7) Insert: L1 Reduction under section 705‑57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group 104‑500 Part 3—Transitional provisions Income Tax (Transitional Provisions) Act 1997 8 After Division 701A Insert: Division 701B—Other modifications of provisions of Income Tax Assessment Act 1997 Table of sections 701B‑1 Modified application of CGT Consolidation provisions to allow immediate availability of capital loss for CGT event L1 701B‑1 Modified application of CGT Consolidation provisions to allow immediate availability of capital loss for CGT event L1 (1) This section applies if: (a) CGT event L1 happens; and (b) members of the consolidated group mentioned in subsection 104‑500(1) of the Income Tax Assessment Act 1997 held all of the membership interests in the entity mentioned in that subsection from the end of 30 June 2002 until the entity became a subsidiary member of the group; and (c) before the end of the fourth income year of the head company of the group ending after the entity became a subsidiary member of the group, the entity ceases to be a subsidiary member; and (d) all of the assets, other than those excepted under subsection (2), that the head company held when the entity became a subsidiary member, because the entity was taken by subsection 701‑1(1) (the single entity principle) of the Income Tax Assessment Act 1997 to be a part of the head company, continued to be held by the head company until the entity ceased to be a subsidiary member. Excepted assets (2) For the purposes of paragraph (1)(d), excepted assets are assets that: (a) the head company disposed of in the ordinary course of a business that the head company carried on by virtue of the entity being taken by subsection 701‑1(1) of the Income Tax Assessment Act 1997 to be a part of the head company; and (b) were minor assets, having regard to the nature and size of that business. Immediate availability of capital loss or net capital loss (3) If this section applies, neither subsection 104‑500(4) nor subsection 104‑500(5) of the Income Tax Assessment Act 1997 applies in relation to the head company for the income year in which the entity ceases to be a subsidiary member of any later income year. Schedule 4—Consolidation: new Subdivisions 705‑C (where a consolidated group is acquired by another) and 705‑D (where multiple entities are linked by membership interests) Income Tax Assessment Act 1997 1 Subsection 701‑15(1) Repeal the second sentence. 2 Subparagraph 705‑15(c)(i) After "joined group", insert "at the same time". 3 Section 705‑165 Repeal the link note. 4 At the end of Division 705 Add: Subdivision 705‑C—Case where a consolidated group is acquired by another Guide to Subdivision 705‑C 705‑170 What this Subdivision is about When a consolidated group is acquired by another consolidated group, modifications are made to the operation of Division 701 (the core rules) and Subdivision 705‑A (tax cost setting amount where a single entity joins a consolidated group) basically to ensure that the tax cost setting amount for assets of the acquired group that become those of the acquiring group reflects the cost to the latter group of acquiring the former. Table of sections Application and object 705‑175 Application and object of this Subdivision Modified application of Division 701 in relation to acquired group etc. 705‑180 Modifications of Division 701 Modified application of Subdivision 705‑A in relation to acquiring group 705‑185 Subdivision 705‑A has effect with modifications Modifications of Subdivision 705‑A for the purposes of this Subdivision 705‑190 Modified application of section 705‑50 705‑195 Modified application of subsection 705‑65(6) 705‑200 Modified application of section 705‑85 705‑205 Modified application of section 705‑125 [This is the end of the Guide.] Application and object 705‑175 Application and object of this Subdivision Application (1) This Subdivision applies if all of the *members of a *consolidated group (the acquired group) become members of another consolidated group (the acquiring group) at a particular time (the acquisition time) as a result of the *acquisition of *membership interests in the *head company of the acquired group. Object (2) The object of this Subdivision is: (a) to modify the rules in Division 701 (the core rules) to complement the treatment of the acquired group as a single entity that applied before the acquisition time; and (b) to modify Subdivision 705‑A (which basically determines the tax cost setting amount for assets of an entity joining a consolidated group) to ensure that the *tax cost setting amount for assets of the acquired group that become those of the acquiring group reflects the cost to the latter group of acquiring the former. Modified application of Division 701 in relation to acquired group etc. 705‑180 Modifications of Division 701 Certain provisions of Division 701 not to apply (1) If, because an entity ceases to be a *subsidiary member of the acquired group when this Subdivision applies, a provision of Division 701 (other than section 701‑25) would otherwise apply, in relation to the acquired group for the head company core purposes set out in subsection 701‑1(2) or for the entity core purposes set out in subsection 701‑1(3), the provision does not so apply. Modified application of section 701‑5 (2) Section 701‑5 (the entry history rule) applies in relation to the acquiring group for the head company core purposes set out in subsection 701‑1(2) as if entities that are or have been the *subsidiary members of the acquired group were or had been parts of the *head company of the acquired group. Modified application of section 701‑25 (3) The application of section 701‑25 (which ensures tax‑neutral consequences for a head company ceasing to hold assets when an entity leaves a group), in relation to the acquired group for the head company core purposes set out in subsection 701‑1(2) and for the entity core purposes set out in subsection 701‑1(3), is modified as follows: (a) the reference in subsection (4) of that section to the end of the income year is taken to be a reference to the end of the income year that ends or, if subsection 701‑30(3) as modified by subsection (4) of this section applies, of the