Commonwealth: Tax Laws Amendment (2004 Measures No. 6) Act 2005 (Cth)

Tax Laws Amendment (2004 Measures No. 6) Act 2005 Act No. 23 of 2005 as amended This compilation was prepared on 17 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 Part 1—Application Part 2—Membership rules and insolvency etc. Income Tax Assessment Act 1997 Part 3—Finance leases Income Tax Assessment Act 1997 Part 4—Expenditure relating to mining or quarrying Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 5—Low‑value and software development pools Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 6—Notice requirements for inter‑entity loss multiplication rules Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 7—Source of certain distributions for allocable cost amount purposes Income Tax Assessment Act 1997 Part 8—Certain losses not taken into account under step 3 of allocable cost amount Income Tax Assessment Act 1997 Part 9—Transitional treatment of tax liabilities for allocable cost amount and CGT purposes Income Tax (Transitional Provisions) Act 1997 Part 10—Entry and exit history rules and choices Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 11—Trusts Income Tax Assessment Act 1997 Schedule 2—Copyright collecting societies Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Taxation Administration Act 1953 Schedule 3—Simplified Imputation System Part 1—Anti‑avoidance rules in relation to exempt institutions Income Tax Assessment Act 1997 Part 2—Miscellaneous consequential and technical amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Taxation Laws Amendment Act (No. 8) 2003 Part 3—Application provisions Schedule 4—Deductible gift recipients Income Tax Assessment Act 1997 Schedule 5—Debt and equity interests Income Tax Assessment Act 1997 Schedule 6—Irrigation water providers Income Tax Assessment Act 1997 Schedule 7—FBT housing benefits Fringe Benefits Tax Assessment Act 1986 Schedule 8—CGT event G3 Income Tax Assessment Act 1997 Schedule 9—GST: Supplies to offshore owners of Australian real property A New Tax System (Goods and Services Tax) Act 1999 Schedule 10—Baby bonus adoption amendments Income Tax Assessment Act 1997 Schedule 11—Technical correction Taxation Laws Amendment Act (No. 8) 2003 Schedule 12—Transfer of life insurance business Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Notes An Act to amend the law relating to taxation, and for related purposes 1 Short title [see Note 1] This Act may be cited as the Tax Laws Amendment (2004 Measures No. 6) Act 2005. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms. 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. 21 March 2005 2. Schedules 1 and 2 The day on which this Act receives the Royal Assent. 21 March 2005 3. Schedule 3, item 1 The day on which this Act receives the Royal Assent. 21 March 2005 4. Schedule 3, items 2 and 3 Immediately after the commencement of the provisions covered by table item 3. 21 March 2005 5. Schedule 3, item 4 Immediately after the commencement of the provisions covered by table item 4. 21 March 2005 6. Schedule 3, items 5 to 114 The day on which this Act receives the Royal Assent. 21 March 2005 7. Schedules 4 to 10 The day on which this Act receives the Royal Assent. 21 March 2005 8. Schedule 11 Immediately after the Taxation Laws Amendment Act (No. 8) 2003 received the Royal Assent. 21 October 2003 9. Schedule 12, item 1 1 July 2000. 1 July 2000 10. Schedule 12, items 2 to 6 The day on which this Act receives the Royal Assent. 21 March 2005 11. Schedule 12, items 7 and 8 1 July 2000. 1 July 2000 12. Schedule 12, item 9 1 July 2001. 1 July 2001 13. Schedule 12, item 10 1 July 2000. 1 July 2000 14. Schedule 12, item 11 The day on which this Act receives the Royal Assent. 21 March 2005 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 contains additional information that is not part of this Act. Information in this column may be added to or edited 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 Part 1—Application 1 Application Except as provided otherwise, the amendments made by this Schedule apply on and after 1 July 2002. Part 2—Membership rules and insolvency etc. Income Tax Assessment Act 1997 2 At the end of section 703‑30 (after the note) Add: (3) For the purposes of this section, one entity is not prevented from being the beneficial owner of a *membership interest in another entity merely because the first entity is or becomes: (a) an externally‑administered body corporate within the meaning of the Corporations Act 2001; or (b) an entity with a status under a *foreign law similar to the status of an externally‑administered body corporate under the Corporations Act 2001. Part 3—Finance leases Income Tax Assessment Act 1997 3 Subsection 705‑25(5) (note) Omit "Note", substitute "Note 1". 4 At the end of subsection 705‑25(5) (after the note) Add: Note 2: The joining entity's right to receive lease payments under a finance lease is treated as a retained cost base asset in some circumstances (see paragraph 705‑56(3)(b)). 5 After section 705‑55 Insert: 705‑56 Modification for tax cost setting in relation to finance leases (1) This section applies if, just before the joining time: (a) the joining entity is the lessor or lessee under a lease of a *depreciating asset (the underlying asset) to which Division 40 applies; and (b) the joining entity classifies the lease, in accordance with *accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, as a finance lease. Joining entity is lessor (2) If the joining entity is the lessor under the lease and *holds the underlying asset just before the joining time, subsection (5) applies, in relation to the joining entity, to the asset that is the joining entity's right to receive lease payments. Note: In this situation, the underlying asset will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10). (3) If the joining entity is the lessor under the lease and does not *hold the underlying asset just before the joining time: (a) subsection (5) applies to the underlying asset in relation to the joining entity; and (b) for the purposes of this Division: (i) the joining entity's right to receive lease payments is taken to be a *retained cost base asset; and (ii) the *tax cost setting amount of that retained cost base asset is taken to be equal to its *market value just before the joining time. Note: In this situation, the asset that is the joining entity's right to receive lease payments will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10). Joining entity is lessee (4) If the joining entity is the lessee under the lease and does not *hold the underlying asset just before the joining time: (a) subsection (5) applies to the underlying asset in relation to the joining entity; and (b) the liability that is the lessee's obligation to make lease payments is not taken into account under subsection 705‑70(1). Note: If the joining entity is the lessee under the lease and holds the underlying asset just before the joining time: (a) the underlying asset will have its tax cost set at the joining time because it would be an asset of the joining entity at that time if the single entity rule did not apply (see section 701‑10); and (b) the liability that is the lessee's obligation to make lease payments is taken into account under subsection 705‑70(1). Tax cost of certain assets set at nil (5) If this subsection applies to an asset, in relation to the joining entity: (a) the asset is not taken into account under paragraph 705‑35(1)(b) or (c); and (b) the asset's *tax cost setting amount is taken to be nil. 6 At the end of section 711‑30 Add: (3) However, that amount is the asset's *market value at the leaving time if: (a) the asset (the receivable) is a right to receive lease payments under a lease; and (b) the receivables *tax cost was set when an entity (whether the leaving entity or another entity) became a *subsidiary member of the old group; and (c) the receivable was taken to be a *retained cost base asset for the purposes of Division 705 when its tax cost was set, because of paragraph 705‑56(3)(b). 7 After subsection 711‑45(2) Insert: Exclusion where liability is obligation to make finance lease payments (2A) An amount is not to be added for an accounting liability that is the leaving entity's obligation as lessee to make lease payments under a lease, if: (a) subsection 705‑56(4) applied in relation to the liability, at a time when an entity (whether the leaving entity or another entity) became a *subsidiary member of the old group; and (b) the liability was not taken into account under subsection 705‑70(1) at that time, because of paragraph 705‑56(4)(b). Part 4—Expenditure relating to mining or quarrying Income Tax Assessment Act 1997 8 Section 716‑100 (link note) Repeal the link note, substitute: Subdivision 716‑E—Tax cost setting for exploration and prospecting assets Table of sections 716‑300 Prime cost method of working out decline in value 716‑300 Prime cost method of working out decline in value (1) This section has effect if: (a) an entity (the joining entity) becomes a *subsidiary member of a *consolidated group at a time (the joining time); and (b) because of subsection 40‑80(1), the joining entity could (or did) deduct for a period before the joining time the *cost of a *depreciating asset that became an asset of the *head company of the group at the joining time because section 701‑1 (Single entity rule) applied to the joining entity; and (c) the joining entity could not deduct an amount under Subdivision 40‑B (except because of subsection 40‑80(1)) for the income year that includes the joining time for that cost. Note: Subdivision 40‑B allows deductions for the decline in value of depreciating assets. Subsection 40‑80(1), which is in that Subdivision, provides that the decline in value of certain assets used for exploration and prospecting equals their cost. (2) Subsection 701‑55(2) has effect as if the *prime cost method for working out the decline in value of the *depreciating asset applied just before the joining time. Note: This may affect both the method of working out the decline in value of the asset and the asset's effective life. Income Tax (Transitional Provisions) Act 1997 9 Section 703‑30 (link note) Repeal the link note, substitute: Division 705—Tax cost setting amount for assets where entities become members of consolidated groups Table of Subdivisions 705‑E Expenditure relating to exploration, mining or quarrying Subdivision 705‑E—Expenditure relating to exploration, mining or quarrying Table of sections 705‑300 Application and object of this Subdivision 705‑305 Rules affecting depreciating assets 705‑310 Adjustable value of head company's notional assets 705‑300 Application and object of this Subdivision (1) If an entity (the joining entity) to which section 40‑75 of this Act applied becomes a subsidiary member of a consolidated group at a time (the joining time), this Subdivision applies in relation to: (a) depreciating assets that: (i) caused section 40‑75 of this Act to apply to the joining entity; and (ii) became assets of the head company of the group at the joining time because of section 701‑1 (Single entity rule) of the Income Tax Assessment Act 1997 operating in relation to the joining entity; and (b) notional assets that sections 40‑35, 40‑37, 40‑40 and 40‑43 of this Act treat an entity as holding because of expenditure relating to such depreciating assets; to affect the operation of Division 40, section 701‑55 and Division 705 of that Act. (2) The main object of this Subdivision is to ensure that entities are allowed only an appropriate amount of deductions in connection with such depreciating assets and such expenditure. 705‑305 Rules affecting depreciating assets (1) The main object of this section is to ensure that a depreciating asset's tax cost is set, and other matters relevant to working out the deductions of the head company of the consolidated group for the decline in value of the asset are dealt with, so as to: (a) ensure that the head company does not get excessive deductions on account of expenditure (by any entity) relating to the asset; and (b) reflect the deductions of an entity for a period ending before the joining time for expenditure relating to the asset; and (c) ensure that the effective life of the asset for the head company reflects the rate or rates at which the joining entity was able to deduct expenditure relating to the asset (whether or not the expenditure formed part of the cost of the asset). Prime cost method of working out decline in value of asset (2) If the joining entity could not deduct an amount under Subdivision 40‑B of the Income Tax Assessment Act 1997 for the income year that includes the joining time for the decline in value of a depreciating asset, subsection 701‑55(2) of that Act has effect as if the prime cost method for working out the decline in value of the asset applied just before the joining time. Note: This may affect both the method of working out the decline in value of the asset and the asset's effective life. Adjustable value of asset (3) Division 705 of the Income Tax Assessment Act 1997 has effect as if the adjustable value of a depreciating asset just before and at the joining time were increased by the amount described in subsection (4), if section 40‑35, 40‑37, 40‑40 or 40‑43 treated the joining entity as holding a notional asset. Note: This affects not only the adjustable value of the depreciating asset but also the joining entity's terminating value for the asset (which section 705‑30 of that Act defines as being equal to the asset's adjustable value just before the joining time). (4) The amount of the increase is so much of the adjustable value of the notional asset just before the joining time as reasonably relates to the depreciating asset. Cost of asset (5) Division 705 of the Income Tax Assessment Act 1997 has effect as if the cost of a depreciating asset were increased by expenditure incurred that did not form part of the asset's cost worked out under Division 40 of that Act but would have if it had been incurred just before the joining time under a contract entered into after 30 June 2001. Earlier deductions for decline in value of asset (6) Division 705 of the Income Tax Assessment Act 1997 has effect as if deductions relating to expenditure described in subsection (5) were deductions for the decline in value of the depreciating asset. Example: Such deductions include: (a) deductions under former Subdivision 330‑A, 330‑C or 330‑H of the Income Tax Assessment Act 1997, or a corresponding previous law, for the expenditure; and (b) deductions under Division 40 of that Act for the decline in value of a notional asset that section 40‑35, 40‑37, 40‑40 or 40‑43 of this Act treated an entity as holding because of the expenditure. Effective life of asset (7) If a depreciating asset's tax cost setting amount does not exceed the joining entity's terminating value for the asset, Division 40 of the Income Tax Assessment Act 1997 has effect as if the effective life of the asset were such period as is reasonable, having regard to the following: (a) the remainder of the effective life of the asset, worked out just before the joining time; (b) the remainder of the effective life, worked out just before the joining time, of each notional asset (which section 40‑35, 40‑37, 40‑40 or 40‑43 of this Act treats an entity as holding wholly or partly because of expenditure relating to the depreciating asset); (c) any other relevant matters. Subsection 701‑55(2) of that Act has effect subject to this subsection. Note 1: The effective life of the depreciating asset was set on 1 July 2001 by subsection 40‑75(4) of this Act, but may have been reset since under Subdivision 40‑B of the Income Tax Assessment Act 1997. Note 2: The effective life of a notional asset is specified by whichever one of sections 40‑35, 40‑37, 40‑40 and 40‑43 of this Act is relevant to the notional asset. Choosing to reduce tax cost setting amount of asset (8) If: (a) a depreciating asset's tax cost setting amount would be greater than the joining entity's terminating value for the asset; and (b) the head company of the consolidated group chooses to apply this subsection to the asset; the asset's tax cost setting amount is reduced so that it equals the terminating value. Note 1: A consequence of the choice is that subsection (7) applies to the asset. Note 2: The amount of the reduction is not re‑allocated among other assets. (9) Section 705‑55 of the Income Tax Assessment Act 1997 has effect as if subsection (8) of this section were included in section 705‑45 of that Act. Note: This affects the order of reductions in the asset's tax cost setting amount under subsection (8) of this section and sections 705‑40 and 705‑50 of the Income Tax Assessment Act 1997. 705‑310 Adjustable value of head company's notional assets Application (1) If: (a) section 40‑35, 40‑37, 40‑40 or 40‑43 of this Act treats the head company of the consolidated group as holding a notional asset at the joining time because expenditure is taken under section 701‑5 (Entry history rule) of the Income Tax Assessment Act 1997 to be expenditure of the head company; and (b) section 40‑35, 40‑37, 40‑40 or 40‑43 of this Act treated the joining entity as holding a notional asset just before the joining time because of the expenditure; this section affects the adjustable value of the head company's notional asset. Object (2) The object of this section is to ensure, by reducing the adjustable value of a notional asset of the head company, that the head company cannot get both: (a) a deduction for the notional asset reflecting the amount of the expenditure relating to depreciating assets; and (b) a deduction for that amount because of the decline in value of those depreciating assets. Reduction at joining time for expenditure on depreciating assets (3) The opening adjustable value of the head company's notional asset for the income year that includes the joining time is so much of the adjustable value of the joining entity's notional asset just before the joining time as does not reasonably relate to any depreciating asset. Note: This offsets the increases in adjustable value of the head company's depreciating assets under subsection 705‑305(3). 10 Section 707‑405 (link note) Repeal the link note, substitute: Division 712—Certain rules for where entities cease to be subsidiary members of consolidated groups Table of Subdivisions 712‑E Expenditure relating to exploration, mining or quarrying Subdivision 712‑E—Expenditure relating to exploration, mining or quarrying Table of sections 712‑305 Reducing adjustable value of head company's notional asset 712‑305 Reducing adjustable value of head company's notional asset (1) This section reduces the adjustable value of a notional asset that section 40‑35, 40‑37, 40‑38, 40‑40 or 40‑43 treats the head company of a consolidated group as holding, if: (a) an entity (the leaving entity) ceases to be a subsidiary member of the group at a time (the leaving time); and (b) that section treats the leaving entity as holding a notional asset because of section 701‑40 (Exit history rule) of the Income Tax Assessment Act 1997. Note: Section 701‑40 (Exit history rule) of the Income Tax Assessment Act 1997 treats as expenditure of the leaving entity certain expenditure incurred before the leaving time in relation to an asset or business that was an asset or business of the leaving entity at the leaving time. (2) The adjustable value of the head company's notional asset is reduced at the leaving time by the adjustable value of the leaving entity's notional asset at that time. Part 5—Low‑value and software development pools Income Tax Assessment Act 1997 11 Before Subdivision 716‑Z Insert: Subdivision 716‑G—Low‑value and software development pools Table of sections Assets in joining entity's low‑value pool 716‑330 Head company's deductions for decline in value of assets in joining entity's low‑value pool Entity leaving group with asset allocated to head company's low‑value pool 716‑335 Entity leaving group with asset allocated to head company's low‑value pool Depreciating assets arising from expenditure in joining entity's software development pool 716‑340 Depreciating assets arising from expenditure in joining entity's software development pool Software development pools if entity leaves consolidated group 716‑345 Head company taken not to have incurred expenditure Assets in joining entity's low‑value pool 716‑330 Head company's deductions for decline in value of assets in joining entity's low‑value pool (1) This section modifies the operation of sections 40‑430, 40‑435, 40‑440, 40‑445, 701‑10 and 701‑60 and Division 705 for the head company core purposes mentioned in section 701‑1 if: (a) an entity (the joining entity) becomes a *subsidiary member of a *consolidated group at a time (the joining time); and (b) there are one or more *depreciating assets (the previous pool assets) that: (i) were allocated to the joining entity's low‑value pool; and (ii) become assets of the *head company of the group at the joining time because section 701‑1 applies to the joining entity; and (c) none of the previous pool assets was an asset to which Division 58 applied to affect the joining entity's deductions relating to the asset. Note 1: Sections 40‑430, 40‑435 and 40‑440 are relevant to allocating depreciating assets to a low‑value pool and to working out the decline in value of assets allocated to a low‑value pool. Section 40‑445 affects the closing pool balance, and may give rise to assessable income, if a balancing adjustment event happens to such an asset. Note 2: Section 701‑10 provides that, for each asset the joining entity has at the joining time, the asset's tax cost is set at the joining time at the asset's tax cost setting amount, which is defined by section 701‑60 as the amount worked out under Division 705. Note 3: Division 58 is about capital allowances for depreciating assets previously owned by an exempt entity. Objects (2) The main objects of this section are: (a) to clarify how sections 40‑430, 40‑435 and 40‑440 operate in relation to the previous pool assets; and (b) to reduce compliance costs by providing that the *tax cost is set for all the previous pool assets in one operation, rather than individually for each such asset. Time of allocation of assets to head company's low‑value pool (3) Sections 40‑430, 40‑435, 40‑440 and 40‑445 operate as if the *head company of the *consolidated group allocated the previous pool assets to a low‑value pool for the income year that includes the joining time. Section 701‑5 has effect subject to this subsection. Note 1: Under section 40‑435, the head company must make a reasonable estimate of the taxable use percentage for each asset. Note 2: This subsection affects the percentages and amounts to be taken into account for working out under section 40‑440 the decline in value of assets in the pool and the closing pool balance. Allocating other low‑cost assets to head company's low‑value pool (4) Subsection 40‑430(1) operates as if the previous pool assets were *low‑cost assets. Note: This has the effect that the head company must allocate to the low‑value pool each low‑cost asset it starts to hold in the income year that includes the joining time or a later income year, whether or not the head company starts to hold the asset because of section 701‑1. If joining time was in first day of joining entity's income year (5) If the joining time was in the first day of the joining entity's income year, section 40‑440 operates as if: (a) all the previous pool assets were *low‑value assets; and (b) the sum of the previous pool assets' *opening adjustable values for the income year that includes the joining time equalled the *tax cost setting amount for the hypothetical asset worked out on the basis described in subsections (7), (8) and (9) of this section. If joining time was not in first day of joining entity's income year (6) If the joining time was not in the first day of the joining entity's income year, section 40‑440 operates as if: (a) all the previous pool assets were *low‑cost assets; and (b) the sum of the previous pool assets' *costs equalled the total of: (i) the *tax cost setting amount for the hypothetical asset worked out on the basis described in subsections (7), (8) and (9) of this section; and (ii) the expenditure (if any) that was incurred after the joining time (but in the income year that includes that time) and included in the second element of the costs (ignoring this paragraph) of the previous pool assets. Tax cost is set for assets collectively not individually (7) Sections 701‑10 and 701‑60 and Division 705 operate as if all the previous pool assets formed a single *depreciating asset (the hypothetical asset), and were not separate assets. Modified operation of Division 705 for hypothetical asset (8) Sections 705‑40 and 705‑57 operate as if the joining entity's *terminating value for the hypothetical asset were the amount worked out using the table: Modification of basis on which sections 705‑40 and 705‑57 operate If the joining time is: Sections 705‑40 and 705‑57 operate as if the joining entity's terminating value for the hypothetical asset were: 1 In the first day of an income year of the joining entity The *closing pool balance for the joining entity's low‑value pool for the previous income year 2 In another day The *closing pool balance for the joining entity's low‑value pool for the non‑membership period described in section 701‑30 that ends just before the joining time Note: Sections 705‑40 and 705‑57 are about reduction of an asset's tax cost setting amount to an amount that may be affected by the joining entity's terminating value for the asset. (9) Division 705 operates in relation to the hypothetical asset as if section 705‑50 had not been enacted. Note: Section 705‑50 is about reduction of an asset's tax cost setting amount for over‑depreciation of the asset. Entity leaving group with asset allocated to head company's low‑value pool 716‑335 Entity leaving group with asset allocated to head company's low‑value pool (1) This section sets out rules affecting the *head company of a *consolidated group and an entity (the leaving entity) that ceases to be a *subsidiary member of the group at a time (the leaving time) in an income year (the leaving year), if: (a) a *depreciating asset becomes an asset of the leaving entity at the leaving time because section 701‑1 (Single entity rule) ceases to apply to the leaving entity; and (b) the asset was in the head company's low‑value pool. Note: Section 701‑40 (Exit history rule) treats the asset as having been allocated to the leaving entity's low‑value pool, with the taxable use percentage estimated by the head company, for the income year for which the head company allocated the asset to the head company's low‑value pool. Objects (2) The main objects of this section are: (a) to ensure that the decline in value of assets in the *head company's low‑value pool and the decline in value of assets in the leaving entity's low‑value pool are worked out so that: (i) for the leaving year, the *depreciating asset is taken into account in working out the decline in value of assets in the head company's low‑value pool only; and (ii) for later income years, the depreciating asset is taken into account in working out the decline in value of assets in the leaving entity's low‑value pool only; and (b) to specify the *adjustable value of the depreciating asset just before and at the leaving time. Reduced decline in value for leaving entity for leaving year (3) The decline in value worked out for the leaving year under subsection 40‑440(1) for assets in the leaving entity's low‑value pool is reduced by such amount as is reasonable to prevent duplication of deductions for the leaving year in respect of the *depreciating asset by the *head company and the leaving entity. Reduced closing pool balance for head company's pool for leaving year (4) The *closing pool balance of the *head company's low‑value pool for the leaving year is reduced by so much of the balance as reasonably relates to the *depreciating asset. Cost of head company's membership interests in leaving entity etc. (5) Sections 701‑15, 701‑40 and 701‑60 and Division 711 have effect as if the *adjustable value of the *depreciating asset for the *head company just before and at the leaving time were such amount as is reasonable, having regard to: (a) the reduction described in subsection (4) of this section; and (b) the taxable use percentage estimated for the depreciating asset by the head company under section 40‑435. Note 1: Section 701‑15 provides that, for each membership interest the head company holds in the leaving entity, the interest's tax cost is set just before the leaving time at the interest's tax cost setting amount, which is defined by section 701‑60 as the amount worked out under certain sections of Division 711. Note 2: Division 711 sets the interest's tax cost setting amount by reference to the head company's terminating value of the asset, which is to be worked out under section 711‑30 by reference to the adjustable value of the asset for the head company just before the leaving time. Note 3: Section 701‑40 has the effect that the adjustable value of the asset for the leaving entity at the leaving time is the same as the adjustable value of the asset for the head company then. Depreciating assets arising from expenditure in joining entity's software development pool 716‑340 Depreciating assets arising from expenditure in joining entity's software development pool (1) This section modifies the basis on which Subdivision 40‑B and sections 40‑455, 701‑10, 701‑55 and 701‑60 and Division 705 operate if: (a) an entity (the joining entity) becomes a *subsidiary member of a *consolidated group at a time (the joining time); and (b) the joining entity had incurred before the joining time expenditure that it allocated to a software development pool; and (c) some or all of the expenditure is reasonably related to *in‑house software that: (i) is a *depreciating asset; and (ii) became an asset of the *head company of the consolidated group at the joining time because section 701‑1 (Single entity rule) applied to the joining entity. Note 1: Subdivision 40‑B allows deductions for the decline in value of a depreciating asset, but only if expenditure on the asset has not been allocated to a software development pool. Section 40‑455 provides for deduction of expenditure allocated to such a pool. Section 701‑5 (Entry history rule) treats the head company as having incurred the expenditure that was allocated to the pool. Note 2: Section 701‑10 provides that, for each asset the joining entity has at the joining time, the asset's tax cost is set at the joining time at the asset's tax cost setting amount, which is defined by section 701‑60 as the amount worked out under Division 705, which in turn depends on the adjustable value of the asset worked out under section 40‑85. Note 3: Section 701‑55 affects matters relevant to working out the head company's deductions for the decline in value of depreciating assets that became assets of the head company at the joining time because section 701‑1 (Single entity rule) applied to the joining entity. Note 4: This section operates whether or not the joining entity's deductions under section 40‑455 for the period before the joining time for expenditure allocated to the pool total 100% of the expenditure allocated to the pool. Object (2) The main object of this section is to ensure that: (a) the *head company's deductions for the *in‑house software: (i) are not worked out under section 40‑455 on the basis of section 701‑5 (Entry history rule) treating the expenditure relating to the software as being the head company's expenditure; and (ii) are instead worked out under Subdivision 40‑B, using the *prime cost method with the *effective life given by subsection 40‑95(7) and taking account of the *tax cost setting amount for the software; and (b) the tax cost setting amount is worked out in a way that takes account of deductions for the period before the joining time for the expenditure reasonably related to the in‑house software. Joining entity taken not to have incurred certain expenditure (3) Subdivision 40‑B and section 40‑455 operate for the head company core purposes mentioned in section 701‑1 (Single entity rule) as if the expenditure reasonably related to the *in‑house software had not been incurred by the joining entity. Note 1: This has the effects that: (a) subsection 40‑50(2) does not apply because of section 701‑5 (Entry history rule) to deny the head company deductions under Subdivision 40‑B for the decline in value of the software; and (b) the head company cannot deduct the expenditure under section 40‑455 as it operates because of section 701‑5. Note 2: This does not prevent the head company from deducting under section 40‑455 expenditure that is not reasonably related to the in‑house software and that the head company is treated by section 701‑5 as having incurred and allocated to a software development pool because the joining entity did. Prime cost method of working out decline in value of software (4) Subsection 701‑55(2) operates as if the *prime cost method of working out the decline in value of the *in‑house software applied just before the joining time. Note: This affects the method of working out the decline in value of the software for the head company of the consolidated group. Effective life of software (5) Subdivision 40‑B operates as if the *effective life of the *in‑house software were the period specified for in‑house software in subsection 40‑95(7). Subsection 701‑55(2) is subject to this subsection. Cost of in‑house software (6) Sections 701‑10 and 701‑60 and Division 705 (and section 40‑85, so far as it affects that Division) operate as if the *cost of the *in‑house software were the total amount of the joining entity's expenditure that reasonably related to the software and was allocated to a software development pool. Earlier decline in value of the in‑house software (7) Sections 701‑10 and 701‑60 and Division 705 (and section 40‑85, so far as it affects that Division) operate as if the decline in value, and deductions for the decline in value, of the *in‑house software for a period before the joining time were the amount worked out under subsection (8). (8) Work out the amount by: (a) working out, for each software development pool to which expenditure relating to the *in‑house software was allocated, the amount of the joining entity's deductions under section 40‑455 that reasonably relates to the software; and (b) adding up each of those amounts if there are 2 or more such pools. Note: Subsections (6), (7) and (8) can affect the working out of the tax cost setting amount for the in‑house software in these ways: (a) one way is by affecting the adjustable value of the software, which may be worked out under section 40‑85 by reference to the decline in value of the software, and which is relevant to section 705‑50 (which reduces the tax cost setting amount for over‑depreciated assets); (b) another way is by affecting the joining entity's terminating value for the software, which section 705‑30 defines as being the adjustable value of the software just before the joining time, and which is relevant to sections 705‑40, 705‑50 and 705‑57 (which may reduce the tax cost setting amount for the software); (c) another way is by affecting section 705‑50, whose operation depends on the decline in value, and deductions for the decline in value, of the software (among other things). Software development pools if entity leaves consolidated group 716‑345 Head company taken not to have incurred expenditure (1) This section has effect if: (a) an entity (the leaving entity) ceases to be a *subsidiary member of a *consolidated group at a time in an income year (the leaving year); and (b) under section 701‑40 (Exit history rule), expenditure is taken to have been allocated by the leaving entity to a software development pool. Note: Section 701‑40 treats expenditure incurred by the head company of the consolidated group and allocated by that company to a software development pool as having been incurred by the leaving entity and allocated by it to a software development pool. (2) Work out deductions of the *head company of the *consolidated group for income years after the leaving year as if the head company had not incurred the expenditure. (3) The leaving entity cannot deduct an amount for the leaving year for the expenditure it is taken to have allocated to the software development pool. Income Tax (Transitional Provisions) Act 1997 12 After Division 713 Insert: Division 716—Miscellaneous special rules Table of Subdivisions 716‑G Software development pools Subdivision 716‑G—Software development pools Table of sections 716‑340 Expenditure incurred before 1 July 2001 and allocated to a software pool 716‑340 Expenditure incurred before 1 July 2001 and allocated to a software pool Sections 716‑340 and 716‑345 of the Income Tax Assessment Act 1997 operate in relation to a thing mentioned in column 1 of an item of the table in the same way as they operate in relation to a thing mentioned in column 2 of the item. Extended operation of sections of the Income Tax Assessment Act 1997 Column 1 Column 2 Sections 716‑340 and 716‑345 of the Income Tax Assessment Act 1997 operate in relation to: In the same way as they operate in relation to: 1 Former section 46‑90 of that Act Section 40‑455 of that Act 2 A software pool created under former Subdivision 46‑D of that Act A software development pool 3 Expenditure in a software pool under former Subdivision 46‑D of that Act Expenditure allocated to a software development pool 4 Software, expenditure on which was in a software pool under former Subdivision 46‑D of that Act In‑house software, expenditure on the development of which is allocated to a software development pool Part 6—Notice requirements for inter‑entity loss multiplication rules Income Tax Assessment Act 1997 13 At the end of subsection 165‑115ZC(1) Add: Note: Section 165‑115ZC of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this section. 14 Subsection 165‑115ZC(4) Omit "later", substitute "latest". 15 After paragraph 165‑115ZC(4)(b) Insert: (c) the time (if any) specified by the Commissioner; 16 Subsection 165‑115ZC(5) Omit "6 months after the later", substitute "6 months after the latest". 17 After paragraph 165‑115ZC(5)(d) Insert: (e) the time (if any) specified by the Commissioner; 18 After subsection 165‑115ZC(7) Insert: Commissioner's power to specify a later time for giving notice (7A) The Commissioner may, by written notice given to an entity, or *loss company, that is required to give a notice under subsection (4) or (5), specify a time later than the alteration time as the start of the 6 months mentioned in the subsection. Commissioner's power to waive requirement for notice (7B) The Commissioner may give an entity or *loss company a written declaration that subsection (4) or (5) does not apply to require the entity or company to give a notice relating to the alteration time. If the Commissioner does so, the subsection does not apply in relation to the alteration time. Considerations relating to Commissioner's powers (7C) In deciding whether to specify a time for the purposes of subsection (4) or (5) or declare that the subsection does not apply, the Commissioner must consider: (a) the consequences of doing so for each entity to which notice must be given under the subsection (apart from any such declaration); and (b) any other matters that the Commissioner considers relevant. 19 Application The amendments of section 165‑115ZC of the Income Tax Assessment Act 1997 made by this Part apply if the alteration time mentioned in that section is after 10 November 1999. Income Tax (Transitional Provisions) Act 1997 20 At the end of section 165‑115ZC Add: Special rules for consolidatable groups and potential MEC groups (4) Subsections (5) and (6) have effect if: (a) the alteration time mentioned in section 165‑115ZC of the Income Tax Assessment Act 1997 is after 10 November 1999 and before 1 July 2004; and (b) apart from this section, subsection 165‑115ZC(4) or (5) of that Act would require an entity (the notifying entity) to give a notice to another entity (the receiving entity) in relation to the alteration time; and (c) just before the alteration time, the notifying entity and the receiving entity were both members of the same consolidatable group or potential MEC group. (5) Subsections 165‑115ZC(4) and (5) of the Income Tax Assessment Act 1997 do not apply to the notifying entity if both it and the receiving entity became members of the same consolidated group or MEC group before 1 July 2004. (6) Even if subsection (5) does not apply, the notifying entity is not required to give the notice to the receiving entity before the end of 6 months after the commencement of this subsection. (7) Subsections (1) and (3) have effect subject to subsections (5) and (6). Part 7—Source of certain distributions for allocable cost amount purposes Income Tax Assessment Act 1997 21 After subsection 705‑50(3) Insert: (3A) A way in which the extent to which dividends were paid out of profits that were not subject to income tax may be worked out is by: (a) assuming that dividends were paid out of profits of income years in order from the most recent to the earliest; and (b) assuming that, for any income year for which dividends were paid out of profits in accordance with paragraph (a), they were, to the extent they were not *franked distributions, paid out of profits of that income year that were not subject to income tax before they were paid out of such profits that were subject to income tax. 22 At the end of section 705‑90 Add: (10) Without limiting paragraph (9)(b), a way in which, for the purposes of subsection (7), the amount of a profit that accrued to the joined group during a particular period may be worked out is by: (a) assuming that profits of income years were distributed in order from the most recent to the earliest; and (b) assuming that, for any income year for which distributions were paid out of profits in accordance with paragraph (a), they were, to the extent they were not *franked distributions, paid out of profits of that income year that were not subject to income tax before they were paid out of such profits that were subject to income tax. 23 At the end of paragraph 705‑95(b) Add: Note: As well as subsection 705‑90(7), paragraph 705‑90(9)(b) and subsection 705‑90(10) are relevant to working out whether or not profits accrued to the joined group before the joining time. Part 8—Certain losses not taken into account under step 3 of allocable cost amount Income Tax Assessment Act 1997 24 After subsection 705‑90(2) Insert: (2A) However, if a loss that did not accrue to the joined group before the joining time (subsection (8) states what it means for a loss to accrue to the joined group before the joining time) would be taken into account in working out the undistributed profits, the loss is not so taken into account. Part 9—Transitional treatment of tax liabilities for allocable cost amount and CGT purposes Income Tax (Transitional Provisions) Act 1997 25 After section 701‑30 Insert: 701‑32 No adjustment of amount of liabilities required in working out allocable cost amount (1) This section has effect for the purposes of applying section 705‑70 (step 2 of allocable cost amount) of the Income Tax Assessment Act 1997 in relation to a transitional entity. (2) In spite of subsection 705‑70(1A) of that Act, if the amount of an accounting liability of the transitional entity would be different when it becomes an accounting liability of the transitional group, that difference is not taken into account in working out the amount of the liability. 701‑34 CGT event L7 does not happen in respect of certain liabilities CGT event L7 does not happen if the liability mentioned in section 104‑530 of the Income Tax Assessment Act 1997 is one that satisfies the conditions in section 701‑32 of this Act. Part 10—Entry and exit history rules and choices Income Tax Assessment Act 1997 26 After Subdivision 715‑H Insert: Subdivision 715‑J—Entry history rule and choices Table of sections Head company's choice overriding entry history rule 715‑660 Head company's choice overriding entry history rule Choices head company can make ignoring entry history rule to override inconsistencies 715‑665 Head company's choice to override inconsistency Choices with ongoing effect 715‑670 Ongoing effect of choices made by entities before joining group 715‑675 Head company adopting choice with ongoing effect Head company's choice overriding entry history rule 715‑660 Head company's choice overriding entry history rule Application (1) This section has effect if an entity becomes a *subsidiary member of a *consolidated group at a time (the joining time) and either: (a) the question whether the entity had made a choice (however described) under a provision (the choice provision) listed in the table was relevant to working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to an income year starting before the joining time; or (b) before the joining time, the entity made a choice that: (i) is described in paragraph (a); and (ii) would, if the entity had not become a subsidiary member of a consolidated group, have started to have effect for working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to the first income year starting after the joining time. List Item Provision Subject of provision 1 A provision of Part X or XI of the Income Tax Assessment Act 1936 for an irrevocable declaration, election, choice or selection Attribution of income in respect of controlled foreign companies (if the provision is in Part X), or foreign investment funds and foreign life assurance policies (if the provision is in Part XI) 2 Section 70‑70 Valuing interests in *FIFs that are trading stock 3 Item 1 of the table in subsection 960‑60(1) Choosing to use an *applicable functional currency 4 A provision that: Choice about a matter described in the regulations (a) provides for a choice (however described); and (b) is a provision of regulations made for the purposes of this Act, other than this item; and (c) is prescribed by regulations made for the purposes of this item Note: Declarations, elections and selections made under the choice provision by the entity are all examples of choices under that provision (even though the provision does not call them choices), because the entity has chosen to make them. Objects (2) The main objects of this section are: (a) to override section 701‑5 (Entry history rule) in relation to a choice (however described) by the entity under the choice provision or the absence of such a choice; and (b) to extend, in some cases, the time for the *head company of the *consolidated group to make a choice (however described) under the choice provision after the joining time; and (c) to modify, in some cases, the time at which such a choice by the head company starts to have effect. Overriding the entry history rule (3) For the head company core purposes set out in section 701‑1 (Single entity rule), ignore a choice (however described) made by the entity under the choice provision or the absence of such a choice. Extension of time for head company to make choice (4) If: (a) because of: (i) the fact that the entity became a *subsidiary member of the *consolidated group; and (ii) section 701‑1 (Single entity rule); the question whether the *head company of the group has made a choice (however described) under the choice provision becomes relevant for the head company core purposes set out in that section; and (b) there is a limit (outside this section) on the period within which the head company may make such a choice; the head company has until the later of these times to make such a choice: (c) the last time the head company may make the choice (apart from this subsection); (d) the end of 90 days after the Commissioner is given notice under Division 703 that the entity has become a *member of the group or, if the Commissioner allows a later time for the purposes of this paragraph, that later time. When head company's choice starts to have effect (5) If the *head company of the *consolidated group makes a choice (however described) under the choice provision as a result of becoming able to make the choice because the entity became a *subsidiary member of the group at the joining time, the choice starts to have effect: (a) at the joining time; or (b) if the choice relates (explicitly or implicitly) to one or more whole income years—for the income year in which the joining time occurs. Note: Subsection (5) has effect whether or not subsection (4) contributed to the head company becoming able to make the choice. Relationship with other provisions (6) Section 701‑5 (Entry history rule) and the choice provision have effect subject to this section. Choices head company can make ignoring entry history rule to override inconsistencies 715‑665 Head company's choice to override inconsistency Application (1) This section has effect if: (a) an entity (the joining entity) becomes a *subsidiary member of a *consolidated group at a time (the joining time); and (b) for each of the following entities, the question whether the entity had made a choice (however described) under a provision (the choice provision) listed in the table was relevant to working out the entity's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by reference to an income year starting before the joining time: (i) the joining entity; (ii) another entity that was a *member of the group at the joining time; and (c) there was an inconsistency because, just before the joining time, such a choice had effect for one of the entities but not for the other. List Item Provision Subject of provision 1 Section 148 of the Income Tax Assessment Act 1936 Reinsurance with non‑residents 2 Section 775‑80 Choosing not to have sections 775‑70 and 775‑75 apply to deal with *forex realisation gains and *forex realisation losses 3 A provision that: Choice about a matter described in the regulations (a) provides for a choice (however described); and (b) is a provision of regulations made for the purposes of this Act, other than this item; and (c) is prescribed by regulations made for the purposes of this item Note 1: The other entity mentioned in subparagraph (1)(b)(ii) may have become a member of the group either before or at the joining time. That other entity may be either another subsidiary member of the group or the head company of the group. Note 2: An election by an entity under section 148 of the Income Tax Assessment Act 1936 is an example of a choice under that provision (even though that section does not call the election a choice) because the entity has chosen to make the election. Object (2) The main objects of this section are: (a) to override the inconsistency; and (b) to displace section 701‑5 (Entry history rule), so far as it relates to the inconsistency; and (c) to allow the *head company of the *consolidated group to make a choice (however described) under the choice provision. Overriding the inconsistency (3) Neither of these things relating to an entity that becomes a *member of the *consolidated group at the joining time has effect for the head company core purposes set out in section 701‑1 (Single entity rule): (a) a choice (however described) by the entity having effect under the choice provision before that time; (b) the absence of such a choice. Note: This affects all entities that become members of the consolidated group at the joining time, including the head company if the joining time is the time at which the group comes into existence. (4) However, if the choice provision is section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non‑residents): (a) subsection (3) of this section does not apply in relation to reinsurance under contracts made before the joining time (but does apply in relation to reinsurance under contracts made at or after that time); and (b) that section applies for the head company core purposes in relation to reinsurance under a contract made before the joining time by an entity (the contracting party) that became a *member of the *consolidated group at or before the joining time: (i) as if the *head company of the consolidated group had made an election under that section, if the contracting party had made such an election that was relevant to working out the party's liability (if any) for income tax, or the party's *tax loss (if any), for an income year in connection with the contract; or (ii) as if the head company had not made such an election, if the contracting party had not made such an election that was relevant to working out the party's liability (if any) for income tax, or the party's tax loss (if any), for an income year in connection with the contract. Choice replacing inconsistency (5) If: (a) the question whether the *head company of the *consolidated group has made a choice (however described) under the choice provision is relevant for the head company core purposes set out in section 701‑1 (Single entity rule); and (b) there is a limit (outside this section) on the period within which the head company may make such a choice; the head company has until the later of these times to make such a choice: (c) the last time the head company may make the choice (apart from this subsection); (d) the end of 90 days after the Commissioner is given notice under Division 703 that the joining entity has become a *member of the group or, if the Commissioner allows a later time for the purposes of this paragraph, that later time. Note: If the joining time is when the consolidated group is formed, the Commissioner should be given notice under Division 703 that the joining entity has become a member of the group when the approved form of the choice to form the group is given to the Commissioner. When head company's choice starts to have effect (6) If the *head company of the *consolidated group makes a choice (however described) under the choice provision as a result of becoming able to make the choice because the joining entity became a *member of the group, the choice starts to have effect: (a) at the joining time; or (b) if the choice relates (explicitly or implicitly) to one or more whole income years—for the income year in which the joining time occurs. (7) However, if: (a) the *head company of the *consolidated group makes a choice as described in subsection (6); and (b) the choice is an election under section 148 of the Income Tax Assessment Act 1936 (Reinsurance with non‑residents); the election has effect only for the purposes of that section applying in relation to reinsurance under contracts made after the joining time and in an income year for which the election applies under that section. Note: Subsection (4) explains how section 148 of the Income Tax Assessment Act 1936 applies in relation to reinsurance under contracts made before the joining time. Relationship with other provisions (8) Section 701‑5 (Entry history rule) and the choice provision have effect subject to this section. Choices with ongoing effect 715‑670 Ongoing effect of choices made by entities before joining group (1) This section has effect if the question whether the *head company of a *consolidated group has made a choice (however described) under a provision listed in the table is relevant for the head company core purposes set out in section 701‑1 (Single entity rule) because of something happening in relation to a thing: (a) that is an asset, right, liability or obligation of the head company; and (b) that the head company started to have, at the time (the joining time) an entity (the joining entity) became a *subsidiary member of the group, because of that section and the fact that (ignoring that section) the entity had the thing at the joining time. List Item Provision Subject of provision 1 Section 775‑150 Choice to apply rules about disregarding certain *forex realisation gains and *forex realisation losses (2) The *head company is taken to have made such a choice if the joining entity had one in effect before the joining time. (3) The *head company is taken not to have made the choice if the joining entity did not have one in effect before the joining time. 715‑675 Head company adopting choice with ongoing effect (1) This section has effect, despite section 715‑670, if: (a) an entity that becomes a *member of a *consolidated group had a choice (however described) in effect under a provision (the choice provision) listed in that section before becoming a member of the group; and (b) the time at which the entity becomes a member of the group is the first time at which an entity that had a choice (however described) in effect under the choice provision before becoming a member of the group became a member of the group; and (c) the *head company of the group chooses in writing, before: (i) the end of 90 days after the Commissioner is given notice under Division 703 that the entity has become a member of the group; or (ii) a later time allowed by the Commissioner; to be treated as if the head company had made a choice under the choice provision. (2) The *head company is taken to have made a choice under the choice provision for these purposes: (a) the head company core purposes set out in section 701‑1 (Single entity rule); (b) the purposes of the application of section 715‑670 and paragraph (1)(a) in relation to another *consolidated group of which the company later becomes a *subsidiary member. Subdivision 715‑K—Exit history rule and choices Table of sections Choices leaving entity can make ignoring exit history rule 715‑700 Choices leaving entity can make ignoring exit history rule Choices leaving entity can make ignoring exit history rule to overcome inconsistencies 715‑705 Choices leaving entity can make ignoring exit history rule to overcome inconsistencies Choices leaving entity can make ignoring exit history rule 715‑700 Choices leaving entity can make ignoring exit history rule Application (1) This section has effect if: (a) an entity ceases to be a *subsidiary member of a *consolidated group at a time (the leaving time); and (b) the question whether the *head company of the group had made a choice (however described) under a provision (the choice provision) listed in the table in subsection 715‑660(1) was relevant to working out that company's liability (if any) for income tax, or the entity's loss (if any) of a particular *sort, calculated by referenc