Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 705.10

Application

  (1)   This Subdivision has effect, subject to section   705 - 15, for the head company core purposes set out in subsection   701 - 1(2) if an entity (the joining entity ) becomes a * subsidiary member of a * consolidated group (the joined group ) at a particular time (the joining time ).

Object

  (2)   The object of this Subdivision is to recognise the * head company's cost of becoming the holder of the joining entity's assets as an amount reflecting the group's cost of acquiring the entity. That amount consists of the cost of the group's * membership interests in the joining entity, increased by the joining entity's liabilities and adjusted to take account of the joining entity's retained profits, distributions of profits, deductions and losses.

  (3)   The reason for recognising the * head company's cost in this way is to align the costs of assets with the costs of * membership interests, and to allow for the preservation of this alignment until the entity ceases to be a * subsidiary member, in order to:

  (a)   prevent double taxation of gains and duplication of losses; and

  (b)   remove the need to adjust costs of membership interests in response to transactions that shift value between them, as the required adjustments occur automatically.

Note:   Under Division   711, the alignment is preserved by recognising the head company's cost of membership interests in the entity if it ceases to be a subsidiary member of the group as the cost of its assets reduced by its liabilities.