Commonwealth Consolidated Acts

TAX LAWS AMENDMENT (2004 MEASURES NO. 2) ACT 2004 - SCHEDULE 2

Part   1 -- Application

1   Application

Except as provided otherwise, the amendments made by this Schedule apply on and after 1   July 2002.

Part   2 -- Certain unit trusts heading consolidated groups

Division   1--Main amendment

Income Tax Assessment Act 1997

2   After Subdivision   713 - A

Insert:

Subdivision   713 - C -- Some unit trusts treated like head companies of consolidated groups

Guide to Subdivision   713 - C

713 - 120   What this Subdivision is about

A corporate unit trust or public trading trust can sometimes choose to form a consolidated group and be treated like a company and head company of the group. The treatment affects the trust, the trustee and other entities connected with the trust (such as members of the trust and entities the trustee holds membership interests in).

Table of sections

Object of this Subdivision

713 - 125   Object of this Subdivision

Choice to form a consolidated group

713 - 130   Choosing to form a consolidated group

Effects of choice

713 - 135   Effects of choice

713 - 140   Modifications of the applied law

[This is the end of the Guide.]

Object of this Subdivision

713 - 125   Object of this Subdivision

  (1)   The main object of this Subdivision is to provide, by the means described in subsections   ( 2) and (3), for certain unit trusts to be treated like companies, and therefore like * head companies of * consolidated groups, with consequent effects on other entities including:

  (a)   the trustees; and

  (b)   * members of the trusts; and

  (c)   entities the trustees hold * membership interests in.

  (2)   The first means is letting a * corporate unit trust, or * public trading trust, that could become the * head company of a * consolidated group if the trust were a company, choose to form such a group (with other entities as * subsidiary members).

  (3)   The second means is changing the way in which the law relating to income tax applies on and after the time the choice takes effect, so that law (with some modifications) applies in relation to the trust or the trustee (as appropriate) in a way corresponding to the way in which that law applies in relation to a company.

Note:   The law relating to income tax includes legislation relating to associated imposts (such as those connected with the imputation system).

Choice to form a consolidated group

713 - 130   Choosing to form a consolidated group

    A trust may make a choice under section   703 - 50 (Choice to consolidate a consolidatable group), as if the trust were a company (the assumed company ), but only if:

  (a)   the assumed company could make the choice, if it beneficially owned the * membership interests in other entities that are legally owned by the trustee; and

  (b)   the day specified in the choice is the first day of an income year for which the trust is a * corporate unit trust or a * public trading trust.

Note:   Assuming that a trust is a company also involves assuming:

(a)   that the company has characteristics of the trust, such as the location of the central management and control (which is relevant to residence), the business of the trust, not being incorporated etc.; and

(b)   that membership interests in the trust are membership interests in the company (owned by the same persons and in the same way as membership interests in the trust are owned); and

(c)   that the company's taxable income is taxed at the same rate as the trust's net income.

Effects of choice

713 - 135   Effects of choice

  (1)   If the trust makes the choice, the law (the applied law ) described in subsection   ( 2) applies in relation to the trust in a way corresponding to the way in which that law applies to a company. The applied law applies in that way in relation to the trust or trustee (as appropriate):

  (a)   with the appropriate modifications (including those described in section   713 - 140, so far as they are appropriate); and

  (b)   in relation to all times at or after the start of the day specified in the choice; and

  (c)   so far as it is relevant to the operation of the applied law in relation to the trust and a time at or after the start of that day--in relation to a time when the trust existed before the start of that day.

Note 1:   The application of the applied law in this way affects not only the trust and the trustee but also other entities connected with the trust, such as members of the trust and entities in which the trustee holds membership interests. Some examples of that effect are that:

(a)   a consolidated group comes into existence on the day specified in the choice; and

(b)   there may be a scrip for scrip roll - over for an entity exchanging its shares in a company for membership interests in the trust.

Note 2:   The application of the applied law in this way involves treatment of characteristics, things and persons relating to the trust corresponding to the treatment by the applied law of analogous characteristics, things and persons relating to a company (as envisaged in the note to section   713 - 130). These are some examples of analogous things and analogous persons:

(a)   units in the trust and shares in a company;

(b)   unitholders in the trust and shareholders in a company;

(c)   trust voting interests and voting shares in a company.

  (2)   The applied law is:

  (a)   this Act (other than this Subdivision); and

  (b)   an Act that imposes any impost payable under this Act; and

  (c)   the Income Tax Rates Act 1986 ; and

  (d)   the Taxation Administration Act 1953 , so far as it relates to an Act covered by paragraph   ( a), (b) or (c); and

  (e)   any other Act, so far as it relates to an Act covered by paragraph   ( a), (b), (c) or (d); and

  (f)   regulations and other legislative instruments under an Act covered by any of the preceding paragraphs.

  (3)   Subsection   ( 1) does not make an entity liable to a criminal, civil or administrative penalty.

Note:   An entity is liable to such a penalty under the applied law only if that law, as it applies apart from subsection   ( 1), makes the entity liable.

713 - 140   Modifications of the applied law

Overview

  (1)   This section describes modifications of the applied law in its application in relation to a trust or trustee under section   713 - 135, but does not limit the modifications of that law that are appropriate for the purposes of that section.

General modifications

  (2)   A reference in the applied law to a thing or person described in column 2 of an item of the table includes a reference to a thing or person described in column 3 of the item.

Note:   An expression in column 2 of an item of the table has the meaning that the expression has in the provision of the applied law containing the reference.

  (3)   The trust is not covered by a reference in the applied law to a trust.

Note:   Subsections   ( 3) and (4) of this section do not affect an entity's liability for criminal, civil and administrative penalties under the applied law, as those subsections modify (so far as appropriate) the applied law as it applies because of subsection 713 - 135(1), and that subsection does not affect liability for such penalties (see subsection 713 - 135(3)).

  (4)   The trustee is not covered by a reference in the applied law to a trustee (except a reference in section   254 of the Income Tax Assessment Act 1936 ).

Note:   Section   254 of the Income Tax Assessment Act 1936 deals with obligations and liabilities of trustees.

Modifications of specific provisions

  (5)   A provision of an Act identified in an item of the table is modified as set out in the item.

Division   2--Related amendments

Income Tax Assessment Act 1936

3   At the end of subsection 102L(1)

Add:

Note:   Under Subdivision   713 - C of the Income Tax Assessment Act 1997 , this Act applies differently in relation to a corporate unit trust that chooses to form a consolidated group.

4   At the end of subsection 102T(1)

Add:

Note:   Under Subdivision   713 - C of the Income Tax Assessment Act 1997 , this Act applies differently in relation to a public trading trust that chooses to form a consolidated group.

Part   3 -- Technical amendments relating to membership rules

Income Tax Assessment Act 1997

5   Subsection 124 - 380(7)

Omit "2 months", substitute "28 days".

6   Application

The amendment made by this Schedule to subsection 124 - 380(7) of the Income Tax Assessment Act 1997 applies to choices made after the commencement of this item.

7   Subsection 126 - 50(6)

Repeal the subsection, substitute:

  (6)   If the originating company or the recipient company is an Australian resident at the time of the trigger event, that company must:

  (a)   be a * member of a * consolidated group or * MEC group at that time; or

  (b)   not be a member of a * consolidatable group at that time.

8   Subsection 703 - 60(2)

Omit " company that makes the choice ", substitute " * head company of the consolidated group ".

Income Tax (Transitional Provisions) Act 1997

9   Paragraph 701D - 10(5)(a)

Omit " paragraph 126 - 50(6)(b) ", substitute "subsection 126 - 50(6)".

Part   4 -- Cost setting for assets that the head company does not hold under the single entity rule

Income Tax Assessment Act 1997

10   Paragraph 104 - 510(1)(b)

Repeal the paragraph, substitute:

  (b)   the sum of the * tax cost setting amounts for all * retained cost base assets that are taken into account under paragraph 705 - 35(1)(b) in working out the tax cost setting amount of each reset cost base asset of the entity exceeds the group's * allocable cost amount for the entity.

11   Subsection 701 - 10(2)

Omit " each asset that becomes an asset of the * head company because subsection 701 - 1(1) (the single entity rule) applies ", substitute " each asset that would be an asset of the entity at the time it becomes a * subsidiary member of the group, assuming that subsection 701 - 1(1) (the single entity rule) did not apply ".

Note:   The heading to section   701 - 10 is replaced by the heading " Cost to head company of assets of joining entity ".

12   At the end of subsection 701 - 10(2)

Add:

Note:   See subsection 705 - 35(3) for the treatment of a goodwill asset resulting from the head company's ownership and control of the joining entity.

13   After section   701 - 55

Insert:

701 - 58   Effect of setting the tax cost of an asset that the head company does not hold under the single entity rule

  (1)   This section applies if:

  (a)   the * tax cost of an asset was set at the time (the joining time ) an entity became a * subsidiary member of a * consolidated group, at the asset's * tax cost setting amount; and

  (b)   ignoring the operation of subsection 701 - 1(1) (the single entity rule), the entity held the asset at the joining time; and

  (c)   taking into account the operation of subsection 701 - 1(1) (the single entity rule), the * head company of the group did not hold the asset at the joining time.

Example:   A debt owed by a member of the group to the joining entity at the joining time.

  (2)   To avoid doubt, the asset's * tax cost setting amount mentioned in paragraph   ( 1)(a) is not to be taken into account in applying the provisions mentioned in subsections 701 - 55(2), (3), (4), (5) and (6) in relation to the asset at and after the joining time.

14   Section   701 - 60 (table item   1, column headed "If the asset's tax cost is set by:")

Omit "Cost to head company of assets that entity brings into group", substitute "Cost to head company of assets of joining entity".

15   Paragraph 713 - 205(3)(a)

Omit "assets that an entity brings into the group", substitute "assets of an entity joining a group".

16   Subsection 715 - 70(1) (note 1)

Omit "cost to head company of assets that entity brings into group", substitute "cost to head company of assets of joining entity".

17   Subsection 715 - 225(1) (note 1)

Omit "cost to head company of assets that entity brings into group", substitute "cost to head company of assets of joining entity".

18   Paragraph 719 - 160(3)(a)

Omit "assets that an entity brings into the group", substitute "assets of an entity joining a group".

Income Tax (Transitional Provisions) Act 1997

19   Section   701 - 15

Omit "cost to head company of assets that entity brings into group", substitute "cost to head company of assets of joining entity".

Part   5 -- Partnership leaving consolidated group

Income Tax Assessment Act 1997

20   Subsection 701 - 15(3) (note)

Omit "Note", substitute "Note 1".

21   At the end of subsection 701 - 15(3)

Add:

Note 2:   If the entity is a partnership, Subdivision   713 - E sets the tax cost of interests in partnership assets, rather than membership interests in the partnership.

22   At the end of subsection 701 - 20(4)

Add:

Note:   If the entity is a partnership, Subdivision   713 - E sets the tax cost of assets consisting of a partner's share of a liability owed by the partnership to a member of the group.

23   Subsection 701 - 45(4) (note)

Omit "Note", substitute "Note 1".

24   At the end of subsection 701 - 45(4)

Add:

Note 2:   If the entity is a partnership, Subdivision   713 - E sets the tax cost of a partner's interest in an asset consisting of a liability that a member of the group owes to the partnership.

25   At the end of subsection 701 - 50(3)

Add:

Note:   If the asset consists of a membership interest in a partnership, Subdivision   713 - E sets the tax cost of interests in partnership assets, rather than membership interests in the partnership.

26   At the end of section   701 - 60 (before the note)

Add:

Note 1:   The tax cost setting amount of certain interests in partnership assets is worked out under Subdivision   713 - E.

27   Section   701 - 60 (note)

Omit "Note", substitute "Note 2".

28   Section   713 - 200

Omit "and 705", substitute ", 705 and 711".

29   Paragraph 713 - 200(b)

After "becomes", insert ", or ceases to be,".

30   At the end of section   713 - 205

Add:

  (4)   The third object of this Subdivision is to ensure that, where a partnership ceases to be a * subsidiary member of a * consolidated group, the provisions mentioned in subsection   ( 5) operate:

  (a)   as if the group's * partnership cost setting interests were the group's only assets relating to the partnership; and

  (b)   to set the * tax cost of those interests at an appropriate amount, taking into account the fact that the group ceases to be the holder of the assets of the partnership.

  (5)   The provisions are:

  (a)   sections   701 - 15 and 701 - 50 (about setting the tax cost of membership interests in an entity that leaves the group); and

  (b)   sections   701 - 20 and 701 - 45 (about the cost of assets consisting of certain liabilities owed by or to an entity that leaves the group); and

  (c)   Division   711.

31   After subsection 713 - 225(6)

Insert:

Partnership overall foreign losses--working out allocable cost amount

  (6A)   Sections   705 - 100 and 705 - 110 operate as if a loss of the partnership of a * sort covered by any of paragraphs 701 - 1(4)(d) to (g) were a loss of that sort of the joining entity, to the extent of the joining entity's individual share of the loss.

32   At the end of Subdivision   713 - E (before the link note)

Add:

Special rules where partnership leaves consolidated group

713 - 250   Partnership leaves group--standard provisions modified

  (1)   This section applies if a partnership ceases to be a * subsidiary member of a * consolidated group at a time (the leaving time ).

Note:   The section applies whether or not any partner that is a subsidiary member of the group also ceases to be a subsidiary member at the leaving time.

  (2)   Apply the provisions mentioned in subsection 713 - 205(5) subject to the modifications in the provisions that follow under this * group heading.

713 - 255   Partnership leaves group--tax cost setting amount for partnership cost setting interests

Overview

  (1)   Instead of working out * tax cost setting amounts for * membership interests in the partnership, a special rule requires * partnership cost setting interests in the partnership to be worked out. Where other entities cease to be * subsidiary members at the same time, the normal tax cost setting amount rules are applied for membership interests in the other entities, but the special rule is applied for partnership cost setting interests in the partnership.

Tax cost setting amounts for membership interests in partnership not to be worked out

  (2)   Do not work out * tax cost setting amounts for * membership interests in the partnership.

Partnership is only entity that exits--tax cost setting amount for partnership cost setting interests

  (3)   Except where the partnership ceases to be a * subsidiary member in circumstances covered by subsection   ( 5), work out in accordance with subsection   ( 4) the * tax cost setting amount just before the leaving time for each * partnership cost setting interest in the partnership held by a partner that is a * member of the group just before the leaving time.

Tax cost setting amount

  (4)   The * tax cost setting amount is equal to the partner's individual share of the * terminating value of the partnership asset to which the * partnership cost setting interest relates.

Note:   For income tax purposes there is no disposal by the head company of any assets of the partnership when it ceases to be a subsidiary member of the group.

Multiple exit case--tax cost setting amounts for both partnership cost setting interests in partnership and membership interests in other entities

  (5)   If the partnership is one of 2 or more entities that cease to be * subsidiary members of the old group at the same time because of an event happening in relation to one of them, apply section   711 - 55 as if:

  (a)   except in paragraph 711 - 55(3)(a), a reference to * membership interests in an entity, or to the * tax cost setting amount for such interests, where the entity is the partnership, were a reference to * partnership cost setting interests in the partnership, or to the tax cost setting amount for such interests; and

  (b)   paragraph 711 - 55(3)(a) were replaced by a requirement that, where the entity in which the membership interests mentioned in subsection 711 - 55(3) are held is the partnership, subsection   ( 4) of this section is to be applied in working out the tax cost setting amount of the partnership cost setting interests in the partnership.

713 - 260   Partnership leaves group--tax cost setting amount for assets consisting of being owed certain liabilities

  (1)   This section applies if:

  (a)   when the partnership ceases to be a * subsidiary member of the group, a partner remains a * member of the group; and

  (b)   an asset becomes an asset of the * head company because subsection 701 - 1(1) (the single entity rule) ceases to apply to the partnership when it ceases to be a subsidiary member; and

  (c)   the asset is, ignoring that subsection:

  (i)   the partner's interest in an asset of the partnership consisting of a liability of a member of the group owed to the partnership; or

  (ii)   the partner's share of a liability of the partnership owed to a member of the group.

  (2)   The asset's * tax cost is set at the leaving time at a * tax cost setting amount equal to the * market value of the asset.

713 - 265   Partnership leaves group--adjustments to leaving partner's allocable cost amount

  (1)   This section has effect in working out the group's * allocable cost amount for a partner in the partnership, if the partner ceases to be a * subsidiary member of the group at the leaving time.

  (2)   Section   711 - 35 operates as if:

  (a)   a deduction to which the partnership becomes entitled (the partnership deduction ) were a deduction to which the partner becomes entitled, to the extent of the partner's individual share of the partnership deduction; and

  (b)   the deduction to which the partner becomes entitled were of the same kind as the partnership deduction.

Note:   These kinds of deductions include acquired deductions and owned deductions (within the meaning of section   711 - 35).

  (3)   Section   711 - 40 operates as if a liability owed by * members of the group to the partnership at the leaving time were a liability owed by members of the group to the partner at that time, to the extent of the partner's individual share of the liability.

  (4)   If:

  (a)   according to * accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, a thing (the partnership liability ) is a liability of the partnership at the leaving time that can or must be recognised in the partnership's statement of financial position; and

  (b)   for that reason, the partnership liability is not an accounting liability of the partner at the leaving time for the purposes of section   711 - 45;

then section   711 - 45 operates as if the partnership liability were an accounting liability of the partner at the leaving time, to the extent of the partner's individual share of the partnership liability.

713 - 270   Partnership leaves group--certain partnership cost setting interests treated as having been acquired before 20   September 1985

  (1)   This section applies if any of the assets of the partnership at the leaving time has a * pre - CGT factor under section   713 - 245.

  (2)   Apply section   711 - 65 (simple case where assets have a pre - CGT factor) as if:

  (a)   the * pre - CGT factor were a pre - CGT factor under section   705 - 125; and

  (b)   instead of applying to * membership interests in the partnership, section   711 - 65 applied to * partnership cost setting interests that relate to the asset of the partnership; and

  (c)   if the pre - CGT factor for the asset is 1, the number of those partnership cost setting interests worked out under subsection   ( 2) of that section were all of those partnership cost setting interests; and

  (d)   if the pre - CGT factor for the asset is less than 1, each partnership cost setting interest (the actual interest ) consisted of 2 separate partnership cost setting interests that relate to the asset, as follows:

  (i)   one partnership cost setting interest, comprised of the fraction of the actual interest that equals the pre - CGT factor, with a pre - CGT factor of 1 for the purposes of paragraph   ( c) of this subsection;

  (ii)   the other partnership cost setting interest, equal to the remainder of the actual interest, that is not one of the number of partnership cost setting interests that is worked out under subsection   ( 2) of that section.

  (3)   Apply section   711 - 70 (multiple exit case where assets have a pre - CGT factor) as if:

  (a)   a reference in that section to * membership interests in an entity, where that entity is the partnership, were a reference to * partnership cost setting interests that relate to the assets of the partnership; and

  (b)   the requirement in subsection   ( 4) of that section to apply subsections 711 - 65(3) to (6) in relation to a particular entity were, where the entity is the partnership, a requirement to apply subsection   ( 2) of this section.

Part   6 -- Cost base and reduced cost base for allocable cost amount purposes

Income Tax Assessment Act 1997

33   After subsection 705 - 65(5A)

Insert:

  (5B)   For the purposes of working out the * cost base or * reduced cost base of a * membership interest under subsection   ( 1), if:

  (a)   either or both of the following things happen after the joining time:

  (i)   money is paid, or becomes required to be paid, in respect of * acquiring the membership interest;

  (ii)   property is given, or becomes required to be given, in respect of acquiring the membership interest; and

  (b)   because the thing happened after the joining time, it was not taken into account in working out the first element of the cost base or reduced cost base of the membership interest;

Note:   This would be the case if the money was only to be paid etc. if a contingency happened after the joining time.

the thing is nevertheless so taken into account, and taken always to have been so taken into account.

Part   7 -- MEC groups and transitional entities

Income Tax (Transitional Provisions) Act 1997

34   After section   719 - 160

Insert:

719 - 161   Modified effect of section   701 - 1

  (1)   This section applies if a consolidated group mentioned in section   701 - 1 of this Act is a MEC group.

  (2)   Paragraphs 701 - 1(2)(b) and (3)(b) of this Act have effect as if a reference in those paragraphs to the future head company were a reference to any entity that became a member of the group as an eligible tier - 1 company at the time the MEC group came into existence.

  (3)   An entity is a transitional entity for the purposes of paragraph 701 - 1(3)(b) of this Act if:

  (a)   the entity and one or more other entities were members of a potential MEC group as eligible tier - 1 companies, throughout the period:

  (i)   beginning just before 1   July 2003; and

  (ii)   ending just before a time (the rolldown time ) before the MEC group came into existence; and

Note:   The other entity (or one of the other entities) could be the future head company.

  (b)   the entity satisfied either of these conditions at the rolldown time:

  (i)   the entity was a wholly - owned subsidiary of any of those other entities;

  (ii)   the entity would be covered by subparagraph   ( i), if it were assumed that all of the membership interests that were beneficially owned by any of those other entities at that time were owned by a single one of those other entities; and

  (c)   the entity continued to satisfy either of the conditions mentioned in paragraph   ( b) at all times throughout the period:

  (i)   beginning just after the rolldown time; and

  (ii)   ending when the MEC group came into existence; and

  (d)   the other entities remained members of the potential MEC group as eligible tier - 1 companies, throughout the period:

  (i)   beginning just before 1   July 2003; and

  (ii)   ending when the MEC group came into existence; and

  (e)   the other entities were members of the MEC group when it came into existence, as eligible tier - 1 companies.

Part   8 -- Foreign losses

Income Tax Assessment Act 1936

35   Paragraph 160AFD(6)(b)

Repeal the paragraph, substitute:

  (b)   if that loss were a tax loss of the taxpayer for the year of income for which the taxpayer incurred that loss, the taxpayer could not deduct it for the particular year of income because of Subdivision   165 - A or 175 - A of the Income Tax Assessment Act 1997 ;

Income Tax Assessment Act 1997

36   Subsection 707 - 205(1)

Omit " * tax loss or * net capital loss", substitute "loss of any * sort".

37   Application

The amendments made by this Part apply for assessments for the year of income including 1   July 2002 and later years of income.

Part   9 -- International tax

Division   1--Elections about valuing interests in FIFs held as trading stock

Income Tax Assessment Act 1997

38   Section   717 - 275

Omit "Part   X1 of the Income Tax Assessment Act 1936 ", substitute "Part   XI of the Income Tax Assessment Act 1936 and Division   70 of the Income Tax Assessment Act 1997 ".

39   Paragraph 717 - 280(a)

After "selections", insert "made under Parts X and XI of the Income Tax Assessment Act 1936 or the joining entity's election made under subsection 70 - 70(2) of the Income Tax Assessment Act 1997 ".

40   At the end of section   717 - 280

Add:

  ; and (c)   that section   701 - 5 (the entry history rule) does not prevent the head company from making an election under subsection 70 - 70(2).

41   Section   717 - 285

After " 1936 ", insert ", or an election made by the joining entity under subsection 70 - 70(2) of the Income Tax Assessment Act 1997 ,".

42   At the end of Subdivision   717 - F

Add:

717 - 292   Entry history rule does not affect when head company may elect to value trading stock at market value

    Section   701 - 5 (the entry history rule) does not affect the time limit set by subsection 70 - 70(3) for the * head company of the group to make an election under subsection 70 - 70(2).

Note:   Subsection 70 - 70(2) lets the head company elect to value at market value interests in a FIF that are trading stock of the head company.

Example:   The head company did not hold as trading stock an interest in any FIF before the joining time. At that time, the single entity rule caused the head company to start holding as trading stock an interest in a FIF that the joining entity had earlier held as trading stock.

  Subsection 70 - 70(3) and this section let the head company make an election under subsection 70 - 70(2) before lodging its income tax return for the first income year that:

(a)   ends after that time; and

(b)   is an income year in which a notional accounting period for the FIF ends.

43   Section   717 - 300

Omit "Part   X1 of the Income Tax Assessment Act 1936 ", substitute "Part   XI of the Income Tax Assessment Act 1936 and Division   70 of the Income Tax Assessment Act 1997 ".

44   Paragraph 717 - 305(a)

After "selections", insert "made under Parts X and XI of the Income Tax Assessment Act 1936 or the head company's election made under subsection 70 - 70(2) of the Income Tax Assessment Act 1997 ".

45   At the end of section   717 - 305

Add:

  ; and (c)   that section   701 - 40 (the exit history rule) does not prevent the leaving entity from making an election under subsection 70 - 70(2).

46   Section   717 - 310

After " 1936 ", insert ", or an election made by the head company under subsection 70 - 70(2) of the Income Tax Assessment Act 1997 ,".

47   Section   717 - 310

Omit "election" (last occurring), substitute "declaration, election, choice or selection".

48   Section   717 - 310 (note)

Omit "would otherwise have had", substitute "might otherwise have".

49   At the end of Subdivision   717 - G

Add:

717 - 320   Exit history rule does not affect when leaving entity may elect to value trading stock at market value

    Section   701 - 40 (the exit history rule) does not affect the time limit set by subsection 70 - 70(3) for the leaving entity to make an election under subsection 70 - 70(2).

Note:   Subsection 70 - 70(2) lets the leaving entity elect to value at market value interests in a FIF that are trading stock of the entity.

Example:   At the leaving time the single entity rule stopped applying to the leaving entity, causing it to start holding as trading stock an interest in a FIF that the head company of the group had earlier held as trading stock. The leaving entity had not held an interest in any FIF as trading stock before becoming a subsidiary member of the group.

  Subsection 70 - 70(3) and this section let that entity make an election under subsection 70 - 70(2) before lodging its income tax return for the first income year that:

(a)   ends after the leaving time; and

(b)   is an income year in which a notional accounting period for the FIF ends.

Division   2--Foreign dividend accounts

Income Tax Assessment Act 1997

50   After section   719 - 900

Insert:

719 - 903   Special rules for certain FDA credits and FDA debits

  (1)   The objects of this section are:

  (a)   to let * FDA credits arise for the * provisional head company of a * MEC group under paragraph 128TA(1)(b) of the Income Tax Assessment Act 1936 ; and

  (b)   to ensure that an * FDA debit of the appropriate amount arises under section   128TB of that Act for an Australian - taxable dividend amount.

Note:   Paragraph 128TA(1)(b) of the Income Tax Assessment Act 1936 gives a resident company an FDA credit when a non - portfolio dividend is paid to the company, if the company is taken, for the purposes of Division   18 (about foreign tax credits) of Part   III of that Act, to have paid and been personally liable for foreign tax on the dividend.

  (2)   This section operates if (ignoring section   717 - 515) a non - portfolio dividend (as defined in section   317 of the Income Tax Assessment Act 1936 ) is paid to a company (the dividend recipient ) at a time (the payment time ) when the dividend recipient is a * member of a * MEC group in an income year (the payment year ).

  (3)   If the conditions in subsection   ( 4) are met, paragraph 128TA(1)(b) of the Income Tax Assessment Act 1936 operates as if the * provisional head company of the group at the payment time were, for the purposes of Division   18 of Part   III of that Act, taken to have paid and been personally liable for foreign tax in respect of the dividend.

  (4)   The conditions are:

  (a)   an amount of the dividend is included in the assessable income of the * head company of the group for the payment year; and

  (b)   the dividend recipient paid and was personally liable for that foreign tax (whether or not the dividend recipient was a * member of the group when paying that foreign tax).

  (5)   If the * provisional head company of the group at the payment time is not the * head company of the group for the payment year, section   128TB of the Income Tax Assessment Act 1936 operates in relation to the existence and amount of the Australian - taxable dividend amount as if the dividend had been paid to the head company.

Note:   For the purposes of working out the existence and amount of the Australian - taxable dividend amount, the head company is taken to have paid and been personally liable for foreign tax in respect of the dividend. See section   717 - 10 (applying because of section   719 - 2).

  (6)   Subdivision   717 - J (about * foreign dividend accounts), as it applies in relation to the * members of the group in accordance with sections   719 - 2 and 719 - 900, operates subject to this section.

New Business Tax System (Consolidation and Other Measures) Act 2003

51   At the end of item   12 of Schedule   9

Add:

(5)   The amendments of the Income Tax Assessment Act 1936 made by this Schedule apply to a dividend or a non - share dividend that:

  (a)   is paid by a company (the paying company ) after 30   June 2002; and

  (b)   is paid to a company that:

  (i)   is related (within the meaning of subsection 51AE(16) of that Act) to the paying company; and

  (ii)   is a member of a consolidated group or MEC group.

(6)   A term used in paragraph   ( 5)(a) or (b) and defined in the Income Tax Assessment Act 1997 has the same meaning in that paragraph as it has in that Act.

(7)   To avoid doubt, the amendments of the Income Tax Assessment Act 1936 made by this Schedule apply to a dividend or a non - share dividend if they apply to it under subitem   ( 5), even if they would not apply to it under subitem   ( 1) or (3).

Division   3--Foreign tax credits

Income Tax Assessment Act 1997

52   Subparagraph 717 - 15(1)(b)(i)

After "before", insert "or at".

53   Application of amendment of subparagraph 717 - 15(1)(b)(i)

The amendment of subparagraph 717 - 15(1)(b)(i) of the Income Tax Assessment Act 1997 made by this Division applies to consolidated groups that come into existence on or after 1   July 2004.

54   Paragraph 717 - 15(2)(b)

Repeal the paragraph.

55   Subsection 717 - 15(3) (example)

Repeal the example.

56   After section   717 - 20

Insert:

717 - 22   Excess foreign tax credits from non - membership period ending before head company's income year starts

  (1)   This section operates for the purposes of section   160AFE of the Income Tax Assessment Act 1936 in relation to an income year (the first use year ) of the * head company of a * consolidated group and later income years of the head company if:

  (a)   an entity (the joining entity ) becomes a * subsidiary member of the group at a time (the joining time ) that is before or at the start of the head company's first use year but after the start of the same income year of the joining entity (because that income year starts at different times for the head company and the joining entity); and

  (b)   the joining entity has * excess foreign tax credits (the transfer credits ) from the non - membership period described in section   701 - 30 that starts at the start of that income year of the joining entity and ends just before the joining time.

Note:   Under section   701 - 30, the non - membership period is treated like an income year.

  (2)   For those purposes relating to an income year shown in an item of the table, the * head company of the group is taken to have the amount of the transfer credits shown in the item from its earlier income year shown in the item included in its other * excess foreign tax credits (if any) from that earlier income year.

  (3)   Subsection   ( 2) also has effect for the purposes of a subsequent operation of this section.

  (4)   This section operates separately in relation to each class of foreign income (within the meaning of the Income Tax Assessment Act 1936 ) identified in subsection 160AF(7) of that Act, as if:

  (a)   the * head company's foreign income of that class for an income year were the whole of the head company's foreign income for that year; and

  (b)   the joining entity's foreign income of that class for the non - membership period were the whole of the joining entity's foreign income for the period.

717 - 28   Excess foreign tax credits lost on joining consolidated group

  (1)   For the purposes of section   160AFE of the Income Tax Assessment Act 1936 in relation to an income year ending after the time an entity becomes a * subsidiary member of a * consolidated group, the entity is taken not to have any * excess foreign tax credits from an income year, or non - membership period described in section   701 - 30, that ended before or at that time.

  (2)   Subsection   ( 1) does not affect the operation of section   160AFE of the Income Tax Assessment Act 1936 in accordance with section   717 - 15 or 717 - 22.

Part   10 -- Liability for payment of tax where head company fails to pay on time

Income Tax Assessment Act 1997

57   Subsection 721 - 10(2) (table items   10, 15 and 20)

Repeal the items, substitute:

58   At the end of section   721 - 10

Add:

  (3)   Item   30 of the table in subsection   ( 2) is taken not to include a * PAYG instalment of the * head company if the Commissioner gave the head company its * initial head company instalment rate after the end of the * instalment quarter of the head company to which the PAYG instalment relates.

59   After subsection 721 - 15(3)

Insert:

  (3A)   Subsection   ( 1) is taken never to have made a particular contributing member jointly and severally liable to pay the group liability if:

  (a)   the group liability was taken never to have been covered by the tax sharing agreement because of subsection 721 - 25(3); and

Note:   Subsection 721 - 25(3) provides for this to happen if the Commissioner did not receive a copy of the tax sharing agreement within 14 days after the Commissioner gave the head company the notice under that subsection.

  (b)   the Commissioner gave the contributing member written notice of the group liability under subsection   ( 5); and

  (c)   apart from the operation of subsection 721 - 25(3), the contributing member left the group clear of the group liability in accordance with section   721 - 35; and

  (d)   the contributing member gave the Commissioner a copy of the tax sharing agreement (that is, the relevant agreement mentioned in paragraph 721 - 25 (1)(a)) in the * approved form; and

  (e)   if the Commissioner gave the contributing member written notice of the group liability under subsection   ( 5) (ignoring subsection 721 - 17(2))--the contributing member gave that copy of the agreement to the Commissioner within 14 days after that notice was given.

60   After subsection 721 - 25(1)

Insert:

  (1A)   The requirement in paragraph   ( 1)(c) is taken to be satisfied if:

  (a)   the group liability is a * tax - related liability mentioned in item   25 of the table in subsection 721 - 10 (2) in relation to an income year; and

  (b)   before, at or after the head company's due time, the * head company of the group became entitled to either or both of the following:

  (i)   a credit under section   45 - 30 in Schedule   1 to the Taxation Administration Act 1953 for that income year;

  (ii)   a credit under section   45 - 865 in Schedule   1 to that Act for that income year; and

  (c)   just before the head company's due time, the contribution amounts for each of the TSA contributing members in relation to the group liability, as determined under the agreement, represented a reasonable allocation among the head company and the TSA contributing members of the difference between:

  (i)   the total amount of the group liability; and

  (ii)   the amount of the credit, or the sum of the credits, mentioned in paragraph   ( b).

  (1B)   Despite subsections   ( 1) and (1A), the group liability is not covered by a tax sharing agreement for the purposes of this Division if, apart from this subsection, the requirements in those subsections in relation to the group liability would be satisfied in relation to 2 or more agreements.

61   Subsections 721 - 25(2) and (3)

Omit " Despite subsection   ( 1) ", substitute " Despite subsections   ( 1) and (1A) ".

Part   11 -- Technical amendment of cost base and reduced cost base calculation

Income Tax Assessment Act 1997

62   At the end of section   110 - 25

Add:

Assume a CGT event for purposes of working out cost base at a particular time

  (12)   If:

  (a)   it is necessary to work out the * cost base at a particular time; and

  (b)   a * CGT event does not happen in relation to the asset at or just after that time;

assume, for the purpose only of working out the cost base at the particular time, that such an event does happen in relation to the asset at or just after that time.

Note 1:   For example, in order to apply subsection   ( 5) of this section or subsection 110 - 37(1), it is necessary for there to be a CGT event.

Note 2:   The assumption that a CGT event happens does not have any consequence beyond that stated. For example, it does not mean that the asset is afterwards to be treated as having been acquired at the particular time with a first element of cost base equal to all of its former cost base elements.

63   At the end of section   110 - 55

Add:

Assume a CGT event for purposes of working out reduced cost base at a particular time

  (10)   If:

  (a)   it is necessary to work out the * reduced cost base at a particular time; and

  (b)   a * CGT event does not happen in relation to the asset at or just after that time;

assume, for the purpose only of working out the reduced cost base at the particular time, that such an event does happen in relation to the asset at or just after that time.

64   Application

The amendments made by this Part apply to assessments for the 1998 - 99 income year and later income years.

Part   12 -- Financial Corporations (Transfer of Assets and Liabilities) Act 1993

65   At the end of Division   1 of Part   3

Add:

14A   Modified operation of this Part in relation to transfers from subsidiary members of consolidated groups etc.

Object

  (1)   The object of this section is to modify the operation of other provisions of this Part in relation to a transfer of an asset or liability from a subsidiary member of a consolidated group or MEC group to a receiving corporation so that, where appropriate:

  (a)   relevant provisions affect the income tax position of the head company of the group in relation to the transfer; and

  (b)   the effect of the relevant provisions on the income tax position of the receiving corporation is worked out by reference to income tax attributes of the head company, including ones it has because of the following provisions of the Income Tax Assessment Act 1997 :

  (i)   section   701 - 1 (the single entity rule );

  (ii)   section   701 - 5 (the entry history rule );

  (iii)   section   701 - 10 (the head company tax cost setting rule ).

Note 1:   The single entity rule has the effect that a subsidiary member of a consolidated group or MEC group is taken to be part of the head company.

Note 2:   The entry history rule treats things that happened in relation to an entity before it became a subsidiary member of a consolidated group or MEC group as having happened in relation to the head company.

Note 3:   The head company tax cost setting rule sets the amount taken to be the cost to the head company of assets that became assets of the head company because of the single entity rule when an entity became a subsidiary member of the consolidated group or MEC group.

Circumstances in which this section has effect

  (2)   This section modifies the way in which a provision of this Part (except this Division) operates in relation to a transfer of an asset or liability from a financial corporation that (ignoring the single entity rule) is a subsidiary member of a consolidated group or MEC group to the receiving corporation.

Modified operation of the provision

  (3)   If the head company of the group is not a financial corporation, the provision operates in relation to the head company in the way in which it would operate in relation to the transferring corporation apart from this subsection.

Note:   This ensures that, even though the head company is not the transferring corporation (because it is not a financial corporation), the provision operates as though it were. On this basis, the provision may affect the head company and/or the receiving corporation.

  (4)   So far as the provision affects the receiving corporation, it does so on the basis that the single entity rule, the entry history rule and the head company tax cost setting rule affect the head company of the group.

Note 1:   This subsection ensures that, where the effect of the provision on the receiving corporation depends on the transferring corporation, the results of those rules in relation to the head company are taken into account in determining the effect of the provision on the receiving corporation. Some examples of this are as follows:

(a)   the head company tax cost setting rule affects subsection 15(3) and section   18 by setting the head company's cost base for assets an entity brought into the group when the entity became a subsidiary member of the group;

(b)   the entry history rule affects paragraph 16(3)(d) by treating the head company as having been paid, for assuming a liability that was brought into the group by an entity becoming a subsidiary member, the amount paid to the entity for assuming the liability;

(c)   the entry history rule affects subsections 17(1) and 22(4) and table item   1 in subsection 22(1) by treating the head company as having included in its assessable income amounts included in the assessable income of an entity that later became a subsidiary member of the group;

(d)   the entry history rule affects subsections 17(1) and (2) and 22(4) by treating deductions allowable to an entity before becoming a subsidiary member of the group as having been allowable to the head company.

Note 2:   This subsection also ensures that, if the head company is a financial corporation, the receiving corporation is affected by the provision operating in relation to the head company of the group as the transferring corporation (because the single entity rule operates to treat the subsidiary member of the group as part of the head company, so the transfer is treated as being from that company).

Provisions whose operation is not modified

  (5)   To avoid doubt, this section does not affect the operation of the following provisions:

  (a)   section   20;

  (b)   section   23;

  (c)   Division   8.

66   Application

The amendment of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 made by this Part applies for assessments for the year of income including 1   July 2002 and later years of income.

Part   13 -- Privatised assets

Income Tax Assessment Act 1997

67   After section   705 - 45

Insert:

705 - 47   Reduction in tax cost setting amount for some privatised assets

Object

  (1)   The object of this section is to limit appropriately the amount the * head company of the joined group can deduct for a * depreciating asset it starts to * hold because the joining entity becomes a * subsidiary member of the group, by reference to the direct or indirect effect of the following provisions on the amount the joining entity could deduct for the asset:

  (a)   section   61A of the Income Tax Assessment Act 1936 (about depreciation deductions for tax - exempt entities that become taxable);

  (b)   Subdivision   57 - I or 57 - J in Schedule   2D to the Income Tax Assessment Act 1936 (about depreciation deductions and * capital allowances for tax - exempt entities that become taxable);

  (c)   Division   58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1   July 2001).

Reduction of tax cost setting amount

  (2)   The * tax cost setting amount for a * depreciating asset is reduced to the joining entity's * terminating value for the asset if:

  (a)   at a time before the joining entity became a * subsidiary member of the joined group, the asset was * held by an entity (whether the joining entity or another entity) that, at that time, was:

  (i)   an * exempt Australian government agency; or

  (ii)   another entity whose * ordinary income and * statutory income were exempt from income tax; and

  (b)   any of the following provisions directly or indirectly affected the amount the joining entity could deduct for the asset:

  (i)   section   61A of the Income Tax Assessment Act 1936 (about depreciation deductions for tax - exempt entities that become taxable);

  (ii)   Subdivision   57 - I or 57 - J in Schedule   2D to the Income Tax Assessment Act 1936 (about depreciation deductions and * capital allowances for tax - exempt entities that become taxable);

  (iii)   Division   58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1   July 2001); and

  (c)   apart from this section, the tax cost setting amount for the asset would exceed the joining entity's terminating value for the asset.

Note 1:   Unlike the position with a reduction in tax cost setting amount under section   705 - 40, the amount of the reduction is not re - allocated among other assets.

Note 2:   Section   61A of, or Subdivision   57 - I or 57 - J in Schedule   2D to, the Income Tax Assessment Act 1936 or Division   58 of this Act may, for example, have indirectly affected the amount the joining entity could deduct for the asset because:

(a)   that section, Subdivision or Division affected the amount that could be deducted by an entity that held the asset before the joining entity and that effect extended to the joining entity because of a previous application of this subsection, roll - over relief or section   701 - 40 (the exit history rule); or

(b)   this subsection affected the amount the joining entity could deduct for the asset (either directly or because of section   701 - 40).

Note 3:   Subsection   ( 2) has effect even if, just before the joining time, the joining entity was:

(a)   an exempt Australian government agency; or

(b)   another entity whose ordinary income and statutory income were exempt from income tax.

This is because section   715 - 900 causes Division   58 to apply as if, just before the joining time, the joining entity's ordinary income or statutory income had become assessable income to some extent.

Exception to reduction of tax cost setting amount

  (3)   Subsection   ( 2) does not apply if:

  (a)   just before the joining time, the joining entity was neither an * exempt Australian government agency nor another entity whose * ordinary income and * statutory income were exempt from income tax; and

  (b)   a condition in subsection   ( 4) or (5) is met in relation to the period (the pre - joining taxable period ) between the last time for which the condition in paragraph   ( 2)(a) is met and the joining time.

  (4)   One condition for subsection   ( 2) not to apply is that an amount was included in an entity's assessable income, or an entity could deduct an amount, because of a * balancing adjustment event that occurred for the asset during the pre - joining taxable period.

  (5)   Another condition for subsection   ( 2) not to apply is that:

  (a)   for at least some of the pre - joining taxable period, the asset was * held by the * head company of a * consolidated group (the earlier group ) for the period (the earlier group period ):

  (i)   starting when (and because) an entity that had previously held the asset became a * subsidiary member of the earlier group or when the asset started to be held by that company because of an asset sale situation described in subsection 58 - 5(4) involving a * member of the earlier group as the purchaser mentioned in that subsection; and

  (ii)   ending when (and because) an entity ceased to be a subsidiary member of the earlier group or when the earlier group ceased to exist; and

  (b)   the company that was the head company of the earlier group just before the end of the earlier group period was not :

  (i)   an * associate of the head company of the joined group just before the joining time; or

  (ii)   the same company as the head company of the joined group; and

  (c)   the earlier group period was at least 24 months.

68   Section   705 - 55 (heading)

Repeal the heading, substitute:

705 - 55   Order of application of sections   705 - 40, 705 - 45, 705 - 47 and 705 - 50

69   Subparagraph 705 - 55(b)(iii)

Repeal the subparagraph, substitute:

  (iii)   third, section   705 - 47;

  (iv)   fourth, section   705 - 50.

70   Paragraph 705 - 57(2)(d)

After "705 - 45", insert ", 705 - 47".

71   Subsections 705 - 57(6) and 705 - 59(7)

After "705 - 45", insert ", 705 - 47".

72   At the end of section   711 - 25

Add:

Increase in step 1 amount for certain former privatised assets

  (3)   If:

  (a)   the * head company of the old group * holds a * depreciating asset at the leaving time because the leaving entity is taken by subsection 701 - 1(1) (the single entity rule) to be a part of the head company; and

  (b)   the asset's * tax cost was set at the * tax cost setting amount when an entity (whether the leaving entity or another entity) became a * subsidiary member of the old group; and

  (c)   the tax cost setting amount for the asset was reduced because of section   705 - 47 (which is about certain assets that were * privatised assets);

the amount of the reduction is added to the step 1 amount.

Increase in step 1 amount for certain privatised assets

  (4)   If:

  (a)   the * head company of the old group * holds a * depreciating asset at the leaving time because the leaving entity is taken by subsection 701 - 1(1) (the single entity rule) to be a part of the head company; and

  (b)   the first element of the * cost of the asset was worked out by reference to subsection 58 - 70(5) because a * member of the old group acquired the asset as described in subsection 58 - 5(4) on or after 1   July 2002; and

  (c)   the amount of the first element of the cost of the asset is less than the amount it would have been apart from item   11 of the table in subsection 40 - 180(2) (which makes subsection 58 - 70(5) relevant to working out that element);

the difference between the amounts is added to the step 1 amount.

73   Subsection 713 - 240(3)

Omit "and 705 - 45", substitute ", 705 - 45 and 705 - 47".

74   At the end of Division   715

Add:

[The next Subdivision is Subdivision   715 - V.]

Subdivision   715 - V -- Entity ceasing to be exempt from income tax on becoming subsidiary member of consolidated group

Table of sections

715 - 900   Transition time taken to be just before joining time

715 - 900   Transition time taken to be just before joining time

  (1)   This section has effect if:

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

  (b)   the entity's * ordinary income and * statutory income were not (to any extent) assessable income just before the joining time.

  (2)   Division   57 in Schedule   2D to the Income Tax Assessment Act 1936 and Division   58 of this Act have effect as if the entity's * ordinary income or * statutory income had become to some extent assessable income just before the joining time.

Note 1:   Those Divisions deal with entities whose ordinary income and statutory income were previously exempt from income tax.

Note 2:   The operation of Division   58 just before the joining time can affect the basis on which the tax cost is set for a depreciating asset that becomes an asset of the head company of the consolidated group at the joining time because of section   701 - 1 (the single entity rule). That Division provides the basis for working out under Division   40 the asset's adjustable value, which:

(a)   can affect the tax cost setting amount for the asset under section   705 - 50; and

(b)   is the entity's terminating value for the asset, which in turn can affect the tax cost setting amount for the asset under sections   705 - 40, 705 - 45, 705 - 47 and 705 - 50.

Income Tax (Transitional Provisions) Act 1997

75   At the end of Division   701

Add:

701 - 50   Increased allocable cost amount for leaving entity if it takes privatised asset brought into group by chosen transitional entity

Application

  (1)   This section provides for an addition to the step 1 amount for working out under section   711 - 20 of the Income Tax Assessment Act 1997 the allocable cost amount for an entity (the leaving entity ) that ceases to be a subsidiary member of the transitional group at a time (the leaving time ), if:

  (a)   the head company of the group holds an asset at the leaving time because the leaving entity is taken by subsection 701 - 1(1) of that Act to be a part of the head company; and

  (b)   the head company started to hold the asset because of that subsection when a chosen transitional entity became a subsidiary member of the group.

If entity sale situation affected asset's cost for chosen transitional entity

  (2)   If:

  (a)   at a time before the chosen transitional entity became a subsidiary member of the transitional group:

  (i)   all of that entity's ordinary income and statutory income was not assessable income; and

  (ii)   that entity held the asset; and

  (b)   just after that time, some or all of that entity's ordinary income and statutory income became assessable income because another entity that later became a member of the transitional group purchased all the membership interests in the entity; and

  (c)   the amount of the purchase price reasonably attributable to the asset exceeded the amount worked out under subsection   ( 3);

the excess is added to the step 1 amount.

  (3)   Work out the amount for the purposes of paragraph   ( 2)(c) using the following table:

If asset sale situation affected asset's cost for chosen transitional entity

  (4)   If:

  (a)   on or after 4   August 1997, an entity (whether the chosen transitional entity or another entity) acquired the asset in connection with the acquisition of a business from the tax exempt vendor (within the meaning of those terms given by Division   58 of the Income Tax Assessment Act 1997 , as that Division applied to the acquisition); and

  (b)   because of the acquisition, that Division directly or indirectly affected how much the chosen transitional entity could deduct for the asset; and

  (c)   that effect was partly due to the amount described in an item of the table being worked out for that entity directly or indirectly by reference to a provision of that Division specified in the item; and

  (d)   that amount is less than it would have been apart from that provision;

the difference is added to the step 1 amount.

Note 1:   As originally enacted, Division   58 of the Income Tax Assessment Act 1997 applied to acquisitions on or after 4   August 1997. That Act was later amended to replace Division   58, with the replacement Division   58 applying to acquisitions on or after 1   July 2001.

Note 2:   Division   58 of the Income Tax Assessment Act 1997   may, for example, have indirectly affected how much the chosen transitional entity could deduct for the asset because:

(a)   that Division affected the amount that could be deducted by an entity that held the asset before the chosen transitional entity; and

(b)   that effect extended to the chosen transitional entity because of roll - over relief.

76   After section   702 - 1

Insert:

702 - 4   Extended operation of subsection 40 - 285(3)

  (1)   This section applies in relation to a balancing adjustment event that occurs:

  (a)   for a depreciating asset held by an entity (the final entity ); and

  (b)   after the asset became an asset of the head company of a consolidated group because of section   701 - 1 (the single entity rule) of the Income Tax Assessment Act 1997 applying when an entity became a subsidiary member of the group.

It does not matter whether or not the final entity is the same as the head company or the entity mentioned in paragraph   ( b).

Note:   The final entity will be different from the head company if an entity (the leaving entity ) took the asset with it when leaving the group, whether or not the leaving entity brought the asset into another consolidated group before the asset came to be held by the final entity.

  (2)   The final entity is entitled to a further deduction under subsection 40 - 285(3) of this Act for the balancing adjustment event if the final entity would have been entitled to the deduction apart from paragraph 701 - 55(2)(a) of the Income Tax Assessment Act 1997 operating at any time before the event occurred.

Note:   The final entity will be entitled to the deduction apart from paragraph 701 - 55(2)(a) of the Income Tax Assessment Act 1997 only if the entity is treated as having depreciated the asset under former Division   42 of that Act, because of section   701 - 5 (the entry history rule) of that Act and perhaps also section   701 - 40 (the exit history rule) of that Act.

  (3)   However, the final entity is not entitled to the deduction if, at a time before the balancing adjustment event occurred:

  (a)   the asset became the asset of the head company of a consolidated group because of section   701 - 1 (the single entity rule) of the Income Tax Assessment Act 1997 applying when an entity (the joining entity ) became a subsidiary member of the group; and

  (b)   the tax cost setting amount for the asset was more than the joining entity's terminating value for the asset.

It does not matter whether or not the change in status of the asset described in paragraph   ( a) of this subsection is the same change as the change in status of the asset described in paragraph   ( 1)(b).

Note:   In some cases, section   705 - 47 of the Income Tax Assessment Act 1997 reduces the tax cost setting amount for a depreciating asset to the joining entity's terminating value for the asset, so that subsection   ( 3) of this section will not prevent the final entity from getting the further deduction under subsection 40 - 285(3) of this Act.