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  • 11. Consolidation deductions relating to rights to future income, consumable stores and work in progress

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Information for consolidated and multiple entry consolidated (MEC) groups

    Only complete this item if the head company of a consolidated group or a MEC group (or for deductions claimed under section 716-405 by a former subsidiary of a consolidated group or a MEC group) has claimed in this income year at item 6 Calculation of total profit or loss or item 7 Reconciliation to taxable income or loss, all or part of the tax cost setting amount of:

    • unbilled income assets, consumable stores or assets where subsection 701-55(6) of the ITAA 1997 applies under the pre rules
    • rights to future income assets, consumable stores or assets where subsection 701-55(6) of the ITAA 1997 applies under the interim rules, or
    • work in progress (WIP) amount assets, consumable stores or assets where subsection 701-55(6) of the ITAA 1997 applies under the prospective rules.

    The tax law affecting consolidated groups was amended by Schedule 3 to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 to modify the consolidation tax cost setting and rights to future income rules so that the tax outcomes for consolidated groups and MEC groups are more consistent with the tax outcomes that arise when assets are acquired outside the consolidation regime.

    The rules applying to an entity will depend on the time when the corporate acquisition took place. Different rules apply to acquisitions that took place before 12 May 2010 (the pre-rules), after 30 March 2011 (the prospective rules) and the intervening period (the interim rules).

    End of example

    D - Pre rules deductions

    Information for consolidated and multiple entry consolidated (MEC) groups

    Write at D the total amount the company has claimed in this income year under the pre rules at another label in item 6 Calculation of total profit or loss or item 7 Reconciliation to taxable income or loss for the tax cost setting amount of unbilled income assets, consumable stores or assets where subsection 701-55(6) of the ITAA 1997 applies.

    Generally, the pre rules apply to an assessment of the head company of a consolidated group or a MEC group for an income year for an entity that becomes a member of the group if:

    • the joining time was before 12 May 2010, or

    Generally, the amendments in the pre-rules:

    • ensure that a deduction is allowed for the reset tax costs for consumable stores
    • limit deductions for nights to future income to unbilled income assets
    • restore the original 2002 residual tax cost setting rule
    • treat certain assets as goodwill.
    End of example

    E - Interim rules deductions

    Information for consolidated and multiple entry consolidated (MEC) groups

    Write at E the total amount the company has claimed in this income year under the interim rules at another label in item 6 Calculation of total profit or loss or item 7 Reconciliation to taxable income or loss for the tax cost setting amount of rights to future income assets, consumable stores or assets where section 701-55(6) of the ITAA 1997 applies.

    Generally, the interim rules apply to an assessment of the head company of a consolidated group or a MEC group for an income year for an entity that becomes a member of the group if:

    • the joining time was on or after 12 May 2010, and
    • the arrangement under which the joining entity joined the group commenced on or after 10 February 2010 and on or before 30 March 2011.

    The interim rules amend the law as modified by the pre-rules. Generally, the amendments:

    • ensure that the reset tax costs for consumable stores are deductible
    • restore the original 2010 version of the rights to future income and residual tax cost setting rules with modification to    
      • ensure that no value is attributed to certain contractual rights to future income, and
      • treat certain assets as goodwill.
       
    End of example

    F - Prospective rules deductions

    Information for consolidated and multiple entry consolidated (MEC) groups

    Write at F the total amount the company has claimed in this income year under the prospective rules at another label in item 6 Calculation of total profit or loss or item 7 Reconciliation to taxable income or loss for the tax cost setting amount of work in progress amount assets, consumable stores or assets where section 701-55(6) of the ITAA 1997 applies.

    Generally, the prospective rules apply to an assessment of the head company of a consolidated group or a MEC group for an income year for an entity that becomes a member of the group if:

    • the joining time is on or after 31 March 2011, and
    • neither the pre-rules nor the interim rules apply.

    The prospective rules amend the law as modified by both the pre-rules and the interim rules. Generally, the amendments:

    • restrict the operation of the tax cost setting rules to CGT assets, revenue assets, depreciating assets, trading stock and financial arrangements under Division 230 of the ITAA 1997
    • ensure that the reset tax costs for rights to future income that are WIP amount assets and consumable stores are deductible
    • treat rights to future income, other than WIP amount assets, as retained cost base assets, and
    • apply a business acquisition approach to the residual tax cost setting rule.
    End of example
    Last modified: 12 Feb 2019QC 48080