Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-95 - VALUE SHIFTING  

Division 727 - Indirect value shifting affecting interests in companies and trusts, and arising from non-arm ' s length dealings  

Subdivision 727-K - Reduction of loss on equity or loan interests realised before the IVS time  

SECTION 727-850   Consequences of scheme under this Subdivision  

727-850(1)  


If:


(a) as at the time when a * scheme is entered into, or a later time, an entity (the prospective losing entity ) has * provided, is providing, is to provide, or might provide, one or more economic benefits * in connection with the scheme; and


(b) the prospective losing entity is a company or trust (except one listed in section 727-125 (about superannuation entities)); and


(c) a * realisation event happens to an * equity or loan interest, or to an * indirect equity or loan interest, in the prospective losing entity at a time when no * IVS time for the scheme has yet happened (whether or not one happens later); and


(d) apart from this Division, a loss would be * realised for income tax purposes by the realisation event; and


(e) because of section 727-855 , the scheme results in a * presumed indirect value shift affecting the realisation event; and


(f) section 727-860 (about prospective gaining entities) is satisfied; and


(g) no exclusion in Subdivision 727-C applies to the presumed indirect value shift because of section 727-865 ; and


(h) on the assumptions set out in subsection 727-865(3) , the interest would be an * affected interest in the prospective losing entity;

the loss is reduced by an amount that is reasonable having regard to a reasonable estimate of the amount (if any) by which the scheme has reduced the interest ' s *market value during the period that ends at the time of the realisation event and started at the later of:


(i) when the scheme was entered into; and


(j) the time of the last realisation event that happened to the interest.

Note 1:

This Subdivision does not reduce gains from realisation events, but loss reductions under this Subdivision are taken into account in working out:

  • gain reductions under Subdivision 727-G for interests in a gaining entity that are realised after the IVS time for the scheme (see section 727-625 ); or
  • uplifts under Subdivision 727-H in the adjustable values of interests in a gaining entity (see section 727-810 ).
  • Note 2:

    Section 727-865 provides for how other provisions of this Division apply for the purposes of this Subdivision.

    Further exclusion for certain 95% services indirect value shifts

    727-850(2)  
    The loss is not reduced if the * presumed indirect value shift is a * 95% services indirect value shift because of subsection 727-865(2) , unless:


    (a) the conditions in section 727-705 (as applying because of that subsection) are met for the presumed indirect value shift; or


    (b) the conditions in section 727-710 , 727-715 or 727-720 (as applying because of that subsection) are met for the presumed indirect value shift and for the realisation event.


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