New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)
Schedule 7 Consolidation: interactions between Consolidation rules and other rules
Part 2 New Subdivision 719-T inserted in the Income Tax Assessment Act 1997
2 After Subdivision 719-K
Insert:
Subdivision 719-T - Interactions between this Part and other areas of the income tax law: special rules for MEC groups
Table of sections
How Subdivision 165-CC applies to MEC groups
719-700 Changeover times under section 165-115C or 165-115D
719-705 Additional changeover times for head company of MEC group
How Subdivision 165-CD applies to MEC groups
719-720 Alteration times under section 165-115L or 165-115M
719-725 Additional alteration times for head company of MEC group
719-730 Some alteration times only affect interests in top company
719-735 Some alteration times affect only pooled interests
How indirect value shifting rules apply to a MEC group
719-755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift
Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group
719-775 Cancellation of loss
719-780 Exception for pooled interests in eligible tier-1 companies
719-785 Exception for interests in top company
719-790 Exception for interests in entity leaving MEC group
719-795 Exception if loss attributable to certain matters
How Subdivision 165-CC applies to MEC groups
719-700 Changeover times under section 165-115C or 165-115D
(1) This section has effect for the purposes of determining whether a time (the test time ) is a *changeover time under section 165-115C (about changes in ownership) or 165-115D (about changes in control) in respect of the *head company of a *MEC group.
Modified meaning of reference time
(2) The reference time is:
(a) if no *changeover time has occurred in respect of the head company since the group came into existence and before the test time - when the group came into existence; or
(b) otherwise - the time just after the last such changeover time.
(3) Subsection (2) of this section has effect despite subsection 165-115A(2A).
Assumptions to make
(4) Assume that, while the *MEC group exists:
(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and
(b) those membership interests remain the same; and
(c) the top company directly controls the voting power in the head company.
719-705 Additional changeover times for head company of MEC group
(1) The time when a *potential MEC group ceases to exist is a changeover time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group's membership was the same as the membership of the MEC group.
Note: The changeover times in subsections (1), (2) and (3) are based on the events described in subsections 719-280(2), (3) and (4), each of which causes the test company referred to in section 719-280 to be assumed to fail the continuity of ownership test in section 165-12.
(2) If something:
(a) happens at a time in relation to *membership interests in one or more of these entities:
(i) a company that was just before that time a *member of a *MEC group and an *eligible tier-1 company of the *top company for the MEC group;
(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time; and
(b) does not cause the *potential MEC group whose membership is the same as the membership of the MEC group to cease to exist, but does cause a change in the identity of the top company for the potential MEC group;
that time is a changeover time in respect of the *head company of the *MEC group.
(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is a changeover time in respect of the *head company of the *MEC group.
[The next section is section 719-720.]
How Subdivision 165-CD applies to MEC groups
719-720 Alteration times under section 165-115L or 165-115M
(1) This section has effect for the purposes of determining whether a time (the test time ) is an *alteration time under section 165-115L (about alterations in ownership) or 165-115M (about alterations in control) in respect of the *head company of a *MEC group.
Modified meaning of reference time
(2) The reference time is:
(a) if no *alteration time has occurred in respect of the head company since the group came into existence and before the test time - when the group came into existence; or
(b) otherwise - the time just after the last such alteration time.
(3) In applying subsection (2), disregard an *alteration time arising under subsection 719-725(4).
(4) Subsection (2) of this section has effect despite subsections 165-115L(2) and 165-115M(2).
Assumptions to make
(5) Assume that, while the *MEC group exists:
(a) the *top company for the group holds and beneficially owns all the *membership interests in the *head company (instead of whoever actually does); and
(b) those membership interests remain the same; and
(c) the top company directly controls the voting power in the head company.
719-725 Additional alteration times for head company of MEC group
Additional alteration times based on section 719-280
(1) The time when a *potential MEC group ceases to exist is an alteration time in respect of the *head company of a *MEC group if, just before that time, the potential MEC group's membership was the same as the membership of the MEC group.
Note: The alteration times in subsections (1), (2) and (3) are based on the events described in subsections 719-280(2), (3) and (4), each of which causes the test company referred to in section 719-280 to be assumed to fail the continuity of ownership test in section 165-12.
(2) If something:
(a) happens at a time in relation to *membership interests in one or more of these entities:
(i) a company that was just before that time a *member of a *MEC group and an *eligible tier-1 company of the *top company for the MEC group;
(ii) an entity interposed between a company described in subparagraph (i) and the company that was the top company for the group just before that time; and
(b) does not cause the *potential MEC group whose membership is the same as the membership of the MEC group to cease to exist, but does cause a change in the identity of the top company for the potential MEC group;
that time is an alteration time in respect of the *head company of the *MEC group.
(3) The time when a *MEC group ceases to exist because there ceases to be a *provisional head company of the group is an alteration time in respect of the *head company of the *MEC group.
Additional alteration times based on Subdivision 719-K
(4) If Subdivision 719-K (MEC group cost setting rules: pooling cases) applies, the time just before the trigger time referred to in paragraph 719-555(1)(a) is an alteration time in respect of the *head company of the *MEC group.
719-730 Some alteration times only affect interests in top company
(1) This section applies if an *alteration time (except one arising under subsection 719-725(4)) happens for the *head company of a *MEC group.
(2) Sections 165-115ZA and 165-115ZB apply, in relation to the alteration time, to an interest or debt that is, or is part of, a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, only if the interest or debt is:
(a) an *equity or loan interest in the *top company for the MEC group; or
(b) an *indirect equity or loan interest in the top company.
Note: Sections 165-115ZA and 165-115ZB are about the consequences that an alteration time for a loss company has for relevant equity interests and relevant debt interests in the company.
(3) In determining what is a relevant equity interest or relevant debt interest that an entity has in the *head company just before the *alteration time, make the assumptions in subsection 719-720(5).
719-735 Some alteration times affect only pooled interests
(1) Sections 165-115ZA and 165-115ZB do not apply in relation to an *alteration time that happens for the *head company of a *MEC group because of subsection 719-725(4) (trigger time for MEC group cost setting rules: pooling cases).
(2) Instead, Subdivision 719-K applies to the *MEC group, in relation to the trigger time, on the basis that:
(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719-570(1) and (2) is reduced by the amount of the *head company's overall loss under section 165-115R or 165-115S at that alteration time; but
(b) paragraph (a) of this subsection only affects the application of those formulas because of subsection 719-570(3) (to work out the *reduced cost base of a *membership interest).
[The next section is section 719-755.]
How indirect value shifting rules apply to a MEC group
719-755 Effect on MEC group cost setting rules if head company is losing entity or gaining entity for indirect value shift
(1) This section has effect for the purposes of working out the consequences (if any) of an *indirect value shift if the *losing entity or *gaining entity is the *head company of a *MEC group. (Subsection (3) has effect in addition to section 727-455.)
(2) An *equity or loan interest can be an *affected interest in the *head company only if it is:
(a) an *equity or loan interest in the *top company for the MEC group; or
(b) an *indirect equity or loan interest in the top company.
(3) Subdivision 719-K (MEC group cost setting rules: pooling cases) applies to the *MEC group, in relation to the first time referred to in that Subdivision as a trigger time that happens at or after the *IVS time, on the basis that:
(a) what would, apart from this section, be the pooled cost amount for the purposes of the formulas in subsections 719-570(1) and (2) is:
(i) if the *head company is the *losing entity - reduced; or
(ii) if the head company is the gaining entity - increased;
by the amount of the indirect value shift; and
(b) paragraph (a) of this subsection also affects the application of those formulas because of subsection 719-570(3) (to work out the *reduced cost base of a *membership interest).
[The next section is section 719-775.]
Cancelling loss on realisation event for direct or indirect interest in a subsidiary member of a MEC group
719-775 Cancellation of loss
(1) This section reduces to nil a loss that would otherwise be *realised for income tax purposes by a *realisation event that happens to an *equity or loan interest (the realised interest ) in an entity (the first entity ) when it is owned by another entity (the owner ), if the conditions in subsections (2) and (4) are met.
(2) The first condition is that, at some time during the period (the ownership period ) when the owner owned the realised interest:
(a) the first entity was a *subsidiary member of a *MEC group (except an *eligible tier-1 company), and the owner was not a *member of the group; or
(b) the realised interest was an *external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); or
(c) the realised interest was an *equity or loan interest in an entity that, at that time:
(i) owned an equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); and
(ii) was not a member of the group; or
(d) the realised interest was an equity or loan interest in an entity that owned at that time an external indirect equity or loan interest in a subsidiary member of a MEC group (except an eligible tier-1 company); or
(e) the realised interest was an equity or loan interest, or an *indirect equity or loan interest, in an eligible tier-1 company that was a member of a MEC group at that time.
(3) An *equity or loan interest in an entity (the test entity ) is an external indirect equity or loan interest in a *subsidiary member of a *MEC group if, and only if, neither the owner of the interest nor the test entity is a member of the group and:
(a) the test entity owns an equity or loan interest in the subsidiary member; or
(b) the test entity owns an equity or loan interest that is an external indirect equity or loan interest in the subsidiary member because of one or more other applications of this subsection.
(4) The second condition is that, at the same or a different time during the ownership period:
(a) the owner was, or *controlled (for value shifting purposes), the *head company of a *MEC group because of which the first condition is satisfied; or
(b) the owner was an *associate of an entity that, at the same or a different time during the ownership period, was, or controlled (for value shifting purposes), the head company of such a MEC group.
719-780 Exception for pooled interests in eligible tier-1 companies
The first condition in section 719-775 cannot be satisfied, because of a *MEC group, at a time when the realised interest was a *pooled interest in an *eligible tier-1 company that is a member of the group.
719-785 Exception for interests in top company
The first condition in section 719-775 cannot be satisfied, because of a *MEC group, at a time when:
(a) the first entity was the *top company for the MEC group; or
(b) the realised interest was an *indirect equity or loan interest in the top company for the MEC group.
719-790 Exception for interests in entity leaving MEC group
Membership interests in leaving entity
(1) If:
(a) the realised interest is a *membership interest; and
(b) during the ownership period the first entity ceased to be a *subsidiary member of a *MEC group;
the first condition in section 719-775 cannot be satisfied, because of that MEC group, at a time when the first entity was a member of the group, unless the interest needed to be disregarded under section 719-30 (about employee shares) in order for the first entity to be a member of the group at that time.
Liabilities owed by leaving entity
(2) If the realised interest:
(a) consists of a liability owed by the first entity to the owner; and
(b) became an asset of the owner because subsection 701-1(1) (the single entity rule) ceased to apply to the first entity when it ceased to be a *subsidiary member of a *MEC group;
the first condition in section 719-775 cannot be satisfied, because of that MEC group, at a time when the first entity was a member of the group.
719-795 Exception if loss attributable to certain matters
(1) The loss is not reduced if all of it can be shown to be attributable to things other than these:
(a) something that would be reflected in what would, apart from this Part, be an overall loss under section 165-115R or 165-115S, of a *member of a *MEC group (an excluded group ) because of which the first condition in section 719-775 is satisfied, at an *alteration time for that member;
(b) an *indirect value shift for which, apart from this Part, a member of an excluded group would be the *losing entity or the *gaining entity.
(2) If only part of the loss can be shown to be attributable to things other than the ones listed in subsection (1), the loss is reduced to the amount of that part.
[The next Subdivision is Subdivision 719-X.]