Tax Laws Amendment (2010 Measures No. 1) Act 2010 (56 of 2010)
Schedule 5 Consolidation
Part 1 Use of the tax cost setting amount
1 Division 1 - Main amendments
Income Tax Assessment Act 1997
4 After Subdivision 716-G
Insert:
Subdivision 716-S - Miscellenous consequences of tax cost setting
Table of sections
716-400 Tax cost setting and bad debts
716-405 Tax cost setting and rights to future income - deduction
716-410 Rights to amounts that are expected to be included in assessable income after joining time
716-400 Tax cost setting and bad debts
(1) The object of this section is to clarify the effect of section 701-5 (entry history rule) and subsection 701-55(6) in relation to an asset that may give rise to a bad debt. It achieves this object by clarifying that certain things are taken to have happened in relation to the asset through the operation of section 701-5 and subsection 701-55(6).
(2) This section applies if:
(a) the tax cost of an asset was set at the time (the joining time ) an entity (the joining entity ) became a subsidiary member of a *consolidated group at the asset's tax cost setting amount; and
(b) the asset is a debt; and
(c) any of the following apply:
(i) the debt was included in the joining entity's assessable income before the joining time;
(ii) the debt was in respect of money that the joining entity lent before the joining time in the ordinary course of a business of lending money;
(iii) the joining entity bought the debt before the joining time in the ordinary course of a business of lending money; and
(d) the requirements in subsection 701-58(1) (intra-group assets) are not satisfied in relation to the asset.
(3) To avoid doubt, in determining the extent to which the *head company of the group can deduct an amount under section 25-35 (bad debts) in relation to the asset, section 701-5 (entry history rule) and subsection 701-55(6) have the effect that, before the joining time:
(a) in a case covered by subparagraph (2)(c)(i) - the head company included an amount equal to the tax cost setting amount in its assessable income in respect of the debt; or
(b) in a case covered by subparagraph (2)(c)(ii) - the head company lent an amount of money in respect of the debt equal to the tax cost setting amount in the ordinary course of a business of lending money; or
(c) in a case covered by subparagraph (2)(c)(iii) - the head company incurred expenditure equal to the tax cost setting amount in buying the debt in the ordinary course of a business of lending money.
716-405 Tax cost setting and rights to future income - deduction
(1) This section applies if:
(a) an entity (the joining entity ) became a subsidiary member of a *consolidated group at a time (the joining time ); and
(b) subsection 701-55(5C) applies in relation to the asset at the joining time.
Note: Subsection 701-55(5C) deals with assets covered by section 716-410 (Rights to amounts that are expected to be included in assessable income after joining time).
(2) An entity qualified for a deduction under subsection (5) for the asset for an income year ending after the joining time can deduct, for that income year:
(a) unless paragraph (b) applies - the amount determined under subsection (3A); or
(b) if it is reasonable to expect that no amount will be included in the assessable income of an entity qualified for a deduction under subsection (5) for the asset for any later income year - the unexpended tax cost setting amount for the asset for that income year.
(3) Paragraph (2)(b) does not apply in relation to an entity qualified for a deduction under subsection (5) for the asset for that income year if:
(a) the entity is the *head company of the group; and
(b) another entity ceased to be a *subsidiary member of the group in that income year; and
(c) the other entity can deduct an amount under subsection (2) for that income year because it is also qualified for a deduction under subsection (5) for the asset for that income year.
(3A) For the purposes of paragraph (2)(a), the amount is the lesser of the following:
(a) the *unexpended tax cost setting amount for the asset for that income year;
(b) the unexpended tax cost setting amount for the asset for the first income year ending after the joining time, divided by the lesser of:
(i) 10; or
(ii) if the contract or agreement giving rise to the valuable right mentioned in paragraph 716-410(a) is for a specified period - the number of days in that period that end after the joining time, divided by 365 and rounded upwards to the nearest whole number.
(4) The unexpended tax cost setting amount for the asset for an income year is the *tax cost setting amount for the asset, reduced by:
(a) the amounts (if any) of all deductions under this section in respect of the asset for previous income years ending after the joining time; and
(b) in determining the amount of a deduction under this section in respect of the asset for that income year for an entity that ceased to be a *subsidiary member of the group in that income year - the amount (if any) that the *head company of the group can deduct under this section in respect of the asset for that income year.
(5) An entity is qualified for a deduction under this subsection for an income year for the asset if:
(a) the entity:
(i) is the *head company of the group; and
(ii) held the asset at a time in that income year (whether or not because of the operation of subsection 701-1(1) (the single entity rule)); or
(b) the entity:
(i) held the asset at a time in that income year; and
(ii) ceased to be a *subsidiary member of the group in that income year or an earlier income year.
(6) An amount deducted under this section:
(a) is not to be deducted under any other provision of this Act; and
(b) is not to be taken into account in determining an amount that is included in the assessable income of any entity qualified for a deduction under subsection (5) for any income year for the asset; and
(c) is not to be taken into account in determining an amount of a deduction of any entity qualified for a deduction under subsection (5) for any income year for the asset; and
(d) despite paragraphs (b) and (c), is taken never to have been included in any of the elements of the *cost base of the asset.
716-410 Rights to amounts that are expected to be included in assessable income after joining time
This section covers an asset at a time if:
(a) the asset is a valuable right covered by subsection 701-90(1); and
Note: Such a valuable right is treated as a separate asset for the purposes of this Part (see subsection 701-90(2)).
(b) the asset is held by an entity just before the time (the joining time ) it became a *subsidiary member of a *consolidated group; and
(c) it is reasonable to expect that an amount attributable to the asset will be included in the assessable income of the entity or any other entity after the joining time; and
(d) Division 230 does not apply in relation to the asset (disregarding section 230-455).