INCOME TAX ASSESSMENT ACT 1997
The modified market value of an entity that becomes a * member of a * consolidated group at a particular time is the amount that would be the * market value of the entity at that time if:
(a) the entity had no loss of any * sort for any income year, and the balance of its * franking account at that time were nil; and
(b) the * subsidiary members of the group at that time were separate entities and not just parts of the * head company of the group; and
(c) the entity ' s market value did not include an amount attributable (directly or indirectly) to a * membership interest in a member of the group (other than the entity):
(i) that is a * corporate tax entity; or
(ii) that transferred a loss under Subdivision 707-A to the head company of the group at or before that time; and
(d) the contribution to the entity ' s market value made by a trust (other than one that is a member described in paragraph (c)) were limited to the amount attributable to the entity ' s * fixed entitlements (if any) at that time to income or capital of the trust that is not attributable (directly or indirectly) to a membership interest in such a member.
Section 707-330 affects the modified market value of an entity that becomes a subsidiary member of the consolidated group, if the entity was the head company of another consolidated group just beforehand.
Section 707-325 of the Income Tax (Transitional Provisions) Act 1997 provides for an entity ' s modified market value to be increased in certain circumstances for the purposes of working out the available fraction for a bundle of losses transferred from the entity.Rule to prevent inflation of modified market value 707-325(2)
(a) one or more of the events described in subsection (4) occurred in the 4 years before the time; and
(b) the amount worked out under subsection (1) exceeds what it would have been if none of those events had occurred;
the modified market value of the entity at the time is the amount worked out under subsection (1), reduced by the amount worked out under subsection (3).707-325(3)
The amount of the reduction is the lesser of:
(a) the excess described in paragraph (2)(b); and
(b) the total increase in the *market value of the entity that occurred immediately after each event mentioned in paragraph (2)(a) because of the event. 707-325(4)
These are the events:
(a) an injection of capital into the entity or an entity that was an * associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the injection;
(b) a transaction that:
(i) did not take place at *arm ' s length; and
(ii) involved the entity or an entity that was an associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the transaction.
For the purposes of paragraph (2)(a), disregard an injection of capital if, and only if, it is made:
(a) into a * listed public company through a * dividend reinvestment * scheme involving the issue of a * share in the company to an entity that held a share in the company before the injection; or
(b) in association with the acquisition of a *share in a company in relation to which the conditions in subsection 703-35(5) are met; or
(c) in association with the acquisition of a * share, in a body corporate, in relation to which the conditions in subsection 703-37(4) are met.
Section 703-35 of this Act deals with shares acquired under arrangements for employee shareholdings.
Section 703-37 of this Act deals with certain preference shares following an ADI restructure.