Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 711 - Tax cost setting amount for membership interests where entities cease to be subsidiary members of consolidated groups  

Tax cost setting amount for membership interests etc.  

SECTION 711-45   Liabilities etc. owed by the leaving entity - step 4 in working out allocable cost amount  

711-45(1)  


For the purposes of step 4 in the table in subsection 711-20(1) , the step 4 amount is worked out by adding up the amounts of each thing (an accounting liability ) that, in accordance with the leaving entity ' s *accounting principles for tax cost setting, is a liability of the leaving entity just before the leaving time. Leaving entity ' s accounting principles for tax cost setting

711-45(1A)  


The leaving entity ' s accounting principles for tax cost setting are the *accounting principles that the group would use if it were to prepare its financial statements just before the leaving time (disregarding subsection 701-1(1) (the single entity rule)). Exclusion for deferred tax liability

711-45(1B)  


An amount is not to be added for an accounting liability that is an amount recorded in a deferred tax liability account in accordance with the leaving entity ' s *accounting principles for tax cost setting.

711-45(1C)  


Subsection (1B) does not apply to an accounting liability that relates to an asset mentioned in paragraph 713-575(2)(a) or (b) (certain assets of life insurance company). Exclusion where transfer of accounting liability

711-45(2)  
An amount is not to be added for an accounting liability that arises because of the leaving entity ' s ownership of an asset if, on *disposal of the asset, the accounting liability will transfer to the new owner.

Example:

A liability to rehabilitate a mine site, where, under legislation or a licence, the liability will be transferred to the new owner on disposal of the mine.

Exclusion where liability is obligation to make finance lease payments

711-45(2A)  


An amount is not to be added for an accounting liability that is the leaving entity ' s obligation as lessee to make lease payments under a lease, if:


(a) subsection 705-56(4) applied in relation to the liability, at a time when an entity (whether the leaving entity or another entity) became a *subsidiary member of the old group; and


(b) the liability was not taken into account under subsection 705-70(1) at that time, because of paragraph 705-56(4) (b).

Reduction for future deduction

711-45(3)  


If some or all of an accounting liability will result in a deduction to the leaving entity, the amount to be added for the accounting liability is reduced by the following amount:


[ Deduction × *Corporate tax rate ] -   Double-counting adjustment

where:

double-counting adjustment
means the amount of any reduction that has already occurred in the accounting liability under subsection (1) to take account of the future availability of the deduction.

Amount for intra-group liabilities

711-45(4)  


If an accounting liability of the leaving entity is owed to a *member of the old group, the amount to be added for the liability is the *tax cost setting amount of the corresponding asset of the member. Adjustment for unrealised gains and losses

711-45(5)  


If, for income tax purposes, an accounting liability, or a change in the amount of an accounting liability, (other than one owed to a *member of the old group) is taken into account at a later time than is the case in accordance with the leaving entity ' s *accounting principles for tax cost setting, the amount to be added for the accounting liability is equal to the payment that would be necessary to discharge the liability just before the leaving time without an amount being included in the assessable income of, or allowable as a deduction to, the *head company.
Note:

An example is accrued employee leave entitlements or foreign exchange gains and losses.

Increase in step 4 amount for employee share interests

711-45(6)  
If any *membership interest (an employee share interest ) in the leaving entity needed to be disregarded under section 703-35 in order for the leaving entity to be a *wholly-owned subsidiary of the *head company at the leaving time, the step 4 amount is increased by the sum of the *market values of those interests. Increase to cover ADI restructure preference share interests

711-45(6A)  


If any *share in the leaving entity needed to be disregarded under section 703-37 in order for the leaving entity to be a *wholly-owned subsidiary of the *head company at the leaving time, the step 4 amount is increased by the sum of the *market values of those shares. Increase for non-share capital account balance

711-45(6B)  


The step 4 amount is increased by the amount that would be the balance of the leaving entity ' s *non-share capital account, assuming that:


(a) if the leaving entity is not a company - the leaving entity were a company; and


(b) each *non-membership equity interest (if any) in the leaving entity held at just before the leaving time by a person other than a *member of the old group were a *non-share equity interest in the leaving entity; and


(c) the non-share equity interests (if any) mentioned in paragraph (b) were the only non-share equity interests in the leaving entity.

Increase to cover certain equity interests

711-45(7)  


The step 4 amount is increased by the *market value of each thing that, in accordance with the leaving entity ' s *accounting principles for tax cost setting, is equity in the leaving entity at the leaving time, where the thing is also a *debt interest. Adjustment where amount of liability differed for purpose of calculating allocable cost amount on entry

711-45(8)  


Subsection (10) applies if:


(a) either:


(i) an amount (the exit liability amount ) was added for a particular liability under subsection (5); or

(ii) a particular liability is covered by subsection (5), but no amount was added for it under that subsection (in which case the exit liability amount is zero); and


(b) the liability was taken into account in working out the *allocable cost amount (the original entry ACA ) for a *subsidiary member (whether or not the leaving entity) of the old group in accordance with Division 705 ; and


(c) the exit liability amount is not the same as the amount (the entry liability amount ) of the liability that was taken into account in working out the original entry ACA, after any adjustments made under:


(i) section 705-70 , 705-75 or 705-80 ; and

(ii) subsection (9) of this section; and


(d) if the liability is a provision for annual leave or long service leave, or a provision for a liability contingent on a future event:


(i) in the case of a liability that was, in accordance with the *accounting principles that the entity would have used if it had prepared its financial statements just before the time it became a subsidiary member of the group, a current liability of the entity at that time - the leaving time occurs less than 1 year after that time; or

(ii) otherwise - the leaving time occurs less than 4 years after that time.

711-45(9)  


Make these adjustments to the entry liability amount if, at a time when the leaving entity was a *subsidiary member of the old group, the *head company of the group paid an amount that reduced the liability:


(a) reduce the entry liability amount by the amount of the reduction; and


(b) if the payment gave rise to an amount being included in the assessable income of the head company - after making the reduction in paragraph (a), further reduce the entry liability amount by the product of:


(i) the amount included in assessable income; and

(ii) the *corporate tax rate; and


(c) if the payment gave rise to a deduction for the head company - after making the reduction in paragraph (a), increase the entry liability amount by the product of:


(i) the amount deducted; and

(ii) the corporate tax rate.

711-45(10)  


The step 4 amount is altered by:


(a) if the entry liability amount exceeds the exit liability amount - increasing the step 4 amount by the excess; or


(b) if the entry liability amount falls short of the exit liability amount - decreasing the step 4 amount by the shortfall.

Exclusion of amounts for certain securitisation liabilities

711-45(11)  


An amount is not to be added for an accounting liability of the leaving entity if the accounting liability is covered under section 711-46 (securitisation liabilities).

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