Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 713 - Rules for particular kinds of entities  

Subdivision 713-A - Trusts  

Working out a joined group's allocable cost amount for a joining trust

SECTION 713-20   Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests  

713-20(1)  
The object of this section is to increase the step 1 amount worked out under section 705-65 (for the purpose of working out the joined group ' s allocable cost amount) if:


(a) the joining entity is a trust; and


(b) some or all of the * membership interests in the trust are neither units nor interests in the trust; and


(c) some or all of the trust capital is settled capital that could be distributed tax free at the joining time.

The increase in the step 1 amount takes account of the settled capital that could be distributed tax free.

Note 1:

As a result, the settled capital that could be distributed tax free is treated in a way that is analogous to the group ' s cost of acquiring the trust: see subsection 705-10(2) .

Note 2:

Paragraph (1)(b) reflects the position that a distribution in respect of a unit or interest in the trust is generally covered by CGT event E4 and so is not tax-free: see section 104-70 .

713-20(2)  
The step 1 amount worked out under section 705-65 is increased by the amount worked out under the following method statement if, at the joining time, there are * membership interests (the discretionary interests ) in the trust each of which satisfies these conditions:


(a) it is neither a unit nor an interest in the trust;


(b) the entity that owned it at the joining time began to own it only because money or property was settled on the trust;


(c) it either has no * cost base or it has a cost base of nil.

Note:

If a membership interest has a cost base greater than nil, the cost base is already taken into account in working out the step 1 amount under section 705-65 .

Method statement

Step 1.

Add up:

  • (a) each amount settled on the trust before or at the joining time; and
  • (b) the * market value of each item of property settled on the trust before or at the joining time, worked out as at when the item was settled;
  • except to the extent that that amount or market value forms part of the * cost base of a * membership interest in the trust that was taken into account in working out the step 1 amount under section 705-65 .


    Step 2.

    Work out how much of the step 1 amount would have been paid in respect of the discretionary interests if, at the joining time:

  • (a) the entire trust capital and trust income had been realised and distributed; and
  • (b) the trust had ended.
  • Note:

    This may involve determining how a power of appointment would have been exercised. Section 713-50 lists matters to have regard to in determining this.


    Step 3.

    Reduce the step 2 amount by so much of it as:

  • (a) would have been included in the assessable income of any * member of the trust who owned any of the discretionary interests at the joining time; or
  • (b) would have been taken into account in working out a * capital gain or * capital loss made by such a member.

  • Step 4.

    Work out how much of the step 1 amount consists of one or more of these:

  • (a) an amount settled on the trust directly by the * head company of the * consolidated group (whether or not the group was in existence when the amount or item was settled on the trust);
  • (b) an amount settled on the trust directly by any other entity not excluded by subsection (3) (which covers entities that are not independent and unconnected donors to the trust);
  • (c) the * market value of an item of property settled on the trust directly by the head company;
  • (d) the market value of an item of property settled on the trust directly by any other entity not excluded by subsection (3).

  • Step 5.

    The step 1 amount worked out under section 705-65 is increased by the lesser of:

  • (a) the step 3 amount worked out under this method statement; and
  • (b) the step 4 amount worked out under this method statement.
  • 713-20(3)  
    This subsection excludes these entities for the purposes of step 4 of the method statement in subsection (2):


    Entities that are not independent and unconnected donors to the trust
    Item This entity is excluded:
    1 An entity that is a *member of the *consolidated group at the joining time
    2 An entity that has been a *member of the *consolidated group at any time before the joining time, even if it was not such a member when it settled the amount or item of property on the joining entity
    3 An entity that, because of a *scheme, will or may become a *member of the *consolidated group at some time after the joining time
    4 An entity that, when the amount or item of property was settled on the joining entity, was an *associate of an entity covered by item 1, 2 or 3
    5 An entity that, in settling the amount or item of property on the joining entity, acted in accordance with the directions, instructions or wishes of one or more entities, at least one of which is covered by item 1, 2, 3 or 4 (whether those directions, instructions or wishes were communicated directly or indirectly, including through interposed entities)
    6 A company or trust that an entity covered by item 1, 2 or 3 would be taken to *control (for value shifting purposes) when the company or trust settled the amount or item of property on the joining entity, if each entity covered by item 1, 2, 3 or 4 had been at that time an *associate of every other entity covered by item 1, 2, 3 or 4
    7 A partnership if, when the partnership settled the amount or item of property on the joining entity, a *member of the partnership was an entity covered by item 1, 2, 3, 4 or 6


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