Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-95 - VALUE SHIFTING  

Division 727 - Indirect value shifting affecting interests in companies and trusts, and arising from non-arm ' s length dealings  

Subdivision 727-G - The realisation time method  

95% services indirect value shifts that are not excluded

SECTION 727-715   Service arrangements reduce value of losing entity that is a group service provider by at least $500,000  

727-715(1)  
At some time during the period (the ownership period ) when the owner owned the interest, the sole or dominant activity of the * losing entity must consist of providing services directly to one or more entities (the group entities ) each of which is covered by one or more of the following paragraphs:


(a) the * gaining entity;


(b) an * affected owner;


(c) an entity that has at that time the same * ultimate controller as the losing entity or the gaining entity;


(d) if the conditions in section 727-110 (common-ownership nexus test) are satisfied for the * indirect value shift - an entity that has with the losing entity or with the gaining entity a * common-ownership nexus within that period.

727-715(2)  


It must be reasonable to conclude that the total (the total market value ) of the * market values, immediately before the * realisation event, of * primary interests in the * losing entity then owned by * affected owners is less than it would have been if none of the following had happened:


(a) the * 95% services indirect value shift; and


(b) each * predominantly-services indirect value shift for which the same entity is the losing entity as for the 95% services indirect value shift, and that happened:


(i) if the amount of the * indirect value shift is $500,000 or more - at any time during the ownership period; or

(ii) otherwise - during the ownership period but within 4 years before the realisation event, or at the same time as the realisation event.
Thresholds for reduction of the total market value

727-715(3)  


It must also be reasonable to conclude that the total * market value is less than it would have been by at least $500,000, and by at least the lesser of:


(a) 5% of the total of the * adjustable values of * primary interests in the * losing entity owned by * affected owners at:


(i) if subsection (4) applies - the time determined under that subsection; or

(ii) otherwise - the start of the income year in which the * realisation event happens; and


(b) the amount worked out under the table.


Alternative threshold for reduction of the total market value
Item In this case: The amount is:
1 The ownership period is 4 years or less worked out using this formula:
$5,000,000 × Number of days in that period
365
2 The ownership period is more than 4 years $25,000,000

727-715(3A)  


If at the time referred to in subsection (3) a * primary interest covered by that subsection was * trading stock or a * revenue asset, its * adjustable value taken into account under that subsection is the greater of its adjustable value as a * CGT asset and its adjustable value as trading stock or a revenue asset.

727-715(4)  
If the owner of the interest is an * affected owner because of item 1, 2, 3 or 4 in the table in subsection 727-530(1) (about who is an affected owner), the time for the purposes of subparagraph (3)(a)(i) of this section is the latest of:


(a) the start of the income year in which the * realisation event happens; and


(b) the start of the most recent period (if any):


(i) that ended before or at the time of the * realisation event; and

(ii) throughout which at least one of the group entities had the same * ultimate controller as the losing entity or the gaining entity; and


(c) the start of the most recent period (if any):


(i) that ended before or at the time of the realisation event; and

(ii) within which at least one of the group entities has with the losing entity or with the gaining entity a * common-ownership nexus.

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