New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (117 of 2002)
Schedule 8 Consolidation: MEC groups
Income Tax Assessment Act 1997
8 After section 719-80
Insert:
Effects of change of head company
719-85 Application
Sections 719-90 to 719-95 set out the effects if:
(a) a company (the old head company ) is the*head company of a*MEC group at the end of an income year; and
(b) a different company (the new head company ) is the head company of the group at the start of the next income year (the transition time ).
Note: This case can arise from the operation of section 719-75, which treats an entity that is the provisional head company of the group at a certain time in the income year as being the group's head company at all times in the income year when the group is in existence.
The old head company is also taken to become a subsidiary member of the group at the transition time, and the new head company is taken to cease being a subsidiary member at that time. Section 719-95 ensures that these results do not change the tax position of the group.
719-90 New head company treated as substituted for old head company at all times before the transition time
(1) Everything that happened in relation to the old head company before the transition time is taken to have happened in relation to the new head company instead, just as if the new head company had been the old head company at all times before the transition time.
Note: This section treats the new head company as having in effect assumed the identity of the old head company throughout the period before the transition time, but without affecting any of the other attributes of the old head company.
(2) To avoid doubt, subsection (1) also covers everything that, immediately before the transition time, was taken, because of:
(a) section 701-1 (Single entity rule); or
(b) section 701-5 (Entry history rule); or
(c) section 703-75 (about the effects of choice to continue consolidated group after shelf company becomes new head company); or
(d) one or more previous applications of this section;
to have happened in relation to the old head company.
(3) Subsections (1) and (2) have effect:
(a) for the head company core purposes in relation to an income year ending after the transition time; and
(b) for the entity core purposes in relation to an income year ending after the transition time.
(4) Subsections (1) and (2) have effect subject to:
(a) section 701-40 (Exit history rule); and
(b) a provision of this Act to which section 701-40 is subject because of section 701-85 (about exceptions to the core rules in Division 701).
Note: An example of provisions covered by paragraph (b) of this subsection is section 707-410, which ensures that section 701-40 (Exit history rule) does not result in a leaving entity inheriting a loss of any sort.
719-95 No consequences of old head company becoming, and new head company ceasing to be, subsidiary member of the group
(1) A provision of this Part that applies on an entity becoming a*subsidiary member of a*MEC group doesnot apply to an entity being taken to have become such a member because the entity stopped being the*head company of the group as mentioned in section 719-85, unless the provision is expressed to apply despite this subsection.
Note: An example of the effect of this subsection is that section 701-5 (Entry history rule) does not apply. See instead section 719-90.
(2) To avoid doubt, subsection (1) does not affect the application of subsection 701-1(1) (the single entity rule).
(3) A provision of this Part that applies on an entity ceasing to be a*subsidiary member of a*MEC group doesnot apply to an entity being taken to cease being such a member because the entity became the*head company of the group as mentioned in section 719-85, unless the provision is expressed to apply despite this subsection.
Note: An example of the effect of this subsection is that section 701-40 (Exit history rule) does not apply. See instead section 719-90.
Subdivision 719-C - MEC group cost setting rules: joining cases
Guide to Subdivision 719-C
719-150 What this Subdivision is about
When an entity (other than an eligible tier-1 company) becomes a subsidiary member of a MEC group, the tax cost of its assets is set at a tax cost setting amount that is worked out in accordance with Divisions 701 and 705 as modified by this Subdivision. Assets of eligible tier-1 companies becoming members of a MEC group do not have their tax cost set.
Table of sections
Application and object
719-155 Application and object of this Subdivision
Modified application of tax cost setting rules for joining
719-160 Tax cost setting rules for joining have effect with modifications
719-165 Trading stock value not set for assets of eligible tier-1 companies
[This is the end of the Guide.]
Application and object
719-155 Application and object of this Subdivision
Application
(1) This Subdivision applies if an entity (the MEC joining entity ) becomes a*subsidiary member of a*MEC group at a time (the MEC joining time ).
Object
(2) The object of this Subdivision is to modify the tax cost setting rules in Divisions 701 and 705 so that they take account of the special characteristics of*MEC groups.
Modified application of tax cost setting rules for joining
719-160 Tax cost setting rules for joining have effect with modifications
(1) This section has effect for the head company core purposes set out in subsection 701-1(2).
General modifying rule
(2) The provisions mentioned in subsection (3) operate, for the purposes of setting the*tax cost of an asset of the MEC joining entity, as if each*subsidiary member of the group (including the MEC joining entity) that is an*eligible tier-1 company at the MEC joining time were a part of the*head company of the group, rather than a separate entity.
Note 1: This subsection means that references in those provisions to matters internal to the group operate as if eligible tier-1 companies in the group were parts of the head company of the group. For example:
(a) provisions operating if the head company holds (whether directly or indirectly) membership interests in another entity operate even if an eligible tier-1 company actually holds those interests; and
(b) provisions operating if the head company owns or controls another entity operate even if one or more eligible tier-1 companies actually own or control that other entity; and
(c) provisions operating if an entity is interposed between the head company and another entity operate even if the first entity is actually interposed between an eligible tier-1 company and the other entity.
Note 2: If the MEC joining entity is an eligible tier-1 company, this subsection means the assets of the entity do not have their tax cost reset at the MEC joining time. This is because Subdivision 705-A (and related provisions) reset the tax cost of assets ofsubsidiarymembers of a group, but not assets of the head company.
(3) The provisions are:
(a) section 701-10 (about setting the tax cost of assets that an entity brings into the group); and
(b) Subdivision 705-A; and
(c) any other provision of this Act giving Subdivision 705-A a modified effect in circumstances other than those covered by that Subdivision.
Note: An example of provisions covered by paragraph (c) are the provisions of Subdivision 705-B giving Subdivision 705-A a modified effect when a consolidated group is formed.
719-165 Trading stock value not set for assets of eligible tier-1 companies
Subsection 701-35(4) (setting value of trading stock at tax-neutral amount) does not apply to the assets of the MEC joining entity if it is an*eligible tier-1 company at the MEC joining time.
Subdivision 719-F - Losses
Table of sections
719-300 Application
719-305 Subdivision 707-C affects utilisation of losses made by ongoing head company while it was head company
719-310 Adjustment of available fractions for bundles of losses previously transferred to ongoing head company
719-315 Further adjustment of available fractions for all bundles
719-320 Limit on utilising losses other than the prior group losses
719-325 Cancellation of all losses in a bundle
719-300 Application
(1) Sections 719-305, 719-310, 719-315, 719-320 and 719-325 operate only if:
(a) a company (the ongoing head company ) is the*head company of a*MEC group for an income year or a period in an income year; and
(b) an event (the application event ) described in subsection (2) or (3) happens at a time in the income year in relation to the group.
(2) One application event is that another company (the new tier-1 member ) becomes both a*member of the*MEC group and an*eligible tier-1 company of the*top company for the group.
(3) The other application event is that the*MEC group comes into existence as a result of a*special conversion event happening to the*potential MEC group derived from the ongoing head company.
Note: This application event happens only if the ongoing head company was the head company of a consolidated group just before the special conversion event.
Exceptions for events involving subsidiary members of group
(4) Those sections do not operate because of the event described in subsection (2) if the new tier-1 member was a*subsidiary member of the*MEC group immediately before the event.
(5) Those sections do not operate because of the event described in subsection (3) if all the other companies that are described in paragraph 719-40(1)(c) and are involved in the*special conversion event were*subsidiary members of the*consolidated group just before the event.
(6) Subsections (4) and (5) have effect despite subsection (1).
719-305 Subdivision 707-C affects utilisation of losses made by ongoing head company while it was head company
(1) For income years ending after the application event happened, Subdivision 707-C affects the*utilisation of all losses (the prior group losses ) of any*sort that the ongoing head company made (apart from Subdivision 707-A) for an income year that:
(a) was an income year during which the*MEC group was in existence (or, if the application event involved the MEC group coming into existence because of a*special conversion event involving a*consolidated group, the consolidated group was in existence); and
(b) was before the income year in which the event happened.
Prior group losses taken to have been transferred at time of event
(2) The ongoing head company is taken to have transferred the prior group losses to itself under Subdivision 707-A at the time of the application event, for the purposes of:
(a) the application of Subdivision 707-C in relation to the*utilisation of the prior group losses and other losses; and
(b) future applications of this section and section 719-310.
Available fraction for bundle of losses
(3) For the purpose of working out the*available fraction for the*bundle of the prior group losses at the time of the transfer, work out the ongoing head company's*modified market value at the time of the application event as if:
(a) the ongoing head company had become a*member of a*consolidated group at the time; and
(b) each*subsidiary member of the MEC group or consolidated group of which the ongoing head company was the*head company just before the event were a part of the ongoing head company (and not a separate entity) at the time of the event; and
(c) each subsidiary member of that group at an earlier time had been a part of the ongoing head company (and not a separate entity) at the earlier time.
Deemed transfer does not affect year of loss
(4) Subdivision 707-C affects the*utilisation as if each of the prior group losses had been made by the ongoing head company for the income year for which the company actually made the loss (and not the income year in which the application event happened). Subsection (2) has effect subject to this subsection.
719-310 Adjustment of available fractions for bundles of losses previously transferred to ongoing head company
(1) This section affects the*available fraction for each*bundle of losses that were transferred to the ongoing head company under Subdivision 707-A before the application event.
(2) The available fraction for the*bundle is reduced or maintained just after the event by multiplying it by this fraction:
Note: The market value of the ongoing head company at the time just before or just after the application event will be worked out on the basis that subsidiary members of the MEC group or consolidated group headed by the ongoing head company at that time are part of the ongoing head company, because of section 701-1 (the single entity rule).
(3) Item 3 of the table in subsection 707-320(2) doesnot apply to affect the*available fraction for the*bundle because of:
(a) the transfer mentioned in section 719-305; or
(b) the transfer (if any) to the ongoing head company of a loss of any*sort under Subdivision 707-A at the time of the application event from an entity that became a*subsidiary member of the*MEC group as a result of the event.
719-315 Further adjustment of available fractions for all bundles
(1) If, because of the application event:
(a) there is under section 719-305 an*available fraction for the*bundle of prior group losses; and
(b) section 719-310 affects the available fraction for one or more other bundles of losses;
this section affects the available fraction forevery one of those bundles.
(2) The available fraction (as affected by section 719-305 or 719-310) is reduced by multiplying it by this fraction:
(3) For the purposes of working out the fraction in subsection (2), use the value of an*available fraction for a*bundle of losses apart from:
(a) this section; and
(b) if item 5 of the table in subsection 707-320(2) would apply as a result of the calculation of the available fraction in accordance with section 719-305 or 719-310 - that item.
719-320 Limit on utilising losses other than the prior group losses
(1) This section has effect for the purposes of working out how much of the losses, other than prior group losses, in a*bundle the ongoing head company can*utilise for the income year in which the application event happens.
(2) For the purposes of subsection 707-310(3), the prior group losses are to be treated as if they hadnot been transferred under Subdivision 707-A, to the extent to which the ongoing head company can*utilise them for the income year because they are treated as being included in a*bundle whose available fraction was 1 from the start of the income year until the time of the application event.
(3) This section is a matter that is relevant for the purposes of paragraph 707-335(3)(f), if section 707-335 applies to the ongoing head company's*utilisation of the losses in the*bundle for the income year.
Note: That section applies to a company's utilisation for an income year of losses in a bundle if the losses are transferred under Subdivision 707-A after the start of the year or if the value of the available fraction for the bundle changes during the year while the company is treated as having made the losses because of that Subdivision.
(4) Section 719-305 has effect subject to this section.
719-325 Cancellation of all losses in a bundle
(1) The ongoing head company:
(a) may choose to cancel all the losses in the*bundle of prior group losses; and
(b) may choose to cancel all the losses in a*bundle of losses to which section 719-310 applies.
(2) If the ongoing head company chooses to cancel all the losses in a*bundle, subsections (3), (4), (5), (6) and (7) operate.
(3) The ongoing head company cannot*utilise for the income year in which the application event happened more of the losses than it would have been able to utilise under Subdivision 707-C assuming:
(a) if the losses are prior group losses:
(i) the losses were in a*bundle for the income year; and
(ii) the*available fraction for the bundle were 1 for the period from the start of the income year until the event happened; and
(b) in any case - the available fraction for the bundle including the losses were 0 from the time of the event until the end of the income year.
Note: Section 707-335 is relevant to working out how much of the losses could be utilised, because the value of the available fraction for the bundle changes during the period described in that section.
(4) The ongoing head company cannot:
(a) transfer the losses to another company under Division 170 for an income year ending after the application event; or
(b) transfer the losses to another company under Subdivision 707-A after the application event.
This subsection has effect despite subsection (3).
(5) Disregard the existence of the*bundle at and after the time of the application event for the purposes of working out the*available fraction for another*bundle of losses.
(6) The losses cannot be*utilised by any entity for an income year starting after the application event.
(7) The choice cannot be revoked.
Subdivision 719-J - MEC group cost setting rules: leaving cases
Guide to Subdivision 719-J
719-500 What this Subdivision is about
When an entity ceases to be a subsidiary member of a MEC group, the tax cost setting amount for the group's membership interests in the entity is worked out in accordance with Division 711 as modified by this Division.
Table of sections
719-505 Application and object of this Subdivision
719-510 Modified operation of paragraphs 711-15(1)(b) and (c)
719-505 Application and object of this Subdivision
Application
(1) This Subdivision applies if the old group mentioned in subsection 711-5(1) is a*MEC group.
Object
(2) The object of this Subdivision is to modify the rules in Division 711 so that they take account of the special characteristics of*MEC groups.
719-510 Modified operation of paragraphs 711-15(1)(b) and (c)
(1) This section applies if the leaving entity mentioned in subsection 711-15(1) is a*subsidiary member of the old group that is an*eligible tier-1 company.
(2) Paragraphs 711-15(1)(b) and (c) apply as if the membership interests mentioned in those paragraphs included*pooled interests in the*eligible tier-1 company.
Note: This subsection means that, in working out tax cost setting amounts for internal interests in the eligible tier-1 company, section 711-15 will allocate part of the old group's allocable cost amount for the eligible tier-1 company to the pooled interests in the company. However, the tax cost of the pooled interests is not set according to section 711-15. Subdivision 719-Kcontains rules that set the cost of the pooled interests.
Subdivision 719-K - MEC group cost setting rules: pooling cases
Guide to Subdivision 719-K
719-550 What this Subdivision is about
This Subdivision contains cost setting rules for membership interests in eligible tier-1 companies that are members of a MEC group, where those interests are not held by members of the group.
Table of sections
719-555 Application and object of this Subdivision
719-560 Pooled interests
719-565 Setting cost of reset interests
719-570 Cost setting amount
[This is the end of the Guide.]
719-555 Application and object of this Subdivision
Application
(1) This Subdivision applies if:
(a) one or more entities hold*pooled interests (the reset interests ) in*eligible tier-1 companies that are members of a*MEC group, just before a particular time (the trigger time ); and
(b) at the trigger time, either or both of these things happen to one or more of those eligible tier-1 companies (the trigger companies ):
(i) the company ceases to be a member of the group;
(ii) a*CGT event happens in relation to one or more reset interests in the company; and
(c) the*market value of the reset interests as a whole (including the market value of synergies arising from the combination of those interests) just before the trigger time is more than nil.
Object
(2) The object of this Subdivision is to set the cost of all reset interests:
(a) first, by allocating to each reset interest held in a trigger company so much of the total cost of all reset interests held in members of the group that the*market value of the interest bears to the group's market value; and
(b) then, by allocating the remainder of that total cost to all reset interests held in other*eligible tier-1 companies, by dividing that remainder by the number of those interests.
719-560 Pooled interests
(1) A pooled interest in an*eligible tier-1 company that is a member of a*MEC group is a*membership interest in the eligible tier-1 company that is held by an entity that isnota member of the group.
Note: A membership interest in the head company of a MEC group can be a pooled interest.
(2) Despite subsection (1), a*membership interest isnota pooled interest if it is:
(a) a*share that is disregarded under subsection 719-30(2); or
(b) held by an entity only as a nominee of one or more other entities each of which is a member of the group.
719-565 Setting cost of reset interests
CGT provisions - cost base
(1) If Part 3.1 or 3.3 is to apply in relation to a reset interest, the Part applies as if the interest's*cost base were increased or reduced so that the cost base just before the trigger time equals the cost setting amount worked out under section 719-570.
CGT provisions - reduced cost base
(2) If Part 3.1 or 3.3 is to apply in relation to a reset interest, the Part applies as if the interest's*reduced cost base were increased or reduced so that the reduced cost base just before the trigger time equals the cost setting amount worked out under section 719-570.
Other provisions
(3) If a provision of this Act (other than Part 3.1 or 3.3) is to apply in relation to a reset interest, the provision applies as if the interest's cost just before the trigger time were equal to the cost setting amount worked out under section 719-570.
719-570 Cost setting amount
Reset interests held in trigger companies - cost setting amount for cost base etc.
(1) Work out the cost setting amount for the purposes of subsections 719-565(1) and (3) for a reset interest in a trigger company using the formula:
where:
market value of the group is:
(a) if every*eligible tier-1 company that is a member of the group just before the trigger time is a trigger company - the sum of the*market value (just before the trigger time) of all reset interests in each of those companies; or
(b) otherwise - the amount mentioned in paragraph 719-555(1)(c).
market value of the reset interest is the market value (just before the trigger time) of all reset interests in that trigger company, in the same class as the interest, divided by the number of reset interests in that company in that class.
pooled cost amount is the sum of the*cost bases (just before the trigger time) of all reset interests.
Reset interests held in other eligible tier-1 companies - cost setting amount for cost base etc.
(2) Work out the cost setting amount for the purposes of subsections 719-565(1) and (3) for a reset interest that isnotin a trigger company, using the formula:
where:
amount allocated to trigger company interests is the sum of all cost setting amounts worked out under subsection (1) for the reset interests covered by that subsection.
number of non-trigger company interests is the number of reset interests, other than those covered by subsection (1).
pooled cost amount has the same meaning as in subsection (1).
Cost setting amount for reduced cost base
(3) Work out the cost setting amount for the purposes of subsection 719-565(2) for a reset interest by applying subsections (1) and (2) of this section in relation to the interest, as if every reference in those subsections to*cost base were a reference to*reduced cost base.
[The next Division is Division 721.]