New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)
Schedule 16 Consolidation: transitional foreign-held membership structures
Part 2 Amendment of the Income Tax (Transitional Provisions) Act 1997
5 After Division 701B
Insert:
Division 701C - Modified application etc. of provisions of Income Tax Assessment Act 1997: transitional foreign-held membership structures
Table of Subdivisions
701C-A Overview
701C-B Membership rules allowing foreign holding
701C-C Modifications of tax cost setting rules
Subdivision 701C-A - Overview
Table of sections
701C-1 Overview
701C-1 Overview
This Division:
(a) sets out, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, rules that allow certain entities to be subsidiary members of consolidatable groups or consolidated groups where other entities are interposed between them and the head company of the group (see Subdivision 701C-B); and
(b) modifies certain rules in Part 3-90 of the Income Tax Assessment Act 1997 relating to setting the tax cost of assets to take account of those membership rules (see Subdivision 701C-C).
[The next section is 701C-10.]
Subdivision 701C-B - Membership rules allowing foreign holding
Table of sections
701C-10 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a company
701C-15 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a trust or partnership
701C-20 Transitional foreign-held subsidiaries and transitional foreign-held indirect subsidiaries
701C-10 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a company
(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, a set of requirements that must be met for an entity (the test entity ) to be a subsidiary member of a consolidated group or a consolidatable group at a particular time (the test time ).
Test entity must be company
(2) At the test time, the test entity must be a company.
At least one interposed entity must be a non-resident company or non-resident trust
(3) At the test time, at least one of the interposed entities must be:
(a) a company (a non-resident company ) that is a foreign resident; or
(b) a trust (a non-resident trust ) that does not meet the requirements in any item of the table in section 703-25 of the Income Tax Assessment Act 1997.
The interposed entities must all be of a particular kind
(4) At the test time, each of the interposed entities must be:
(a) a subsidiary member of the group; or
(b) a non-resident company; or
(c) a non-resident trust; or
(d) an entity that holds membership interests in an entity interposed between it and the test entity, or in the test entity, only as a nominee of one or more entities each of which is a member of the group, a non-resident company or a non-resident trust; or
(e) a partnership, each of the partners in which is a non-resident company or a non-resident trust.
Test entity must be a subsidiary member on assumption that non-resident companies and non-resident trusts were subsidiary members
(5) At the test time, it must be the case that the test entity would be a subsidiary member of the group if each interposed entity that is a non-resident company or non-resident trust were a subsidiary member of the group.
Additional requirement for consolidatable groups
(6) If the group is a consolidatable group, the test time must be before 1 July 2004.
Additional requirement for consolidated groups at formation
(7) If the group is a consolidated group and the test time is the time at which the group comes into existence as a consolidated group, the test time must be before 1 July 2004.
Additional requirement for consolidated groups after formation
(8) If:
(a) the group is a consolidated group; and
(b) the test time is after the group comes into existence; and
(c) at the test time, one or more of the membership interests in the test entity are held by:
(i) a non-resident company; or
(ii) a non-resident trust; or
(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non-resident company or a non-resident trust; or
(iv) a partnership, each of the partners in which is a non-resident company or a non-resident trust;
then:
(d) from the time the group came into existence as a consolidated group until the test time, the test entity must have been a subsidiary member of the group; and
(e) at the time the group came into existence as a consolidated group, one or more of the membership interests in the test entity must have been held by an entity of a kind mentioned in subparagraph (c)(i), (ii), (iii) or (iv).
701C-15 Additional membership rules where entities are interposed between the head company and a subsidiary member - case where an interposed entity is a non-resident and the subsidiary member is a trust or partnership
(1) This section describes, for the purposes of item 2, column 4 of the table in subsection 703-15(2) of the Income Tax Assessment Act 1997, a set of requirements that must be met for an entity (the test entity ) to be a subsidiary member of a consolidated group or a consolidatable group at a particular time (the test time ).
Test entity must be a trust or partnership
(2) At the test time, the test entity must be a trust or partnership.
At least one interposed entity must be a company that is a subsidiary member because of section 701C-10
(3) At the test time, one or more of the interposed entities must be companies that are subsidiary members of the group because the set of requirements in section 701C-10 are met.
Test entity must be a subsidiary member on assumption that head company beneficially owned all membership interests beneficially owned by subsection (3) companies
(4) At the test time, it must be the case that the test entity would be a subsidiary member of the group if the head company beneficially owned all the membership interests beneficially owned by each company described in subsection (3).
701C-20 Transitional foreign-held subsidiaries and transitional foreign-held indirect subsidiaries
If:
(a) an entity is a subsidiary member of a consolidated group in a case where the set of requirements described in section 701C-10 are met; and
(b) one or more of the membership interests in the entity are held by:
(i) a non-resident company; or
(ii) a non-resident trust; or
(iii) an entity that holds the membership interests only as a nominee of one or more entities each of which is a non-resident company or a non-resident trust; or
(iv) a partnership, each of the partners in which is a non-resident company or a non-resident trust;
then:
(c) the entity is a transitional foreign-held subsidiary of the group; and
(d) if:
(i) the transitional foreign-held subsidiary; or
(ii) an entity that is a transitional foreign-held indirect subsidiary of the group because of another application of this paragraph;
holds one or more membership interests in another entity that:
(iii) is a subsidiary member of the group; and
(iv) is not a transitional foreign-held subsidiary of the group;
that other member is a transitional foreign-held indirect subsidiary of the group.
Note: In order to be a subsidiary member of the group as required by subparagraph (d)(iii), the transitional foreign-held indirect subsidiary would need to have satisfied the set of requirements in either section 701C-10 or 701C-15
Subdivision 701C-C - Modifications of tax cost setting rules
Table of sections
Application and object
701C-25 Application and object of this Subdivision
Basic modification
701C-30 Transitional foreign-held subsidiary to be treated as part of head company
Other modifications
701C-35 Trading stock value not set for assets of transitional foreign-held subsidiaries
701C-40 Cost setting rules for exit cases - modification of core rules
701C-50 Cost setting rules for exit cases - reference to modification of core rule
Application and object
701C-25 Application and object of this Subdivision
Application
(1) This Subdivision applies if an entity (the transitional foreign-held joining entity ) that is a transitional foreign-held subsidiary or a transitional foreign-held indirect subsidiary becomes a subsidiary member of a consolidated group at the time (the formation time ) the group comes into existence.
Object
(2) The object of this Subdivision is to ensure that, on becoming a subsidiary member at the formation time, the tax cost of the assets of any transitional foreign-held subsidiary is not set and that the tax cost setting amount for assets of any transitional foreign-held indirect subsidiary that becomes a subsidiary member at that time takes account of this.
Basic modification
701C-30 Transitional foreign-held subsidiary to be treated as part of head company
The following provisions:
(a) section 701-10 of the Income Tax Assessment Act 1997 (about setting the tax cost of assets that an entity brings into the group);
(b) Subdivision 705-A of that Act, in its application in accordance with Subdivision 705-B of that Act;
apply, for the purposes of setting the tax cost of an asset of the transitional foreign-held entity at the formation time, as if each subsidiary member of the group that is a transitional foreign-held subsidiary at the formation time were a part of the head company of the group, rather than a separate entity.
Note 1: This section means that references in those provisions to matters internal to the group operate as if transitional foreign-held subsidiaries 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 a transitional foreign-held subsidiary actually holds those interests; and
(b) provisions operating if the head company owns or controls another entity operate even if one or more transitional foreign-held subsidiaries 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 a transitional foreign-held subsidiary and the other entity.
Note 2: If the transitional foreign-held entity is a transitional foreign-held subsidiary, this section means the assets of the entity do not have their tax cost reset at the formation time. This is because Subdivision 705-A of the Income Tax Assessment Act 1997, in its application in accordance with Subdivision 705-B of that Act, resets the tax cost of assets of subsidiary members of a group, but not assets of the head company.
Other modifications
701C-35 Trading stock value not set for assets of transitional foreign-held subsidiaries
Subsection 701-35(4) of the Income Tax Assessment Act 1997 (setting value of trading stock at tax-neutral amount) does not apply to the assets of the transitional foreign-held entity if it is a transitional foreign-held subsidiary.
701C-40 Cost setting rules for exit cases - modification of core rules
Section 701-15 of the Income Tax Assessment Act 1997 applies as if the following subsection were added at the end of the section:
Application to transitional foreign-held subsidiaries
(4) If an entity that ceases to be a subsidiary member is a transitional foreign-held subsidiary when it does so:
(a) this section applies to each membership interest in the transitional foreign-held subsidiary that is held by an entity (an eligible non-resident ) of a kind mentioned in subparagraph 701C-20(b)(i), (ii), (iii) or (iv) of the Income Tax (Transitional Provisions) Act 1997 in the same way as it applies to a membership interest in the transitional foreign-held subsidiary that is held by the head company; and
(b) for that purpose, the definition of head company core purposes in subsection 701-1(2) of the Income Tax Assessment Act 1997 applies to the eligible non-resident in the same way as it applies to the head company.
701C-50 Cost setting rules for exit cases - reference to modification of core rule
Section 711-5 of the Income Tax Assessment Act 1997 applies as if the following note were added at the end of the section:
Note: If the leaving entity is a transitional foreign-held subsidiary (within the meaning of section 701C-20 of the Income Tax (Transitional Provisions) Act 1997), this Division will, in accordance with subsection 701-15(4) of this Act (see section 701C-40 of the first-mentioned Act), apply to membership interests that an eligible non-resident mentioned in that subsection holds in the entity in the same way as it applies to membership interests that the head company holds in the entity.