Tax Laws Amendment (2010 Measures No. 1) Act 2010 (56 of 2010)

Schedule 5   Consolidation

Part 2   Group restructures

Income Tax Assessment Act 1997

15   After Subdivision 719-B

Insert:

Subdivision 719-BA - Group conversions involving MEC groups

Table of sections

719-120 Application

719-125 Head company of new group retains history of head company of old group

719-130 Provisions of this Part not to apply to conversion

719-135 Provisions of this Part applying to conversion despite section 719-130

719-140 Other provisions of this Part not applying to conversion

719-120 Application

(1) This Subdivision applies if, at a particular time (the conversion time ):

(a) a *consolidated group (the new group ) is *created from a *MEC group (the old group ); or

(b) a MEC group (the new group ) is created from a consolidated group (the old group ).

(2) However, sections 719-130 and 719-135 apply only in relation to entities that:

(a) were *members of the old group just before the conversion time; and

(b) are members of the new group at that time.

719-125 Head company of new group retains history of head company of old group

(1) Everything that happened in relation to the *head company of the old group before the conversion time is taken instead to have happened in relation to:

(a) if the head company of the old group is the same entity as the head company of the new group - that entity in its role as head company of the new group; or

(b) otherwise - the head company of the new group (just as if the head company of the new group had been the head company of the old group at all times before the conversion time).

(2) To avoid doubt, subsection (1) also covers everything that, immediately before the conversion time, was taken to have happened in relation to the *head company of the old group because of:

(a) section 701-1 (the single entity rule); or

(b) section 701-5 (the 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) section 719-90 (about the effects of a change of head company of a *MEC group); or

(e) one or more previous applications of this Division.

(3) Subsections (1) and (2) have effect:

(a) for the *head company core purposes in relation to an income year ending after the conversion time; and

(b) for the entity core purposes in relation to an income year ending after the conversion time; and

(c) for the purposes of determining the balance of the *franking account of the head company of the new group at and after the conversion 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 Subdivision 717-E (about transferring to a company leaving a consolidated group various surpluses under the CFC rules in Part X of the Income Tax Assessment Act 1936).

719-130 Provisions of this Part not to apply to conversion

(1) A provision mentioned in subsection (5) that applies on an entity becoming a *member of a *consolidated group or *MEC group does not apply to an entity becoming such a member because of a situation described in subsection 719-120(1), unless the provision is expressed to apply despite this subsection.

Note 1: An example of the effect of this subsection is that section 701-5 (entry history rule) does not apply. See instead section 719-125.

Note 2: Further examples of the effect of this subsection are that Division 705 (cost setting on entry) and Division 707 (losses) do not apply.

(2) Subsection (1) does not affect the application of subsection 701-1(1) (the single entity rule).

(3) A provision mentioned in subsection (5) that applies on an entity ceasing to be a *member of a *consolidated group or *MEC group does not apply to an entity ceasing being such a member because of a situation described in subsection 719-120(1), unless the provision is expressed to apply despite this subsection.

Note 1: An example of the effect of this subsection is that section 701-40 (Exit history rule) does not apply. See instead section 719-125.

Note 2: Another example of the effect of this subsection is that Division 711 (cost setting on exit) does not apply.

(4) Subsection (3) does not apply if:

(a) the old group mentioned in subsection 719-120(1) is a *consolidated group; and

(b) the new group mentioned in subsection 719-120(1) is a *MEC group; and

(c) the entity ceasing to be a *member of the old group becomes an *eligible tier-1 company in respect of the new group.

(5) The provisions are as follows:

(a) Subdivision 104-L;

(b) section 165-212E;

(c) this Part (other than this Subdivision);

(d) Part 3-90 of the Income Tax (Transitional Provisions) Act 1997.

719-135 Provisions of this Part applying to conversion despite section 719-130

(1) This section applies despite subsections 719-130(1) and (3).

(2) If the new group is a *consolidated group, the following provisions may apply on an entity ceasing to be a *member of the old group:

(a) Subdivision 719-K;

(b) any other provision of this Part, to the extent that the application of the provision is necessary for the application of Subdivision 719-K.

719-140 Other provisions of this Part not applying to conversion

If the new group is a *consolidated group, the following provisions do not apply merely because the old group ceases to exist at the conversion time (or merely because the *potential MEC group of which the old group consisted ceases to exist at that time):

(a) section 719-280;

(b) section 719-465;

(c) section 719-705;

(d) section 719-725;

(e) any other provision of this Part, to the extent that the application of the provision is necessary for the application of any of those sections.