New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)

Schedule 1   Consolidation: amendments of various cost base provisions

Part 4   Adjustment to allocable cost amount for certain pre-joining time roll-overs from foreign residents

Income Tax Assessment Act 1997

22   After section 705-225

Insert:

705-227 Adjustment in working out step 3A of allocable cost amount to take account of membership interests held by linked entities in other linked entities

Object

(1) The object of this section is to modify the effect that section 705-93 (step 3A of allocable cost amount) has in accordance with this Subdivision so that it takes account of *membership interests that linked entities hold in other linked entities at the time (the linked entity joining time ) when the linked entities become *subsidiary members of the group.

Apportionment of step 3A amount among first level interposed entities

(2) If:

(a) under section 705-93, in its application in accordance with this Subdivision, there is a step 3A amount for the purpose of working out the group's *allocable cost amount for a particular linked entity (the subject entity ); and

(b) at the linked entity joining time, one or more of the linked entities (the first level entities ) in which the *head company holds *membership interests are interposed between the head company and the subject entity;

then the step 3A amount is apportioned among the first level entities and the subject entity on the following basis:

(c) each first level entity has the following proportion of the step 3A amount:

where:

market value of all membership interests in subject entity means the *market value, at the linked entity joining time, of all *membership interests in the subject entity that are held by entities that become *members of the group at that time.

market value of first level entity's direct and indirect membership interests in subject entity means so much of the market value of all membership interests in the subject entity (as defined above) as is attributable to *membership interests that the first level entity holds directly, or indirectly through other linked entities; and

(d) the subject entity has the remainder of the step 3A amount.

Step 3A amount for assets consisting of membership interests held by linked entities in other linked entities

(3) If:

(a) before the linked entity joining time:

(i) there was a roll-over under Subdivision 126-B (a Subdivision 126-B roll-over ) in relation to a *CGT event that happened in relation to an asset (the roll-over asset ); or

(ii) section 160ZZO of the Income Tax Assessment Act 1936 applied in relation to a disposal (a section 160ZZO roll-over ) of an asset (also the roll-over asset ); and

(b) the originating company in relation to the Subdivision 126-B roll-over, or the transferor in relation to the section 160ZZO roll-over, was a foreign resident; and

(c) the recipient company in relation to the Subdivision 126-B roll-over, or the transferee in relation to the section 160ZZO roll-over, was an Australian resident and was not the entity that became the *head company of the group; and

(d) between the Subdivision 126-B roll-over, or the section 160ZZO roll-over, and the linked entity joining time, no other CGT event happened in relation to the roll-over asset for which there was not a Subdivision 126-B roll-over or a section 160ZZO roll-over; and

(e) the roll-over asset is a *membership interest in a linked entity, other than one that is held at that time by the entity that becomes the head company of the group;

then, subject to subsection (5), there is under section 705-93 a step 3A amount for the purpose of working out the group's *allocable cost amount for the linked entity (the subject entity ) that holds the roll-over asset at the linked entity joining time.

What the step 3A amount is

(4) The step 3A amount is:

(a) if, as a result of the Subdivision 126-B roll-over mentioned in subparagraph (3)(a)(i), or the section 160ZZO roll-over mentioned in subparagraph (3)(a)(ii), a *capital loss of the originating company was disregarded or a capital loss of the transferor was not incurred - an increase amount equal to the capital loss; or

(b) if, as a result of the Subdivision 126-B roll-over mentioned in subparagraph (3)(a)(i), or the section 160ZZO roll-over mentioned in subparagraph (3)(a)(ii), a *capital gain of the originating company was disregarded or a capital gain of the transferor did not accrue - a reduction amount equal to the capital gain.

Apportionment of step 3A amount among first level interposed entities

(5) If at the linked entity joining time one or more linked entities, in which the *head company holds *membership interests, are interposed between the head company and the subject entity, then the step 3A amount is apportioned among those entities and the subject entity in the same way as a step 3A amount is apportioned under subsection (2).