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

Schedule 4   Consolidation: adjustments for errors etc.

Part 1   New Subdivision 705-E

Income Tax Assessment Act 1997

2   After Subdivision 705-D

Insert:

Subdivision 705-E - Adjustments for errors etc.

Guide to Subdivision 705-E

705-300 What this Subdivision is about

Errors in making tax cost setting amount calculations are reversed by means of an immediate capital gain or loss if it would be unreasonable to require the calculations to be re-done.

Table of sections

Operative provisions

705-305 Object of this Subdivision

705-310 Operation of Part IVA of the Income Tax Assessment Act 1936

705-315 Errors that attract special adjustment action

705-320 Tax cost setting amounts taken to be correct

[This is the end of the Guide.]

Operative provisions

705-305 Object of this Subdivision

The object of this Subdivision is to avoid the time and expense involved in correcting errors affecting *tax cost setting amount calculations. This is done by providing for *capital gains or *capital losses to reverse the errors.

705-310 Operation of Part IVA of the Income Tax Assessment Act 1936

To avoid doubt, this Subdivision does not limit the operation of Part IVA of the Income Tax Assessment Act 1936.

705-315 Errors that attract special adjustment action

(1) Section 705-320 (about later adjustments to correct *tax cost setting amount calculation errors) applies if the conditions in this section are satisfied.

Tax cost setting amount taken into account

(2) The first condition is that the *head company of a *consolidated group worked out a *tax cost setting amount, in purported compliance with this Division, for an asset of an entity that becomes a *subsidiary member of the group that is an asset of a kind referred to in section 705-35 as a reset cost base asset.

Error in calculation

(3) The second condition is that:

(a) the *head company made one or more errors in working out the *tax cost setting amount; and

(b) those errors caused the tax cost setting amount to differ from its correct amount.

If the errors caused the tax cost setting amount to be more, the difference is an overstated amount . If the errors caused the tax cost setting amount to be less, the difference is an understated amount .

Unreasonable to require recalculation

(4) The third condition is that, having regard to the following factors:

(a) the net size of the errors compared to the size of the *allocable cost amount for the joining entity;

(b) the number of *tax cost setting amounts that would have to be recalculated, and the difficulty of making the recalculations;

(c) the number of adjustments, in assessments that could be amended and in future *income tax returns, that would be necessary to correct the errors;

(d) the difficulty in obtaining any necessary information;

it is not reasonable to require a recalculation of the amounts involved.

Exception where error due to fraud or evasion

(5) However, the conditions in this section are not satisfied if the errors were to any extent due to fraud or evasion.

Requirement to notify

(6) The *head company of the *consolidated group must, as soon as practicable after becoming aware that it made one or more errors in working out the *tax cost setting amount, notify the Commissioner in the *approved form:

(a) that it had made the errors; and

(b) of the amount of the overstated amount or understated amount.

705-320 Tax cost setting amounts taken to be correct

(1) For the purposes of this Act (other than this Subdivision) and for the purposes of the Taxation Administration Act 1953, any *tax cost setting amounts that were worked out by the *head company, so far as they were due to the errors, are taken to have been correct if the conditions in section 705-315 are satisfied.

Note 1: If the conditions in section 705-315 are satisfied, CGT event L6 happens (see section 104-525).

Note 2: Subsection (1) means that the Commissioner cannot amend any assessments necessary to correct the errors, and that (except as mentioned in subsection (2)) no offences or administrative penalties arise in respect of the errors.

(2) Subsection (1) does not apply for the purposes of determining whether there is an offence against section 8N of the Taxation Administration Act 1953, or an administrative penalty under section 284-75 or 284-145 in Schedule 1 to that Act, in relation to statements made before the Commissioner became aware of the errors.

Note 1: Section 8N of the Taxation Administration Act 1953 deals with false or misleading statements. Sections 284-75 and 284-145 in Schedule 1 to that Act set out the circumstances in which an entity is liable for an administrative penalty.

Note 2: The offence and administrative penalty provisions however apply on a modified basis - see subsection 8W(1C) of the Taxation Administration Act 1953, and subsections 284-80(2) and 284-150(2) in Schedule 1 to that Act.

[The next Division is Division 707.]