ATO Interpretative Decision
ATO ID 2005/339
Income Tax
Income Tax: Consolidation - depreciating assetsFOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can section 701A-10 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) apply to a head company in respect of an internally created asset that is a depreciating asset in the hands of a joining entity, though it was not a depreciating asset for income tax purposes in the hands of the entity that created the asset?
Decision
Yes, but the section can only apply to internally created assets which meet the income tax definition of a depreciating asset applying at the joining time during the whole of their existence.
Facts
On 1 July 2002, Head Company X forms a consolidated group with its wholly owned subsidiaries, Company B and Company C.
Company B created an asset which has not always met the definition of a depreciating asset in accordance with the income tax definition of a depreciating asset applicable at the joining time.
The asset was transferred to Company C before the group consolidated.
Company C holds it as a depreciating asset.
Reasons for Decision
Subsection 701A-10(1) of the IT(TP)A 1997 only applies to depreciating assets. This is because paragraph 701A-10(1)(a) of the IT(TP)A 1997 refers to 'a depreciating asset'. Subsequent references within the section to 'the asset' obtain their meaning from the first use of the term 'asset' in paragraph 701A-10(1)(a) of the IT(TP)A 1997 being a 'depreciating asset'.
The internally created asset must have had the characteristics of a depreciating asset as defined under section 40-30 of the Income Tax Assessment Act 1997 (ITAA 1997) during the whole of its existence. The internally created asset must also be an asset within the meaning of that term under subsection 705-35(1) of the ITAA 1997.
In this instance, Company B's internally created asset was an identifiable source of value to C and was therefore an asset for the purposes of subsection 705-35(1) of the ITAA 1997. However, it did not meet the definition of a depreciating asset under section 40-30 of the ITAA 1997 continuously from the time of its creation. It may not have met the definition of a depreciating asset under section 40-30 because it was held as trading stock or for some other reason that excluded it from the definition. Therefore, section 701A-10 of the IT(TP)A 1997 will not apply to Head Company X even though Company C holds the asset as a depreciating asset at the joining time.
Date of decision: 29 September 2005Year of income: Year ending 30 June 2003 Year ending 30 June 2004
Legislative References:
Income Tax (Transitional Provisions) Act 1997
subsection 701A-10(1)
paragraph 701A-10(1)(a)
section 40-30
subsection 705-35(1) Related ATO Interpretative Decisions
ATO ID 2003/741 ATO Interpretative Decisions overturned by this decision
ATO ID 2003/740
Keywords
Adjustable value of a depreciating asset
Adjusted market value of the consolidated group
Consolidation
Consolidation - assets
Consolidation - joining
ISSN: 1445-2782
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