Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 705 - Tax cost setting amount for assets where entities become subsidiary members of consolidated groups  

Subdivision 705-B - Case of group formation  

Modified application of Subdivision 705-A

SECTION 705-160   Adjustment to allocation of allocable cost amount to take account of owned profits or losses of certain entities that become subsidiary members  

Object

705-160(1)  
The object of this section is to prevent a distortion under section 705-35 in the allocation of * allocable cost amount to an entity that becomes a * subsidiary member of the group where that entity has direct or indirect * membership interests in another entity that has certain profits or tax losses when it becomes a subsidiary member. Adjustment to allocation of allocable cost amount where direct interest in entity with profits/losses

705-160(2)  
If:


(a) an entity becomes a * subsidiary member of the group at the formation time; and


(b) the entity has * membership interests in a second entity that becomes a subsidiary member of the group at that time; and


(c) in working out the group ' s * allocable cost amount for the second entity:


(i) an amount is required to be added (the second entity ' s profit/loss adjustment amount ) under step 3 in the table in section 705-60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the second entity ' s profit/loss adjustment amount ) under step 5 in the table in section 705-60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705-35 the * tax cost setting amount for the assets of the first entity, the * market value of the first entity ' s membership interests in the second entity is reduced (in a subparagraph (c)(i) case) or increased (in a subparagraph (c)(ii) case) by the first entity ' s interest in the second entity ' s profit/loss adjustment amount (see subsection (3)).

First entity ' s interest in second entity ' s profit/loss adjustment amount

705-160(3)  
The first entity ' s interest in the second entity ' s profit/loss adjustment amount is worked out using the formula:


*Market value of first
entity ' s *membership interests
                        in second entity                                  
*Market value of all *membership
interests in second entity
× Second entity ' s profit/loss
adjustment amount

Adjustment to allocation of allocable cost amount for indirect interest in entity with profits/losses

705-160(4)  
If:


(a) an entity becomes a * subsidiary member of the group at the formation time; and


(b) the entity has * membership interests in a second entity that becomes a subsidiary member of the group at that time; and


(c) the second entity has, directly or indirectly through one or more interposed entities that become subsidiary members of the group at the formation time, membership interests in a third entity that becomes a subsidiary member of the group at that time; and


(d) in working out the group ' s * allocable cost amount for the third entity:


(i) an amount is required to be added (the third entity ' s profit/loss adjustment amount ) under step 3 in the table in section 705-60 (about profits accruing before becoming a subsidiary member of the group); or

(ii) an amount is required to be subtracted (also the third entity ' s profit/loss adjustment amount ) under step 5 in the table in section 705-60 (about losses accruing before becoming a subsidiary member of the group);

then, for the purposes of working out under section 705-35 the * tax cost setting amount for the assets of the first entity, the * market value of the first entity ' s membership interests in the second entity is reduced (in a subparagraph (d)(i) case) or increased (in a subparagraph (d)(ii) case) by the first entity ' s interest in the third entity ' s profit/loss adjustment amount (see subsection 5)).

First entity ' s interest in third entity ' s profit/loss adjustment amount

705-160(5)  


The first entity ' s interest in the third entity ' s profit/loss adjustment amount is worked out using the formula:


*Market value of first entity ' s
membership interests in third
entity held through second entity
*Market value of all *membership
interests in third entity
× Third entity ' s
profit/loss
adjustment amount

where:

market value of first entity ' s membership interests in third entity held through second entity
means the * market value of all * membership interests in the third entity that the first entity holds indirectly through the second entity (including through that entity and one or more other entities that become * subsidiary members of the group and are interposed between the second entity and the third entity).


 

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