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-A - Basic case: a single entity joining an existing consolidated group  

How to work out the allocable cost amount

SECTION 705-60   705-60   What is the joined group ' s allocable cost amount for the joining entity?  


Work out the joined group ' s allocable cost amount for the joining entity in this way:


Working out the joined group ' s allocable cost amount for the joining entity
Step What the step requires Purpose of the step
1 Start with the step 1 amount worked out under section 705-65, which is about the cost of * membership interests in the joining entity held by * members of the joined group To ensure that the allocable cost amount includes the cost of * acquiring the membership interests
2 Add to the result of step 1 the step 2 amount worked out under section 705-70, which is about the value of the joining entity ' s liabilities To ensure that the joining entity ' s liabilities at the joining time, which are part of the joined group ' s cost of acquiring the joining entity, are reflected in the allocable cost amount
3 Add to the result of step 2 the step 3 amount worked out under:
(a) section 705-90, which is about undistributed, taxed profits accruing to the joined group before the joining time; or
(b) if the joining entity is a trust (and not a * corporate tax entity) - section 713-25, which is about undistributed, realised profits accruing to the joined group before the joining time that could be distributed tax free
To increase the allocable cost amount:
(a) to reflect the undistributed, taxed profits and so prevent double taxation; or
(b) if the joining entity is a trust - to reflect the undistributed, realised profits that could be distributed tax free
3A For each step 3A amount (if any) under section 705-93 (which is about pre-joining time roll-overs):
(a) if the step 3A amount is a *deferred roll-over loss - add to the result of step 3 (as affected by any previous application of this step) the step 3A amount; or
(b) if the step 3A amount is a *deferred roll-over gain - subtract from the result of step 3 (as affected by any previous application of this step) the step 3A amount
To adjust for certain roll-overs before the joining time affecting deferred gains and losses
4 Subtract from the result of step 3A the step 4 amount worked out under section 705-95, which is about pre-joining time distributions out of certain profits To prevent the allocable cost amount reflecting return of part of the amount paid to * acquire the * membership interests in the joining entity
5 Subtract from the result of step 4 the step 5 amount worked out under section 705-100, which is about certain losses accruing to the joined group before the joining time To prevent:

(a) a double benefit arising from the losses; and

(b) losses that cannot be transferred to the * head company, or are cancelled by the head company, under Subdivision 707-A being reinstated in an unrealised form or reducing unrealised gains.
6 Subtract from the result of step 5 the step 6 amount worked out under section 705-110, which is about losses that the joining entity transferred to the * head company under Subdivision 707-A To stop the joined group getting benefits both through higher * tax cost setting amounts for the joining entity ' s assets and through losses transferred to the head company
7 Subtract from the result of step 6 the step 7 amount worked out under section 705-115, which is about certain deductions to which the * head company is entitled To stop the joined group getting benefits both through the * tax cost of the joining entity ' s assets being set and through certain tax deductions of the joining entity being inherited by the head company
8 If the remaining amount is positive, it is the joined group ' s allocable cost amount. Otherwise the joined group ' s allocable cost amount is nil.

Note:

The head company may be taken to have made a capital gain, depending on the amount remaining after applying step 3A: see CGT event L2.


 

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