Taxation Determination

TD 2005/44

Income tax: consolidation: cost setting: are the tax costs of the assets of a transitional foreign-held indirect subsidiary which is not a chosen transitional entity set when the entity becomes a member of a consolidated or MEC group?

• Please note that the PDF version is the authorised version of this ruling.

FOI status:

may be released

Preamble

1. Yes. If an entity that meets the requirements of Subdivision 701C-B of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) as a transitional foreign-held indirect subsidiary (TFHIS) becomes a member of a consolidated, or MEC (multiple entry consolidated) group, and is not a chosen transitional entity in accordance with section 701-5 of the IT(TP)A 1997, the tax costs of the assets of the entity are set in accordance with Divisions 701 and 705 of the Income Tax Assessment Act 1997 (ITAA 1997) when the entity becomes a member of the group.

2. A TFHIS is a subsidiary member of a consolidated or MEC group. When an entity becomes a subsidiary member of a consolidated or MEC group, and is not within a class of subsidiary members that are excluded from the tax cost setting rules, the tax costs of the assets of that entity are set at the tax cost setting amounts, worked out as described in section 701-60 of ITAA 1997 (refer section 701-10 of the ITAA 1997).

3. The effect of the law is that the following three categories of subsidiary members do not have the tax costs of their assets set:

•

eligible tier-1 companies (section 719-160 of the ITAA 1997) - this category of subsidiary members is only of relevance to MEC groups;

•

transitional foreign-held subsidiaries (section 701C-30 of the IT(TP)A 1997) - this category of subsidiary members is of relevance to both consolidated and MEC groups; and

•

chosen transitional entities (section 701-15 of the IT(TP)A 1997) - this category of subsidiary members is also of relevance to both consolidated and MEC groups.

4. Since none of these provisions excludes a TFHIS that is not a chosen transitional entity from the operation of the tax cost setting rules, the tax costs of its assets are set in accordance with Divisions 701 and 705 of the ITAA 1997 when the entity becomes a member of a consolidated or MEC group.

Note: An entity can become a member of a consolidated or MEC group as a TFHIS after the formation of those groups. A TFHIS that joins a group after the formation cannot qualify as a transitional entity (see section 701-1 of the IT(TP)A 1997) and consequently, the tax costs of the assets of that TFHIS will always be set.

5. Head Co is the head company of a consolidated group.

6. The subsidiary members of the consolidated group are M1, M2, A Co and B Co.

7. B Co is a TFHIS of the consolidated group in accordance with the definition in section 701C-20 of the IT(TP)A 1997.

8. The tax costs of the assets of B Co are set when it becomes a member of the group unless it is a chosen transitional entity.

9. A MEC group comprises provisional head company X Co, eligible tier-1 company Y Co and subsidiary members Sub Co, A Co and B Co.

10. B Co is a TFHIS of the MEC group in accordance with the definition in section 701C-20 of the IT(TP)A 1997.

11. The tax costs of the assets of B Co are set when it becomes a member of the MEC group unless it is a chosen transitional entity.

Date of effect

12. This Determination applies to years commencing both before and after its date of issue. However, it does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

Commissioner of Taxation
19 October 2005

Previously issued as TD 2005/D12

References

ATO references:
NO 2004/12067

Related Rulings/Determinations:

TR 92/20

Subject References:
chosen transitional entity
consolidated group
consolidation
cost setting rules
MEC group
subsidiary member of a consolidated group
subsidiary member of a MEC group
tax cost setting rules
transitional foreign-held indirect subsidiaries
transitional foreign-held subsidiaries

Legislative References:
TAA 1953 Pt IVAAA
ITAA 1997 Div 701
ITAA 1997 701-10
ITAA 1997 701-60
ITAA 1997 Div 705
ITAA 1997 719-160
IT(TP)A 1997 701-1
IT(TP)A 1997 701-5
IT(TP)A 1997 701-15
IT(TP)A 1997 Subdiv 701C-B
IT(TP)A 1997 701C-20
IT(TP)A 1997 701C-30