Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
tax laws amendment (2010 Measures No. 1) bill 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 5
General outline and financial impact 7
Chapter 1 Approved superannuation clearing house 13
Chapter 2 Forestry managed investment schemes 19
Chapter 3 Managed investment trusts: capital treatment and taxation of
carried interests 27
Chapter 4 Restricting eligibility to the entrepreneurs' tax offset
through an income test 47
Chapter 5 Consolidation 55
Chapter 6 Miscellaneous amendments 193
Index 215
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|ATO |Australian Taxation Office |
|CGT |capital gains tax |
|Commissioner |Commissioner of Taxation |
|Corporations Act |Corporations Act 2001 |
|ETO |entrepreneurs' tax offset |
|FHSA |first home saver account |
|HEFA |Higher Education Funding Act |
| |1988 |
|HESA |Higher Education Support Act |
| |2003 |
|ITAA 1936 |Income Tax Assessment Act |
| |1936 |
|ITAA 1997 |Income Tax Assessment Act |
| |1997 |
|MEC group |multiple entry consolidated |
| |group |
|MIS |managed investment scheme |
|MIT |managed investment trust |
|PAYG |pay as you go |
|POC Act |Proceeds of Crime Act 2002 |
|RSA |retirement savings account |
|RSA Act 1997 |Retirement Savings Accounts |
| |Act 1997 |
|SG |superannuation guarantee |
|SGA Act 1992 |Superannuation Guarantee |
| |(Administration) Act 1992 |
|SIS Act 1993 |Superannuation Industry |
| |(Supervision) Act 1993 |
|TAA 1953 |Taxation Administration Act |
| |1953 |
|TIES |Tax Issues Entry System |
General outline and financial impact
Approved superannuation clearing house
Schedule 1 to this Bill amends various parts of the superannuation
legislation to support the Government's 2008-09 Budget measure to
provide a free superannuation clearing house service for small
businesses. This measure is designed to reduce the cost to small
businesses of complying with their superannuation obligations.
These amendments allow employers to meet their obligations to make
compulsory superannuation contributions for the benefit of their
employees, and to promptly remit superannuation amounts deducted
from an employee's salary or wages, by paying to an approved
clearing house.
These amendments also:
. extend the conditions under which superannuation
contributions for the benefit of an employee will comply
with the choice of fund requirements to accommodate
contributions made through an approved clearing house; and
. allow taxpayer information to be disclosed to an approved
clearing house for the purpose of performing its
functions.
Date of effect: 1 July 2010.
Proposal announced: This measure was announced in the 2008-
09 Budget on 13 May 2008. On 6 November 2009, the Minister for
Human Services, Financial Services, Superannuation and Corporate
Law announced that the Government's free superannuation clearing
house service for small business will be delivered through Medicare
Australia (Media Release No. 035 of 6 November 2009).
Financial impact: Nil. However, in the 2008-09 Budget the
Government allocated funding of $16.1 million over three years
(commencing in 2009-10) for the provision of a free superannuation
clearing house service for small businesses.
Compliance cost impact: Low or nil.
Forestry managed investment schemes
Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
and the Income Tax Assessment Act 1936 to protect the deductions of
investors in forestry managed investment schemes where the four-
year holding period rules are failed for reasons genuinely outside
the investor's control.
This Schedule also amends the Taxation Administration Act 1953 to
maintain the capacity of the Commissioner of Taxation to apply for
civil penalties against the promoters of affected schemes,
notwithstanding the amendments to the four-year rules.
Date of effect: The amendments apply to capital gains tax (CGT)
events happening on or after 1 July 2007.
Proposal announced: This measure was announced in the Assistant
Treasurer's Media Release No. 074 of 21 October 2009.
Financial impact: Negligible.
Compliance cost impact: This measure is expected to have a low
impact on compliance costs.
Managed investment trusts: capital treatment and taxation of carried
interests
Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
to allow eligible managed investment trusts (MITs) to make an
irrevocable election (that is, choice) to apply the capital gains
tax (CGT) provisions as the primary code for the taxation of gains
and losses on disposal of certain assets (primarily shares, units
and real property). If a MIT is eligible to make an election and
it has not done so, then any gains or losses on the disposal of
eligible assets (excluding land, an interest in land, or an option
to acquire or dispose of such an asset) will be treated on revenue
account.
This Schedule also clarifies the taxation treatment of 'carried
interest' units in MITs. These units will effectively be treated
on revenue account in the hands of the unit holder.
Date of effect: These amendments broadly apply in relation to
eligible CGT events that happen on or after the start of the 2008-
09 income year.
The amendments which deem certain assets to be on revenue account
when an election is not made, apply to disposals of assets,
cessations of ownership of assets and other realisations of assets
which take place on or after Royal Assent.
The amendments concerning 'carried interests' in MITs apply in
relation to entitlements to distributions that arise on or after
Royal Assent, or disposals of assets that happen on or after Royal
Assent.
Proposal announced: This measure was announced in the then
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs' Media Release No. 049 of 12 May 2009.
Financial impact: This measure has unquantifiable revenue
implications from the 2009-10 income year.
Compliance cost impact: Low.
Restricting eligibility to the entrepreneurs' tax offset through an income
test
Schedule 4 to this Bill amends Subdivision 61-J of the Income Tax
Assessment Act 1997 by introducing an income test into the
eligibility criteria for the entrepreneurs' tax offset (ETO). The
income test will restrict the eligibility of individuals whose
income is over a threshold amount of income for ETO purposes
($70,000 if they are single and $120,000 if they have a family).
Date of effect: This measure applies in relation to assessments
for income years that commence on or after 1 July 2009.
Proposal announced: This measure was first announced in the
Treasurer's Media Release No. 050 of 13 May 2008. The measure was
initially announced to commence on 1 July 2008. This was deferred
by 12 months and announced in the then Assistant Treasurer and
Minister for Competition Policy and Consumer Affairs' Media Release
No. 048 of 12 May 2009.
Financial impact: This measure will have the following revenue
implications:
|2009-10 |2010-11 |2011-12 |2012-13 |
|Nil |$22m |$22m |$22m |
Compliance cost impact: This measure is expected to result in a
low overall compliance cost impact, comprised of a low
implementation impact and a low increase in ongoing compliance
costs relative to the affected group.
Consolidation
Schedule 5 to this Bill amends the Income Tax Assessment Act 1997
to
. clarify the operation of certain aspects of the
consolidation regime; and
. improve interactions between the consolidation regime and
other parts of the law.
Date of effect: Many of the amendments apply from 1 July 2002.
Others apply from 1 July 2005, 27 October 2006, 8 May 2007,
1 July 2009 or from the date of introduction of this Bill into the
House of Representatives. The amendments that are retrospective
are beneficial to taxpayers.
Proposal announced: These amendments were announced jointly in the
Treasurer's and the then Assistant Treasurer and Minister for
Competition Policy and Consumer Affairs' Media Release No. 053 of
13 May 2008.
Financial impact: These amendments, other than those in Part 20,
are expected to have a small but unquantifiable cost to revenue.
The amendments in Part 20 are expected to result in the following
revenue gain:
|2009-10 |2010-11 |2011-12 |2012-13 |
|- |$25m |$50m |$75m |
Compliance cost impact: Low.
Miscellaneous amendments
Schedule 6 to this Bill makes technical corrections and other
miscellaneous amendments to the taxation laws. These amendments
are part of the Government's commitment to the care and maintenance
of the tax system.
Date of effect: These amendments commence from Royal Assent unless
otherwise stated.
Proposal announced: These amendments were foreshadowed by release
in draft form on the Treasury website on 30 November 2009.
Financial impact: The amendments to the small business retirement
exemption, proposed by items 7 to 11, are expected to result in an
unquantifiable but small cost to revenue.
The amendments to the administrative penalties for false or
misleading statements, proposed by items 58 to 105, are expected to
result in an unquantifiable but small gain to revenue.
The other miscellaneous amendments are expected to have a nil to
minimal revenue impact.
Compliance cost impact: Nil to low.
Chapter 1
Approved superannuation clearing house
Outline of chapter
1. Schedule 1 to this Bill amends the Superannuation Guarantee
(Administration) Act 1992 (SGA Act 1992), the Retirement Savings
Accounts Act 1997 (RSA Act 1997), the Superannuation Industry
(Supervision) Act 1993 (SIS Act 1993), the Income Tax Assessment
Act 1936 (ITAA 1936) and the Taxation Administration Act 1953
(TAA 1953) to support the Government's 2008-09 Budget measure to
provide a free superannuation clearing house service for small
businesses. The measure is designed to reduce the cost and
paperwork burden to small businesses of complying with their
superannuation obligations.
Context of amendments
2. Under the superannuation guarantee (SG) arrangements, employers are
required to pay a minimum level of superannuation contributions for
the benefit of their eligible employees at least once a quarter to
avoid liability to the SG charge. The minimum contribution level
is 9 per cent of an employee's ordinary time earnings.
3. Some employers currently pay contributions in fulfilment of their
SG obligations through a payroll provider or a superannuation
clearing house. However, these contributions are only considered
to have been made for SG purposes when they are paid into a
complying superannuation fund or retirement savings account (RSA).
4. The choice of fund rules require most employers to provide their
employees with a choice of superannuation fund. Employees are
generally able to choose the fund into which their employer
superannuation contributions are paid. Employers must provide a
standard choice form to their new employees, and to their existing
employees on request. Employees wishing to exercise choice of fund
must complete the form with the required information and return it
to their employer. An employee may also initiate the choice
process by giving their employer written notice nominating a
particular fund as their chosen fund. Employers must give effect
to an exercise of choice by an employee within two months of
receiving written notice from the employee.
5. Complying with the choice of fund rules, including the process of
giving effect to an employee's exercise of choice and having to
interact with different superannuation funds, can impose costs and
divert effort away from a business's core activities. Smaller
businesses, with fewer resources at their disposal, are less likely
to be able to absorb this cost and inconvenience without impacting
on the operation of the business.
6. The amendments contained in this Schedule support the Government's
2008-09 Budget measure to provide a free superannuation clearing
house service for small businesses (those with fewer than
20 employees) to assist in meeting their superannuation
obligations.
Summary of new law
7. The amendments to the SGA Act 1992 allow employers to meet their
obligation to make compulsory superannuation contributions for the
benefit of their employees by paying to an approved clearing house.
8. The amendments also extend the conditions under which contributions
for the benefit of an employee are made in compliance with the
choice of fund requirements to cover circumstances where
contributions are made through an approved clearing house.
9. Amendments to the SIS Act 1993 and the RSA Act 1997 allow an
employer to satisfy its obligation in relation to the prompt
remittance of superannuation amounts deducted from an employee's
salary or wages by making payments to an approved clearing house.
10. The secrecy provisions in the tax law are also amended to allow
taxation officers to disclose information to an approved clearing
house for the purpose of performing its functions.
Comparison of key features of new law and current law
|New law |Current law |
|An employer is able to |Where an employer makes |
|reduce its SG liability |contributions through a |
|by making payments to an |clearing house in |
|approved clearing house. |fulfilment of its |
| |SG obligations, the |
| |contributions are only |
| |considered to have been |
| |made for SG purposes when|
| |they are paid into a |
| |complying superannuation |
| |fund or an RSA. |
|A contribution to a fund |A contribution to a |
|by an employer for the |superannuation fund by an|
|benefit of an employee is|employer for the benefit |
|also made in compliance |of an employee is made in|
|with the choice of fund |compliance with the |
|requirements if: |choice of fund rules if |
|the contribution is made |the contribution is made |
|through an approved |to a chosen fund for the |
|clearing house; |employee or, if there is |
|the employee has given |no chosen fund, to an |
|the employer written |eligible choice fund for |
|notice choosing a fund; |the employer. An |
|and |employee can nominate a |
|the employer passed the |fund as their chosen fund|
|information contained on |by giving written notice |
|the written notice to the|to their employer. |
|approved clearing house |Contributions that are |
|within 21 days of |not made in compliance |
|receiving it from the |with the choice of fund |
|employee. |requirements give rise to|
| |an SG shortfall for the |
| |employer and a resultant |
| |liability to the SG |
| |charge. |
|An employer is able to |Where an employer is |
|discharge its obligation |authorised to deduct |
|in respect of the prompt |amounts from an |
|remittance of |employee's salary or |
|superannuation amounts |wages for the purpose of |
|deducted from an |payment to a |
|employee's salary or |superannuation fund or an|
|wages by paying them to |RSA provider, the amounts|
|an approved clearing |must be paid to the |
|house within 28 days of |trustee of the fund or |
|the end of the month in |RSA provider within |
|which the deduction is |28 days of the end of the|
|made. |month in which the |
| |deduction is made. |
|The secrecy provisions |Secrecy provisions in the|
|are extended to allow the|tax law allow the |
|Australian Taxation |Australian Taxation |
|Office to disclose |Office to provide |
|information to an |taxpayer information to |
|approved clearing house |certain bodies or |
|for the purpose of |officers for specified |
|performing its functions.|government purposes. |
Detailed explanation of new law
Superannuation guarantee contributions
11. Part 3 of the SGA Act 1992 deals with liability of employers to the
SG charge. An employer commences each quarter with an SG charge
percentage of 9 per cent (the minimum contribution level under the
SG arrangements) in respect of each employee. An employer can
reduce its SG charge percentage for a quarter under section 23 by
making contributions to a complying superannuation fund or an RSA
by the 28th day following the end of the quarter. Section 23A
allows late payments (payments made after the due date) to a
complying superannuation fund or an RSA to be offset against the SG
charge.
12. New section 23B provides that an employer who pays an amount to an
approved clearing house for the benefit of an employee is taken to
have contributed the amount to a complying superannuation fund or
an RSA for the purposes of sections 23 and 23A. The payment would
need to be accepted by the approved clearing house. This is to
ensure that only small businesses registered with an approved
clearing house will be able to discharge their SG obligations by
paying to the approved clearing house. To ensure that a payment to
an approved clearing house is not counted twice for SG purposes,
any contribution the approved clearing house makes to a complying
superannuation fund or an RSA as a result of the payment is
disregarded. [Schedule 1, item 3, section 23B]
13. Approved clearing house is defined in new subsection 79A(3) as
meaning a body specified in the regulations for the purposes of
that subsection. [Schedule 1, items 2 and 5, subsections 6(1) and
79A(3)]
The choice of fund requirements
14. The choice of fund requirements are contained in Part 3A of the SGA
Act 1992. A contribution to a fund by an employer for the benefit
of an employee is made in compliance with the choice of fund
requirements if the contribution is made to a chosen fund for the
employee or, if there is no chosen fund, to an eligible choice fund
for the employer. Contributions that are not made in compliance
with the choice of fund requirements give rise to an SG shortfall
for the employer under subsection 19(2A) and a resultant liability
to the SG charge.
15. New subsection 32C(2B) provides that a contribution to a fund by an
employer for the benefit of an employee is also made in compliance
with the choice of fund requirements if:
. the contribution is made through an approved clearing
house;
. the employee has given the employer written notice
choosing a fund in accordance with Division 4 (Choosing a
fund); and
. the employer passes the information provided by the
employee in the written notice to the approved clearing
house within 21 days of receiving it (and before or at the
time of the contribution) and the approved clearing house
accepts the information. The latter requirement is to
ensure that only small businesses registered with an
approved clearing house will be able to rely on subsection
32C(2B) to avoid an SG shortfall under subsection 19(2A).
A contribution made in accordance with new subsection 32C(2B) will
not result in an SG shortfall for the employer under subsection
19(2A). [Schedule 1, item 4, subsection 32C(2B)]
1.
Ace Crash Repairs (ACR) is a small business which is
registered with an approved clearing house to make
superannuation contributions on behalf of its employees.
ACR has recently taken on Mick as a new employee and he is
given a standard choice form by ACR in compliance with its
obligations under the choice of fund rules.
Mick completes the choice form nominating XYZ superannuation
fund as the fund into which his superannuation contributions
are to be paid and returns the form to his employer. ACR
forwards the information provided by Mick on the form to the
approved clearing house one week after receiving it from
Mick. XYZ fund is a fund which meets the requirements for a
chosen fund in Division 4 of the SGA Act 1992.
As the conditions prescribed in subsection 32C(2B) are
satisfied, contributions made by ACR for the benefit of Mick
through the approved clearing house are made in compliance
with the choice of fund requirements.
16. Where a contribution by an employer to a fund through an approved
clearing house is not made in accordance with subsection 32C(2B),
the contribution can also comply with the choice of fund
requirements provided it is made in accordance with the existing
rules in Part 3A. In this context, new section 79A treats the
contribution as having been made on the employer's behalf by the
approved clearing house as the employer's agent. If the
contribution is made in compliance with the choice of fund
requirements, an SG shortfall will not arise. [Schedule 1, item 5,
section 79A]
1.
ACR also makes contributions through the approved clearing
house in respect of another of its employees, Kate. Because
Kate has not chosen a fund, ACR has instructed the approved
clearing house to make contributions on her behalf to ACR's
default fund, ABC superannuation fund. The approved
clearing house acts on these instructions and pays the
contributions to ABC fund, which is an eligible choice fund.
As the conditions set down in new subsection 32C(2B) are not
satisfied (including because Kate has not chosen a fund),
ACR cannot rely on that provision in order to avoid an SG
shortfall arising under subsection 19(2A). However,
subsection 19(2A) also looks to the underlying contribution
by ACR to ABC fund in determining whether an SG shortfall
arises. As Kate has no chosen fund, and because ABC fund is
an eligible choice fund, the contribution by ACR to ABC fund
through the approved clearing house is made in compliance
with the choice of fund requirements. Consequently, the
contribution does not give rise to a shortfall under
subsection 19(2A).
17. The above amendments do not affect an employer's obligations under
the choice of fund rules to provide its employees with a standard
choice form in the circumstances specified in Part 3A.
Prompt remittance of amounts deducted from salary or wages of an employee
18. Where an employer is authorised to deduct amounts from an
employee's salary or wages for the purpose of payment to a
superannuation fund, the SIS Act 1993 requires that the amounts be
paid to the trustee of the fund within 28 days after the end of the
month in which the deduction is made. An equivalent requirement in
respect of RSAs is contained in the RSA Act 1997. These Acts are
amended to allow employers to satisfy this obligation by making
payments to an approved clearing house (within the meaning of the
SGA Act 1992). [Schedule 1, items 1 and 6, subsection 183(2A) of
the RSA Act 1997, subsection 64(2A) of the SIS Act 1993]
Disclosure of information to an approved clearing house
19. Secrecy provisions in the tax laws allow for the provision of
taxpayer information to certain bodies or officers for specified
government administration purposes. The amendments extend these
provisions to allow taxation officers to disclose information to an
approved clearing house for the purposes of performing its
functions in relation to superannuation contributions. The
relevant secrecy provisions are currently contained in the ITAA
1936 but will be transferred to the TAA 1953 with the enactment of
the Tax Laws Amendment (Confidentiality of Taxpayer Information)
Bill 2009. [Schedule 1, items 7 and 8, paragraph 16(4)(hbb) of the
ITAA 1936, subsection 355-65(3) of the TAA 1953]
Application
20. The amendments made by Part 1 of this Schedule apply to a payment
made to an approved clearing house on or after 1 July 2010.
[Schedule 1, item 9]
Chapter 2
Forestry managed investment schemes
Outline of chapter
21. Schedule 2 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) and the Income Tax Assessment Act 1936 (ITAA 1936) to
protect the deductions of investors in forestry managed investment
schemes (MIS) where the four-year holding period rules are failed
for reasons genuinely outside the investor's control.
22. This Schedule also amends the Taxation Administration Act 1953 (TAA
1953) to maintain the capacity of the Commissioner of Taxation
(Commissioner) to apply for civil penalties against the promoters
of affected schemes, notwithstanding the amendments to the four-
year rules.
Context of amendments
23. Investors in forestry MIS can claim an immediate tax deduction for
expenditure incurred in the scheme, subject to certain conditions.
24. Division 394 of the ITAA 1997 covers schemes for which amounts are
paid by investors on or after 1 July 2007, while section 82KZMG of
the ITAA 1936, in conjunction with section 8-1 of the ITAA 1997,
applies to schemes for which expenditure is incurred by investors
on or after 2 October 2001 and on or before 30 June 2008.
25. During the overlapping period, deductions for investors in forestry
MIS might have been claimed under either Division 394 or section 8-
1 of the ITAA 1997.
Holding period rules
26. In order for an initial investor in a forestry MIS to claim and
retain a deduction under Division 394 of the ITAA 1997, the law
requires that a CGT event does not happen in relation to the
investor's forestry interest within four years after the end of the
income year in which an amount is first paid by the investor.
27. This is called the 'four-year holding rule', as it has the effect
of requiring the initial investor to hold their forestry interest
for at least four years. The minimum holding rule period is an
integrity measure designed to prevent taxpayers from disposing of
their interest shortly after claiming their upfront tax deduction.
28. If this condition is failed, the taxpayer's assessment may be
amended to disallow the deduction. The Australian Taxation
Office's (ATO) interpretation of the current law is that the
Commissioner has no discretion to allow a deduction claimed under
Division 394 in these circumstances, even where the reason for the
capital gains tax (CGT) event happening is outside the taxpayer's
control.
29. However, if the taxpayer is carrying on a business, they may be
entitled to a deduction under section 8-1 of the ITAA 1997.
30. Initial investors who can claim a deduction under section 8-1 and
who satisfy section 82KZMG of the ITAA 1936 are subject to a
similar four-year holding rule under section 82KZMGA.
31. Unlike investors in schemes subject to Division 394 where the
investors may still be carrying on a business under section 8-1,
the ATO considers that these taxpayers do not have a fall-back
position. Failing the conditions in section 82KZMGA of the ITAA
1936 results in a deduction being denied outright.
32. A CGT event (which would cause an investor to fail the four-year
rule) may happen for many different reasons. Examples of such
reasons include the sale or transfer of the interest by the
investor, the transfer of the interest as a result of the
investor's death or the winding-up or restructure of the MIS.
33. The Government has decided to amend the tax law to protect the
deductions of investors in forestry MIS from being clawed back for
reasons genuinely outside of the investor's control. For further
information refer to the Assistant Treasurer's Media Release No.
074 of 21 October 2009.
Promoter penalties
34. Subdivision 290-B of the TAA 1953 contains the promoter penalties
provisions, which are designed to discourage the implementation of
schemes covered by a product ruling in a way that is materially
different from the product ruling.
35. Currently, the Commissioner may apply to the Federal Court for
penalties against the promoter if the scheme is implemented in a
way that is materially different from that described in the product
ruling.
36. The concept of material difference is very wide in that it covers
conduct because of which any tax outcome is capable of being or
likely to be different from that provided for in a product ruling,
including future tax outcomes affected by conduct that is beyond an
investor's control.
37. Despite this, it may be possible that the amendments to the four-
year holding rule, without a corresponding amendment to the
promoter penalty provisions, would mean there would be no material
difference from that described in a product ruling. That is, there
is a risk that the promoter penalty provisions would not apply in
some circumstances where they were intended to apply.
38. The Government has decided to amend the promoter penalty provisions
to ensure that they continue to operate as intended,
notwithstanding the amendments to the four-year holding rule.
Summary of new law
39. Failing the four-year holding rule does not lead to the denial of a
deduction where this failure is for reasons outside the investor's
control. Furthermore, such reasons must not have been able to be
reasonably anticipated by the investor at the time they acquired
their interest. These two requirements ensure that the reasons for
failing the four-year holding rule have been genuinely outside the
investor's control. This applies to forestry MIS under both
Division 394 of the ITAA 1997 and section 82KZMG of the ITAA 1936.
40. The promoter penalty provisions ensure that civil penalties may
continue to apply to the promoters of forestry MIS in cases where
the investors' deductions are allowed to stand because of the
amendments to the four-year holding rule.
Comparison of key features of new law and current law
|New law |Current law |
|Division 394 of the ITAA |Division 394 of the ITAA |
|1997 and section 82KZMG |1997 and section 82KZMG |
|of the ITAA 1936 do not |of the ITAA 1936 deny |
|deny deductions to |deductions to investors |
|investors in forestry MIS|in forestry MIS who fail |
|who fail the four-year |the four-year holding |
|holding rule for reasons |rule. However, investors|
|genuinely outside their |in MIS subject to |
|control, provided failing|Division 394 may be |
|the rule was not |entitled to deduct their |
|reasonably anticipated at|expenditure under section|
|the time the investor |8-1 of the ITAA 1997. |
|acquired their forestry | |
|interest. | |
Detailed explanation of new law
41. The four-year holding rule for initial investors in forestry MIS
operates to disallow an initial investor's deduction if a CGT event
happens in relation to their forestry interest within four years
after the end of the income year in which an amount is first paid
by the investor. Currently, this rule applies regardless of the
circumstances of the CGT event, including if these circumstances
are outside the investor's control.
42. Under the amendments, where the four-year holding rule is failed
because of circumstances genuinely outside the control of the
investor, the investor's deduction is allowed, provided that it was
not reasonably anticipated at the time that the investor acquired
their interest. [Schedule 2, items 1 and 2, subsection 82KZMG(1A)
of the ITAA 1936 and subsection 394-10(5A) of the ITAA 1997]
Four-year rule failed for reasons outside of investor's control
43. The four-year holding period rules are failed where a CGT event
happens in relation to the investor's forestry interest within four
years after the end of the income year in which the interest is
acquired. There is a wide range of CGT events that can happen in
relation to the forestry interest to cause an investor to fail the
rule.
44. A CGT event can happen where an investor chooses to sell their
interest in a scheme. In these circumstances, an investor's
deduction will continue to be denied if this CGT event is within
four years of the acquisition of the interest. This is consistent
with the underlying policy intent of the four-year holding rule.
45. However, where a CGT event happens such that the four-year holding
rule is failed in circumstances genuinely outside the initial
investor's control, the deduction is allowed to stand. [Schedule
2, items 1 and 2, paragraph 82KZMG(1A)(a) of the ITAA 1936 and
paragraph 394-10(5A)(a) of the ITAA 1997]
46. Situations that could be 'genuinely outside the initial investor's
control' include:
. the accidental death of the initial investor;
. the interest in the scheme being compulsorily transferred,
because of marriage breakdown or compulsory acquisition by
a government;
. the initial investor becoming insolvent;
. the interest in the scheme being cancelled, because of
trees being destroyed by fire, flood or drought; and
. the insolvency of the manager of the scheme, leading to
the winding up of the scheme.
1. : CGT event outside investor's control - MIS interest terminated
In June 2006, Frank incurred expenditure to purchase an
interest in a forestry MIS operated by TreeGrow Ltd. He
claimed a deduction for this expenditure in his 2005-06 tax
return relying on section 82KZMG of the ITAA 1936.
In September 2009, TreeGrow encountered financial
difficulties and went into voluntary administration. In
response, TreeGrow's creditors appointed a liquidator to
recover the funds that the creditors had lent to TreeGrow.
The liquidator sold TreeGrow's assets, including the trees
in the forestry MIS that Frank owns an interest in and the
land on which the trees were planted. As a result, Frank's
forestry interest is terminated.
The termination of Frank's interest is a CGT event. The CGT
event is genuinely outside of Frank's control because he had
no control over the decision to sell the trees and land,
which was the direct cause of the CGT event.
2. : CGT event outside investor's control - MIS interest swapped
In May 2006, Catherine invested in a forestry MIS that was
operated by TreeGrow Ltd. She claimed a deduction for
expenditure incurred in the MIS relying on section 82KZMG of
the ITAA 1936.
In October 2009, the liquidator of TreeGrow sold the land
used in the MIS that Catherine has an interest in. Rather
than terminate the interests in this scheme, this involved
swapping these interests for interests in an ongoing
forestry MIS.
The loss of Catherine's original interest is a CGT event.
This CGT event is genuinely outside of Catherine's control,
because she had no control over the decision to sell the
land on which her original interest was based.
The event could not have been reasonably anticipated
47. A further requirement is that the event that causes the CGT event
could not have been reasonably anticipated at the time that the
investor acquired the interest. [Schedule 2, items 1 and 2,
paragraphs 82KZMG(1A)(b) of the ITAA 1936 and paragraph 394-
10(5A)(b) of the ITAA 1997]
48. This means that it could not have been anticipated by a reasonable
person standing in the shoes of the investor.
1. : CGT event could not have been anticipated
Continuing the scenario in Example 1.1, at the time that
Frank invested in the forestry MIS, TreeGrow's public
statements and reports did not state that the company was
experiencing financial difficulties. At the time, Frank
could not have reasonably anticipated that TreeGrow would
experience such difficulties in 2009.
Under the existing law, Frank's assessment for 2005-06 would
be amended to disallow his deduction because a CGT event
happened in relation to his forestry interest within four
years of the end of the income year that Frank first
incurred expenditure in the forestry MIS.
Under the amendments, the conditions for allowing the
deduction to stand have been satisfied. That is, the CGT
event happened for a reason that is genuinely outside
Frank's control and the event was not able to be reasonably
anticipated in June 2006 when Frank acquired the interest.
This means that Frank's assessment will not be amended to
deny his deduction.
2. : CGT event able to be reasonably anticipated - deduction denied
In June 2008, Ben invested in a forestry MIS. He claimed a
deduction for his expenditure under Division 394 of the ITAA
1997.
The constitution under which the MIS operates allows the
scheme manager to compulsorily buy back the interests in the
MIS. In August 2009, the manager chooses to exercise this
right and repurchases the interests in the MIS, including
Ben's interest.
The sale of Ben's interest back to the MIS manager is a CGT
event, which has happened within four years of when Ben
first incurred expenditure in the MIS. This CGT event has
happened as a result of the manager exercising a right that
is conferred upon it by the scheme's constitution.
As the manager's right to repurchase the interest is set out
in the constitution, Ben could have reasonably anticipated,
at the time that he acquired the interest, that the manager
could compulsorily reacquire his interest. Thus, his
deduction is not allowed to stand under Division 394 of the
ITAA 1997.
49. An investor acquires their forestry interest when they first incur
expenditure in the forestry scheme. This can be before an amount
is paid - an amount is usually incurred when there is a definitive
obligation to pay it.
Promoter penalties
50. The Commissioner can apply to the Federal Court for penalties
against the promoter of a forestry MIS covered by an ATO product
ruling, if the scheme is implemented in a way that is materially
different to that described in the product ruling.
51. When considering whether to order the promoter of a forestry MIS to
pay that penalty, the Federal Court must disregard the amendments
to the four-year holding rules. This ensures that the law
continues to deter schemes covered by product rulings from being
implemented in a way that is materially different from that
described in the product ruling. [Schedule 2, item 3, subsection
290-50(2A) of Schedule 1 to the TAA 1953]
52. No other changes are made to the promoter penalties provisions.
That is, the operation of the promoter penalties otherwise
continues to be subject to the existing principles.
Application and transitional provisions
53. Schedule 2 applies to CGT events happening on or after 1 July 2007.
This aligns the Schedule with the application of the four-year
rules, which apply to CGT events happening on or after 1 July 2007.
[Schedule 2, item 4]
54. Schedule 2 contains a transitional provision for taxpayers who have
previously had their tax assessment amended to remove the
deductions but who would have been allowed the deduction if these
amendments had been passed at the time. This transitional
provision allows the investor's tax return to be amended for up to
four years after the CGT event happened. [Clause 4]
Chapter 3
Managed investment trusts: capital treatment and taxation of carried
interests
Outline of chapter
55. Schedule 3 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to allow eligible Australian managed investment trusts
(MITs) to make an irrevocable election (that is, choice) to apply
the capital gains tax (CGT) provisions as the primary code for the
taxation of gains and losses on disposal of certain assets held as
passive investments (primarily shares, units and real property).
If a MIT is eligible to make an election and it has not done so,
then any gains or losses on the disposal of eligible assets
(excluding land, an interest in land, or an option to acquire or
dispose of such an asset) will be treated on revenue account.
56. This Schedule also clarifies the taxation treatment of 'carried
interest' units in MITs. These units will effectively be treated
on revenue account in the hands of the unit holder.
57. All of the legislative references in this chapter are to the
ITAA 1997 unless otherwise specified.
Context of amendments
58. The existing definition of a MIT (for the purpose of pay as you go
(PAYG) withholding on certain fund payments to foreign residents)
is contained in section 12-400 in Subdivision 12-H in Schedule 1 to
the Taxation Administration Act 1953 (TAA 1953). Broadly, a MIT is
a public unit trust that is listed, widely held or publicly offered
managed investment scheme (MIS). To retain trust taxation, a
public unit trust cannot at any time during an income year operate,
or control operations of, an entity that carries on activity that
is not eligible investment business. Otherwise, the unit trust is
taxed like a company. Eligible investment business is broadly
defined under Division 6C of the Income Tax Assessment Act 1936
(ITAA 1936) as investing in land for the purpose, or primarily for
the purpose, of deriving rent, or investing or trading in certain
financial instruments, including shares in a company and units in a
unit trust.
59. Gains and losses on disposals of assets by MITs may be on revenue
or capital account. Gains and losses that are treated on capital
account are taxed under the CGT regime. Beneficiaries who are
individuals or superannuation funds are entitled to the CGT tax
concessions on distributions of capital gains. Foreign resident
beneficiaries of a MIT, generally are not subject to tax on a MIT
distribution attributable to a CGT gain, unless the gain relates to
taxable Australian property.
60. In the 2009-10 Budget the Government announced that it would allow
eligible Australian MITs that are not taxed like companies to make
an irrevocable election to treat gains and losses on the disposal
of certain assets (primarily shares, units and real property) on
capital account for taxation purposes, subject to appropriate
integrity rules. This measure is an important part of the
Government's reforms to provide a more certain and competitive
Australian tax regime for attracting foreign funds under
management.
Summary of new law
61. Eligible MITs can make an irrevocable election/choice to apply the
CGT provisions as the primary code for assessing gains and losses
on disposal of certain assets (primarily shares, units and real
property), subject to integrity rules. Eligible MITs include
retail and wholesale entities that are MITs as defined in section
12-400 of Schedule 1 to the TAA 1953 and other retail and wholesale
entities that are treated in the same way as a MIT due to the
extended concept of a MIT established for the purposes of this
measure.
62. If a MIT is eligible to make a choice but has not done so, then any
gains or losses on the disposal of eligible assets (other than
land, an interest in land, or an option or right to acquire or
dispose of land) will be treated on revenue account. Land is not
subject to this deemed revenue account treatment and whether land
is treated on capital or revenue account will be based on an
application of the general principles of the tax law.
63. The CGT provisions do not apply to distributions on 'carried
interest' units in an eligible MIT; these amounts are included in
the assessable income of the carried interest holder to the extent
that they are not already included in their assessable income other
than under the CGT provisions and are not a return of contributed
capital on the carried interest.
64. Where a capital account choice is in force for the 2008-09 income
year, the Commissioner of Taxation (Commissioner) is not able to
amend prior year assessments, in respect of a re-characterisation
of amounts from capital to revenue or vice versa, without the
consent of the taxpayer.
Comparison of key features of new law and current law
|New law |Current law |
|Eligible MITs can make an|The treatment of gains |
|irrevocable choice to |and losses on disposals |
|apply the CGT provisions |of investment assets by |
|as the primary code for |MITs may be on revenue or|
|assessing gains and |capital account depending|
|losses on disposal of |on the individual facts |
|certain assets (primarily|and circumstances. |
|shares, units and real | |
|property), subject to | |
|integrity rules. | |
|If a MIT is eligible to |No equivalent. |
|make a choice and they | |
|have not done so, then | |
|any gains or losses on | |
|the disposal of eligible | |
|assets (excluding land, | |
|an interest in land, or | |
|an option to acquire or | |
|dispose of such an asset)| |
|will be on revenue | |
|account. | |
|Distributions on 'carried|There is some doubt as to|
|interest units', and |whether distributions and|
|gains from the disposal |gains made on carried |
|of such units, are |interest units are on |
|included in assessable |revenue or capital |
|income, to the extent |account for unit holders |
|that they are neither |of MITs. |
|already included in the | |
|assessable income of the | |
|unitholder (other than | |
|under the CGT provisions)| |
|nor represent a return of| |
|contributed capital. | |
|Where capital account |The Commissioner may |
|treatment is in force for|amend prior year |
|the 2008-09 income year, |assessments in accordance|
|the Commissioner is not |with section 170 of the |
|able to amend prior year |ITAA 1936. |
|assessments, in respect | |
|of a re-characterisation | |
|of amounts from capital | |
|to revenue or vice versa,| |
|without the consent of | |
|the taxpayer. | |
Detailed explanation of new law
Scope and meaning of a managed investment trust
65. A trust may be a MIT or be treated in the same way as a MIT in
relation to an income year if it meets:
. the definition of 'managed investment trust' in
Subdivision 12-H in Schedule 1 to the TAA 1953; or
. one of the other provisions that allow the trust to be
treated in the same way as a MIT for the purposes of
Division 275 of the ITAA 1997.
66. The extended concept of MIT ensures that certain widely held trusts
(including certain wholesale trusts) that do not meet the
requirements in Subdivision 12-H will, subject to the satisfaction
of the relevant requirements of Division 275, be treated in the
same way as a MIT for the purposes of this measure. (Broadly, a
wholesale trust is a MIS that has wholesale clients and is not
required to be registered under the Corporations Act 2001
(Corporations Act)). These other widely held trusts will therefore
be entitled to capital account treatment on the disposal, cessation
of ownership or other realisation of certain investments.
67. A widely held trust that would not satisfy Subdivision 12-H solely
because the trustee does not make a fund payment in relation to the
income year will be able to meet the extended concept of a MIT.
[Schedule 3, item 4, section 275-20 of Division 275 of Part 3-25]
Managed investment trust
68. Broadly under Subdivision 12-H a trust is a MIT if all of the
following requirements are satisfied at the test time in an income
year:
. the trust is an Australian resident (connected with
Australia);
. the trust is a MIS under the Corporations Act that
satisfies licensing requirements for MISs; and
. the trust is either listed, widely held or a specified
widely held entity is a member of the trust.
Trusts treated in the same way as a managed investment trust
Wholesale trusts
Not subject to the requirement to be operated or managed by
financial services licensee
69. A unit trust will be treated in the same way as a MIT in relation
to an income year if it is an Australian resident trust and every
member of the trust is a MIT (or treated as a MIT) in relation to
the income year. [Schedule 3, item 4, subsection 275-15(1) of
Division 275 of Part 3-25]
1.
Bennett Trust is an Australian resident unit trust. Bennett
Trust has two beneficiaries - Aaron Trust (a MIT under
Subdivision 12-H) and Liz Trust (a trust treated the same as
a MIT).
As all members of Bennett Trust are either MITs because of
Subdivision 12-H, or treated the same as a MIT under this
measure, Bennett Trust will be treated the same as a MIT in
relation to the income year.
Operated or managed by a financial services licensee
70. An Australian resident trust will also be treated in the same way
as a MIT if it is managed or operated by a financial services
licensee holding an Australian financial services licence whose
licence covers the provision of financial services to wholesale
clients or by an authorised representative of such a financial
services licensee, and the trust satisfies one of the following:
. the only members of the trust are MITs (or treated as
MITs); life insurance companies; or complying
superannuation funds, complying approved deposit funds or
foreign superannuation funds with at least 50 members;
. the trust has at least 50 members (the term 'member' being
used in a defined sense, see paragraphs 3.18 and 3.19);
. the members of the trust that are entities listed in
subsection 12-400(2) in Schedule 1 to the TAA 1953
directly or indirectly:
- hold (or have the right to acquire) interests
representing at least 75 per cent of the value of the
interests in the trust;
- have the control of, or the ability to control, 75 per
cent or more of the rights attaching to membership
interests in the trust; or
- have the right to receive 75 per cent or more of any
distribution of income that the trustee may make; or
. the trust is created, or was a MIT (or treated the same as
a MIT except because it was created during the income
year) in relation to the previous income year and ceases
to exist, during the income year.
[Schedule 3, item 4, subsections 275-5(1) to (5) of Division 275 of
Part 3-25]
71. The terms 'financial services', 'wholesale clients' and 'authorised
representative' are terms defined by the Corporations Act.
1.
INS Trust is wholly-owned by a life insurance company. INS
Trust is an Australian resident trust and is operated by the
holder of an Australian financial services licence.
As INS Trust is not a MIS (as defined in section 9 of the
Corporations Act) and as a result it does not meet the
definition of MIT in section 12-400 in Schedule 1 to the
TAA 1953.
However, as every member of the trust is either a MIT or an
entity specified in Subdivision 12-H (for example, a life
insurance company), the trust is an Australian resident
trust and is managed or operated by the holder of an
Australian financial services licence, INS Trust will be
treated in the same way as a MIT for the purposes of this
measure (as it meets the requirements in subsection 275-5(1)
and (2) of Division 275 of Part 3-25 in item 1 of this
Schedule).
72. A member of a trust for the purposes of the 50 member test includes
an entity (that is, not a trust) that holds an interest in the
trust indirectly through a chain of trusts. When determining the
number of members the following rules apply:
. An individual that is a member of the trust, any of his or
her relatives that are members of the trust, and any
entity that is a member of the trust in the capacity of a
nominee of the individual or his or her relatives are
treated as a single member.
. A member of the trust that is not an individual and its
nominees are treated as a single member.
[Schedule 3, item 4, subparagraph 275-5(4)(a)(i) and paragraphs 275-
5(4)(b) and (c) of Division 275 of Part 3-25]
73. The following entities are not treated as members of a trust when
applying the 50 member test:
. an interposed trust.
. an object of the trust.
. an individual (other than an individual who became a
member of the trust because a financial product or
financial service was provided to, or acquired by, the
individual as a wholesale client under section 761A of the
Corporations Act).
[Schedule 3, item 4, subparagraph 275-5(4)(a)(ii) and paragraph 275-
5(4)(d) of Division 275 of Part 3-25]
1.
Hyde Trust is an Australian resident trust that is managed
by a financial services licensee whose licence covers the
provision of financial services to wholesale clients. Hyde
Trust is owned by two wholesale trusts (Maree Trust and
Tyler Trust) and an individual, Larry, a wholesale client.
Sally and her brother, Tom, are unitholders, along with 25
other non-related individuals in Maree Trust. ABC Pty Ltd
and 25 non-related individuals are beneficiaries of Tyler
Trust.
For the purposes of the 50 member test:
. Sally, Tom and the 25 other non-related individuals of Maree
Trust represent 26 members of Hyde Trust (Sally and Tom are
counted as one member because they are related).
. ABC Pty Ltd and the 25 non-related individuals of Tyler
Trust will be counted as 26 members of the Hyde Trust.
. Maree Trust and Tyler Trust would not be counted as members.
As such, under this look through rule, Hyde Trust has 53
members and it will be treated the same as a MIT.
Unregistered Retail trusts
74. A trust will be treated in the same way as a MIT if:
. it would be a MIT in relation to the income year if the
licensing requirement in item 2 in the table in
subsection 12-400(1) in Schedule 1 to the TAA 1953 is
disregarded; and
. the trust is a MIS and would be required under the
Corporations Act to be operated by a financial services
licensee, but for the fact that it is not required to be
so registered as it is a Crown entity or because any
instrument issued by the Australian Securities and
Investments Commission has effect in relation to the
entity and the operation of the scheme.
[Schedule 3, item 4, subsection 275-10(1) of Division 275 of Part 3-
25]
75. This extension will allow MISs operated by certain Government-owned
entities that are not required or able to register, to be eligible
to make the choice for capital account treatment.
Other requirements
76. Certain requirements that are required to be met at a particular
time (in order for a trust to be treated in the same way as a MIT
for the purposes of this measure) must be met at either the time
the trustee of the MIT makes the first fund payment in relation to
the income year or, in cases where a trustee does not make the
first fund payment, at both the start and the end of the income
year. [Schedule 3, item 4, subsections 275-5(6), 275-10(2) and 275-
15(2) and section 275-20 of Division 275 of Part 3-25]
77. A trust will not be treated the same as a MIT in relation to an
income year, if it is a closely held trust at any time during the
income year. Broadly, this will be the case where 20 or fewer
individuals, directly or indirectly:
. hold or have the right to acquire interests representing
75 per cent or more of the value of the interest in the
trust;
. have the control of, or the ability to control, 75 per
cent or more of the rights attaching to membership
interests in the trust; or
. have the right to receive 75 per cent or more of any
distribution of income that the trustee may make.
[Schedule 3, item 4, section 275-25 of Division 275 of Part 3-25]
1.
Cleary Trust is an Australian resident trust (but not a
registered MIS) that is managed by a financial services
licensee whose licence covers the provision of financial
services to wholesale clients. Cleary Trust is not a MIT
under Subdivision 12-H. JJJ Trust (a wholesale trust with
50 members) and 10 individuals that hold different levels of
membership in the trust are beneficiaries of Cleary Trust.
Cleary Trust would meet the 50 member test, however, the
10 individual beneficiaries hold interests totalling 80 per
cent of the value of the interest in the trust.
Therefore, Cleary Trust would not be treated as a MIT as it
is a closely held trust.
Temporary circumstances
78. If, apart from a particular circumstance, a trust would be treated
the same as as a MIT, the trust may still be treated the same as a
MIT if, the circumstance is temporary and arose outside the control
of the trustee of the trust, and it is fair and reasonable to the
treat the trust the same as a MIT, having regard to a number of
factors. These factors include: the nature of the circumstance,
the actions (if any) taken by the trustee of the trust to address
or remove the circumstance, the speed with which such actions were
taken, and the tax impact of such a decision. [Schedule 3, item 4,
section 275-30 of Division 275 of Part 3-25]
1.
AAA Trust is a wholesale trust and is treated as a MIT for
the purposes of this measure by reason of satisfying the 50
member requirement (directly or indirectly) and hence the
extended definition of MIT contained in Division 275.
Five members redeem their units in the AAA Trust, so that
the trust no longer meets the 50 member requirement. The
trustee, however, is actively marketing units to attract new
unitholders.
Depending on the facts and circumstances, AAA Trust may
still be an eligible MIT if this circumstance is temporary
and arose outside the control of the trustee of the trust,
and it is fair and reasonable to treat the AAA Trust as an
eligible MIT, having regard to certain factors.
The fact that the trust is actively seeking new unitholders
would be evidence which demonstrates that action is being
taken to address the temporary circumstance.
79. Subsections 102L(15) and 102T(16) provide that the meaning of trust
estate and trustee in certain contexts does not include a trust
estate that is a corporate unit trust or a trustee of a corporate
unit trust, nor a public trading trust or a trustee of a public
trading trust. Therefore corporate unit trusts and public trading
trusts may not meet the requirement to be an Australian resident
trust and subsequently not be treated the same as a MIT for the
purposes of this measure. To avoid doubt, section 275-9B clarifies
that subsections 102L(15) and 102T(16) in Part III of the ITAA 1936
do not apply for the purposes of Division 275 (the Division
inserted via this measure). [Schedule 3, item 4, section 275-35 of
Division 275 of Part 3-25]
1.
XYZ Trust is a MIT that is a trading trust within the
meaning of Division 6C of the ITAA 1936. Despite being a
public trading trust, XYZ Trust is eligible to make the
choice to have capital account treatment apply, however the
deemed capital account treatment will not apply while XYZ
Trust is a trading trust.
Choice
80. If an eligible MIT makes a choice in the approved form for the this
measure to apply, then the CGT provisions will be the primary code
for taxing gains or losses made by a MIT on eligible assets if
certain requirements are satisfied. [Schedule 3, item 4,
subsections 275-100(1) and 275-115(1) of Division 275 of Part 3-25]
Eligible assets - gains and losses
81. The gain or loss must result from the disposal, cessation of
ownership or other realisation of one of the following types of
assets:
. shares, shares in a foreign hybrid company and non-share
equity interests in a company;
. units in a unit trust;
. land (including an interest in land); and
. a right or option to acquire or dispose of one of the
assets listed directly above.
[Schedule 3, item 4, subsection 275-105(1) of Division 275 of Part
3-25]
82. An asset will not, however, be covered if it is a financial
arrangement to which Division 230 of the ITAA 1997 applies or is a
debt interest. [Schedule 3, item 4, subsection 275-105(2) of
Division 275 of Part 3-25]
1.
Wilson Trust was created in the 2009-10 income year. The
trust is an eligible MIT for the purposes of the capital
account choice. The trust made an irrevocable choice in the
2009-10 income year to apply deemed capital account
treatment. (The choice is in force for the 2009-10 income
year and later income years.)
The trust invests primarily in units and shares. The trust
also invests in land for rent used as a shopping centre.
Disposals of these assets will be assessed under the CGT
provisions.
In addition to these investments, the trust holds
investments in the Australian Securities Exchange SPI 200®1
Futures (a derivative product). These investments are not
eligible investments and will not attract deemed capital
treatment. These assets would be subject to Division 230.
2.
Bell Trust was created in the 2009-10 income year. The
trust is an eligible MIT for the purposes of the capital
account choice. The trust makes an irrevocable choice to
have capital account treatment in the 2009-10 income year,
which is in force for the 2009-10 income year and later
income years.
The trust holds redeemable preference shares in Kennedy
Limited, a listed company. The redeemable preference shares
satisfy the debt test under Division 974 of the ITAA 1997
and are characterised as a debt interest. Therefore, these
shares constitute a non-equity share holding in Kennedy
Limited. Gains or losses from disposal of this debt
interest will not be deemed to be treated on capital
account.
The MIT must not be a corporate unit trust or a trading trust
83. The MIT must not be a trading trust (within the meaning of
Division 6C of the ITAA 1936) or a corporate unit trust (within the
meaning of Division 6B of the ITAA 1936) in relation to the income
year in which it owned the CGT asset and the relevant CGT event
happens.
84. The MIT may still meet this requirement if:
. the circumstance that led to it being a trading trust is
temporary and arose outside the control of the trustee of
the trust;
. the trustee is not liable to pay income tax under section
102S of the ITAA 1936 on the net income of the trust; and
. it is fair and reasonable that the eligible MIT meet this
requirement, having regard to a number of factors. These
factors include: the nature of the circumstance, the
actions (if any) taken by the trustee of the trust to
address or remove the circumstance, the speed with which
such actions were taken, and the tax impact of such a
decision .
[Schedule 3, item 4, subsections 275-110(1) and (2) of Division 275
of Part 3-25]
Choices must be in force
85. A choice for capital account treatment must be in force for the
income year in which the CGT event happens. [Schedule 3, item 4,
subsection 275-100(1) of Division 275 of Part 3-25]
86. For trusts that become MITs in the 2009-10 or later income years,
the choice must be made on or before the day it is required to
lodge its income tax return for the income year in which it became
a MIT or a later day allowed by the Commissioner for the MIT,
whichever occurs later. For all other MITs the choice must be made
on or before the latest of the following dates:
. the last day in the three-month period from the
commencement of this Schedule;
. the last day of the 2009-10 income year; or
. if the Commissioner allows a later day for the MIT - then
on a later day.
[Schedule 3, item 4, subsection 275-115(3) of Division 275 of Part
3-25]
87. The choice must be made in the approved form. [Schedule 3, item 4,
subsection 275-115(2) of Division 275 of Part 3-25]
88. For trusts that become MITs in the 2009-10 income year or later
income year, the choice is in force for the income year in which
the trust became a MIT and later income years. For all other MITs
the choice is in force for the 2008-09 income year and later income
years. [Schedule 3, item 4, subsection 275-115(5) of Division 275
of Part 3-25]
1.
Page Trust is an eligible MIT for the purposes of the
capital account choice and has existed for many years. On
the last day of the 2009-10 income year (assuming that is
the latest date on which it can make the choice), Page Trust
makes an irrevocable choice to have capital account
treatment.
Despite the fact that the actual choice was made in the 2009-
10 income year, capital account treatment will be in force
for the 2008-09 income year and later income years.
In this case, if Page Trust had disposed of shares in the
2008-09 income year it would treat the disposal on capital
account.
Consequences of making a choice
89. A choice once made cannot be revoked. [Schedule 3, item 4,
subsection 275-115(4) of Division 275 of Part 3-25]
90. The effect of making a choice is that certain ordinary and
statutory income and deduction provisions in the income tax law
will no longer apply in respect of gains or losses from any
eligible assets of the MIT. [Schedule 3, item 4, section 275-100
of Division 275 of Part 3-25]
91. However, those income and deduction provisions may apply in certain
situations, including where:
. a capital gain or capital loss from the event is
disregarded because of certain provisions;
. the asset is land that is trading stock or was acquired
before 20 September 1985 and is part of a profit-making
undertaking or plan; or
. the asset is a unit or share (acquired in an income year
in which the choice to apply the CGT provisions was not in
force) and is treated by the MIT as trading stock in its
financial report and tax return in the income year
preceding the income year in which the disposal occurs and
in the most recent income year ending before the start of
the income year in which the choice first came into force.
[Schedule 3, item 4, subsections 275-100(3) and (4) of Division 275
of Part 3-25]
1.
TJC Trust is an eligible MIT for the purposes of the capital
account choice. TJC Trust makes an irrevocable choice to
have capital account treatment, which is in force for the
2008-09 income year and later income years.
In the 2009-10 income year, TJC Trust decides to dispose of
units in a unit trust, which it had been treating as trading
stock (in its financial report and tax return for the 2007-
08 and 2008-09 income years). The units were acquired in
2007.
Despite the fact that TJC Trust has made the capital account
choice, which would ordinarily mean that the disposal of the
units would be treated on capital account, given the
situation, an exception would apply to treat the disposal of
the units on revenue account as the units were acquired
before the choice was in force and they have previously been
treated by the MIT on revenue account as trading stock.
2.
Swain Trust is an eligible MIT for the purposes of the
capital account choice. Swain Trust makes an irrevocable
choice to have capital account treatment, which is in force
for the 2008-09 income year and later income years.
In the 2010-11 income year, Swain Trust decides to dispose
of units in a unit trust, which it did not treat as trading
stock in its financial report and tax return for the 2007-08
income year, but treated as trading stock in the 2009-10
income year. The units were acquired in 2007.
As Swain Trust did not treat the units as trading stock in
the year before it made the choice for capital account
treatment, the units would be treated on capital account.
Given the situation, the exception does not apply.
92. If an eligible MIT (which is not a trading trust) acquires a CGT
asset that is trading stock and incurs an outgoing in connection
with the acquisition, and the choice to apply the CGT provisions is
in force, then certain income and deduction provisions in the
income tax law will no longer apply in relation to the asset and
the acquisition. As such, the asset will not be treated as trading
stock and the acquisition of the asset will not be treated on
revenue account. [Schedule 3, item 4, subsections 275-100(5)
and (6) of Division 275 of Part 3-25]
Consequences of not making a choice
93. In situations where a MIT (which is not a trading trust) is
eligible to make a choice for capital account treatment and it has
not done so, then any gain or loss from the disposal of, ceasing to
own, or other realisation of an eligible asset will be treated on
revenue account, to the extent that it has not already been so
treated. [Schedule 3, item 4, paragraphs 275-120(1)(a), (c) and
(d) and subsection 275-120(2) of Division 275 of Part 3-25]
94. However, this deemed revenue treatment does not apply to eligible
land, an interest in land, or an option to acquire or dispose of
such an asset. The characterisation of any gain or loss will
depend on general law principles. [Schedule 3, item 4, paragraph
275-120(1)(b) of Division 275 of Part 3-25]
1.
Rutherford Trust is an eligible MIT for the purposes of the
capital account choice and has existed for many years. The
trust does not make an irrevocable choice to treat its
investments in shares, units and land on capital account.
The trust invests primarily in shares and units. The trust
also invests in land for rent which is used as a shopping
centre. For the 2007-08 income year, consistent with
general tax law principles, the trust treats its investments
in units, shares and land on capital account.
As the trust has not made a capital account choice, the
disposal of units and shares after commencement of this
Schedule will be treated on revenue account. However, any
disposal of its investment in land may still be on capital
account if this result follows from an application of
general tax law principles.
2.
Bennett Trust is an eligible MIT for the purposes of the
capital account choice and has existed for many years. The
trust does not make an irrevocable choice to treat its
investments in shares, units and land on capital account.
In income years prior to the 2008-09 income year the trust
trades in shares and units and holds these assets on revenue
account consistent with general tax law principles.
As the trust has not made a capital account choice, disposal
of units and shares after commencement of this Schedule will
continue to be on revenue account. As the trust is already
treating its investments in units and shares on revenue
account, the deemed revenue account rule will not alter the
treatment of these assets. The land would not be deemed to
be on revenue account and would be subject to general tax
law principles.
Consequences of a change in status
95. If a trust that was an eligible MIT in a previous income year fails
to meet eligibility requirements in a subsequent year, the deemed
capital account rules will no longer apply to disposals of covered
assets in any year in which the eligibility requirements are not
met. These disposals will be subject to the ordinary rules, which
may include the trading stock rules in Division 70 of the
ITAA 1997. If the trust meets the eligibility requirements once
again, the initial choice for capital account treatment will remain
in force as the choice is irrevocable. [Schedule 3, item 4,
subsection 275-115(4) and section 275-5 of Division 275 of Part 3-
25]
1.
Stella Trust is an eligible MIT for the purposes of the
capital account choice. Stella Trust makes an irrevocable
choice to have capital account treatment, which is in force
for the 2008-09 income year and later income years.
In the 2010-11 income year, Stella Trust fails to meet the
requirements to be a MIT and as such the deemed capital
treatment rule does not apply in that year. Stella Trust
decides to dispose of units in a unit trust. As the capital
account choice no longer applies the disposal of the units
will be subject to the ordinary and statutory income rules
including the trading stock rules in Division 70.
96. If the asset is land which is not covered by the trading stock rule
in Division 70 of the ITAA 1997 and therefore is eligible to be
included in the choice for CGT treatment and a choice has not been
made, then the ordinary and other statutory income provisions will
apply.
Taxation of carried interests
97. Distributions of amounts to a carried interest holder and proceeds
from CGT events of a carried interest held in an entity that is an
eligible MIT or was an eligible MIT in a prior income year will be
included in the assessable income of the holder, to the extent that
amounts are not already included in their assessable income, other
than under the CGT provisions, and is not a return of contributed
capital on the carried interest. [Schedule 3, item 4, section 275-
200 of Division 275 of Part 3-25]
98. The amounts to be included in assessable income, by virtue of
distributions of amounts to a carried interest holder and proceeds
from CGT events of a carried interest held in a MIT, are taken for
the purposes of the income tax laws to have a source in Australia.
[Schedule 3, item 4, subsection 275-200(4) of Division 275 of Part
3-25]
99. A loss on CGT events of the carried interest is deductible. Losses
on the carried interest may be deductible under the ordinary
deduction provisions.
100. For the purposes of this Schedule, carried interest relates to a
CGT asset held in an income year in relation to an entity that is
an eligible MIT (or was an eligible MIT in relation to a previous
income year) acquired because of services to be provided to the
entity by the holder of the CGT asset or an associate, as a manager
of the entity, an employee of a manager or an associate of such a
manager or employee. A carried interest holder is entitled to
distributions contingent on the profits of the entity.
[Schedule 3, item 4, section 275-200 of Division 275 of Part 3-25]
101. The carried interest rule that applies in respect of an interest
acquired in an eligible MIT continues to apply after an entity
ceases to be an eligible MIT. [Schedule 3, item 4, paragraph 275-
200(1)(c) of Division 275 of Part 3-25]
102. The carried interest amount is not subject to Subdivision 115-C if
the amount of the distribution is attributable in whole or in part
to a capital gain of the MIT. However, to the extent that a
carried interest unit comprises a component of contributed capital
on the carried interest, then that portion of the distribution will
receive normal CGT treatment. [Schedule 3, item 4, subsection 275-
200(7) of Division 275 of Part 3-25]
1.
As a result of the manager services Tony provides to the ABC
private equity trust (which is a MIT), Tony is rewarded with
free units in the MIT, the number being based on the
performance of the fund's investments.
Tony has a carried interest in ABC Trust.
Tony receives a distribution of $1,000 on his carried
interest. He will be required to treat the $1,000
distribution on revenue account.
2.
The ABC Trust (which is a MIT) contracts with Anna to
provide investment manager services to the trust. In 2010,
Anna is issued with free units in ABC Trust. Anna has a
carried interest in ABC Trust.
In 2013, ABC Trust no longer meets the definition of MIT or
the extended concept of MIT.
In 2015, Anna disposes of her units and as such she will be
required to treat the disposal on revenue account, even
though ABC Trust is no longer an eligible MIT.
3.
Hayden holds carried interest units in Hayden Trust.
Hayden disposes of the units and makes a profit of $120 on
the sale (after taking into account the return of the
contributed capital). The $120 profit is included in
Hayden's assessable income. The disposal of the units also
gives rise to a capital gain of $120 under the CGT
provisions.
However, the capital gain is reduced (but not below zero) by
the amount of the profit otherwise assessable, including
under Division 275 in accordance with section 118-20 of
Subdivision 118-A of the ITAA 1997. This results in
Hayden's capital gain being reduced to zero.
Restrictions on prior year amendments
103. In respect of income years prior to the 2008-09 income year, the
Commissioner cannot amend assessments (of the trustee, beneficiary
or an entity that holds interests in the eligible MIT indirectly
through a chain of trusts) where an eligible MIT has made a choice
for capital account treatment that applies in the 2008-09 income
year, and:
. a previous assessment was made on the basis that a CGT
event happened in relation to a CGT asset (owned by the
eligible MIT) and a gain or loss was realised for income
tax purposes;
. the assessment was made on the basis that a gain or loss
should be reflected in the net income, a tax loss, or net
capital loss of the eligible MIT and that the CGT asset
was (or was not) a revenue asset; and
. the disposal (CGT event) would have been treated on
capital account if the measure had applied in the prior
income years.
[Schedule 3, item 8, section 275-10 of Division 275 of Part 3-25 of
the Income Tax (Transitional Provisions) Act 1997]
104. However, the Commissioner is able to amend prior year assessments
where the taxpayer gives written consent, such as where the
taxpayer requests a relevant amendment. [Schedule 3, item 8,
subsection 275-10(4) of Division 275 of Part 3-25 of the Income Tax
(Transitional Provisions) Act 1997]
1.
Cleary Unit Trust is an eligible MIT that makes the
irrevocable capital account choice.
In the previous income year to the year in which the capital
account treatment was in force, Cleary Trust made a gain on
the disposal of shares. The disposal was treated as giving
rise to a capital gain which was then distributed to the
beneficiaries of the trust. Each beneficiary accounted for
the distribution received as a capital receipt. If the
capital account choice had applied when Cleary Trust had
disposed of the shares, the disposal would have been deemed
to be on capital account.
In this situation, the Commissioner cannot amend the
previous assessment relating to the treatment of the gain on
disposal of the shares, on the basis that the disposal of
shares should have been treated on as a revenue account.
However, Cleary Trust may give the Commissioner written
consent to amend the assessment to treat the gain on the
disposal of the shares on revenue account.
Application and transitional provisions
105. These amendments broadly apply in relation to eligible CGT events
that happen on or after the start of the 2008-09 income year.
[Schedule 3, subitem 10(1)]
106. The amendment which provides for modifications when the acquisition
of trading stock is treated on capital account when a choice is in
force, applies in relation to the acquisition of assets on or after
the start of the 2008-09 income year. [Schedule 3, subitem 10(2)]
107. The amendments which deem certain assets to be on revenue account
when a choice is not made, apply to disposals of assets, cessations
of ownership of assets and other realisations of assets which take
place on or after Royal Assent. [Schedule 3, subitem 10(3)]
108. The amendments concerning 'carried interests' in MITs apply in
relation to entitlements to distributions that arise on or after
Royal Assent, or CGT events that happen on or after Royal Assent.
[Schedule 3, subitem 10(4)]
Consequential amendments
109. An amendment is made to insert section 45-286 in Schedule 1 to the
TAA 1953 to include in a taxpayer's 'instalment income' for a
period trust income or trust capital of an eligible MIT that the
MIT distributes to, or applies for the benefit of, the taxpayer
during that period. The trust income or trust capital is only
included in the taxpayer's instalment income in cases where the
income or capital is not already included in a taxpayer's
instalment income and the eligible MIT is an Australian resident
trust and meets the requirements of section 275-110 of the
ITAA 1997. [Schedule 3, item 9, section 45-286 in Schedule 1 to
the TAA 1953]
110. These amendments apply in relation to distributions or applications
of benefits that are made on or after the Royal Assent. [Schedule
3, subitem 10(5)]
111. An additional amendment is made to amend the definition of
'instalment income' in subsection 995-1(1) to account for the
amendment described in paragraph 3.56, which includes certain
amounts in a taxpayer's instalment income. [Schedule 3, item 7,
definition of 'instalment income' in subsection 995-1(1)]
112. Amendments are made to section 840-805 to exclude any fund payment
part that is a carried interest distribution under this measure
from MIT withholding tax obligations and liabilities. [Schedule 3,
items 5 and 6, subsection 840-805(7)]
Chapter 4
Restricting eligibility to the entrepreneurs' tax offset through an income
test
Outline of chapter
113. Schedule 4 to this Bill amends Subdivision 61-J of the Income Tax
Assessment Act 1997 (ITAA 1997) by introducing an income test into
the eligibility criteria for the entrepreneurs' tax offset (ETO).
The income test will restrict the eligibility of individuals whose
income is over a threshold amount of income for ETO purposes
($70,000 if they are single and $120,000 if they have a family).
114. All of the legislative references in this chapter are to
Subdivision 61-J of the ITAA 1997 unless otherwise specified.
Context of amendments
115. The ETO was introduced into the ITAA 1997 by the Tax Laws Amendment
(2004 Measures No. 7) Act 2005 and applies to assessments for
income years commencing on or after 1 July 2005. The ETO was
introduced to provide an incentive for very small, micro and home-
based businesses in the very early stages of business development.
116. The ETO provides eligible taxpayers with a maximum tax offset of
25 per cent of their income tax liability that is attributable to
their net small business income for the income year. The ETO
begins to phase out at aggregated turnovers of $50,000 and
eligibility ceases when aggregated turnover reaches $75,000.
117. Eligibility for the ETO is not currently restricted for taxpayers
who have other significant sources of income (income not referable
to the relevant small business).
118. As part of the 2008-09 Budget the Government announced that the ETO
would be income tested, reducing the offset that could be claimed
by those taxpayers with other significant sources of income (income
not referable to the relevant small business). In the 2009-
10 Budget the Government deferred the income test's start date from
1 July 2008 to 1 July 2009 to ensure that the proposed income test
commences at the same time as, and is consistent with, the
Government's broader means testing reforms, also announced in the
2008-09 Budget and enacted in the Tax Laws Amendment (2009 Measures
No. 1) Act 2009.
Summary of new law
119. The ETO calculated after applying the aggregated turnover test will
phase out at 20 cents for every $1 of income for ETO purposes over
the threshold amount. For singles the threshold amount of income
for ETO purposes is $70,000 and for families the threshold amount
is $120,000. This reduction will operate in addition to the
current eligibility requirements applicable to the ETO (in
particular, the aggregated turnover test phase-out where aggregated
turnover of the small business exceeds $50,000).
120. The income for ETO purposes will include both the claimant's and
their spouse's (if they had a spouse at the end of the income year)
taxable income, reportable fringe benefits total, reportable
superannuation contributions and total net investment loss for the
year. However, the claimant's net small business income (or share
of that income) that has already been considered in determining
eligibility for the ETO under the existing law is not taken into
consideration for the purposes of the income test.
Comparison of key features of new law and current law
|New law |Current law |
|The ETO calculated after |No equivalent. |
|applying the aggregated | |
|turnover test will phase | |
|out for singles at | |
|20 cents for every $1 of | |
|income over $70,000. | |
|The ETO calculated after |No equivalent. |
|applying the aggregated | |
|turnover test will phase | |
|out for families at | |
|20 cents for every $1 of | |
|income over $120,000. | |
Detailed explanation of new law
Taxpayers required to meet the income test
121. In addition to the eligibility requirements currently contained in
Subdivision 61-J, individuals will also be required to meet an
income test, which will restrict the ETO for singles with incomes
for ETO purposes over $70,000 and families with incomes over
$120,000. [Schedule 4, item 8, section 61-523]
122. Broadly, small business sole-traders, partners in small business
partnerships, and beneficiaries of small business trusts will be
required to meet the income test requirement to be entitled to
claim the ETO.
1.
Jared carries on a tax agent business as a sole-trader. In
the 2009-10 income year this business had an aggregated
turnover of $70,000. Jared also has other sources of
income. Applying the turnover test, Jared is able to claim
the ETO in respect of the small business income attributable
to his tax agent business. However, Jared will also be
required to apply the ETO income test (in relation to his
other income) in determining the amount of ETO, if any, he
is entitled to.
123. As the intent of the measure is to ensure that individual
recipients of the ETO with other, significant sources of income,
are ineligible for the ETO, company and trustee claimants of the
ETO will not be required to meet the income test. Companies are
unable to fully pass on the benefit of the ETO to individual
shareholders due to the dividend imputation system. Moreover,
trustees can only claim the ETO in limited circumstances (where
they are liable to pay tax on the small business income of the
trust). However, they are only liable in their capacity as a
trustee and their own income (non-trust income) is not relevant.
Income thresholds
124. The ETO will begin to phase out for single individuals when their
income for ETO purposes exceeds $70,000. The ETO will begin to
phase out for 'members of a family' when the combined income for
ETO purposes of the taxpayer and their spouse (where applicable)
exceeds $120,000. A taxpayer will be a member of a 'family' (and
can therefore take advantage of the higher income threshold) if
they have a spouse on the last day of an income year, or a
dependant on any day in an income year. [Schedule 4, item 8,
definition of 'threshold amount' in section 61-523]
125. Broadly, a dependant is a child less than 21 years of age (not
being a student), a student, an invalid relative and a parent of
the taxpayer or the taxpayer's spouse. A spouse includes a wife or
husband; someone (whether of the same sex or a different sex) who,
although not legally married to the taxpayer, lives with them on a
genuine domestic basis in a relationship as a couple; and someone
(whether of the same sex or a different sex) with whom the taxpayer
is in a relationship that is registered under a state law or
territory law prescribed for the purposes of section 22B of the
Acts Interpretation Act 1901. [Schedule 4, item 8, definitions of
'non-ETO small business income' and 'threshold amount' in
section 61-523]
Definition of income for the purposes of the ETO income test
126. Income for ETO purposes is defined as 'non-ETO small business
income' and consists of the taxpayer's taxable income, reportable
fringe benefits total, total net investment loss and reportable
superannuation contributions for the relevant income year.
[Schedule 4, item 8, definition of 'non-ETO small business income'
in section 61-523]
127. If a taxpayer has a spouse on the last day of the income year their
income for the purposes of the ETO income test will also include
their spouse's taxable income, reportable fringe benefits total,
total net investment loss and reportable superannuation
contributions for the relevant income year. [Schedule 4, item 8,
definition of 'non-ETO small business income' in section 61-523]
1.
The only income Daniel receives for the 2009-10 income year
is from a computer supply business he carries on as a sole-
trader from an office in his house. This business has
aggregated turnover of $45,000 for the 2009-10 income year.
Applying the turnover test Daniel is able to claim the ETO
in respect of the small business income attributable to his
computer supply business.
Elizabeth is Daniel's spouse on the last day of the 2009-10
income year. For the 2009-10 income year Elizabeth has
taxable income, reportable fringe benefits total, total net
investment loss and reportable superannuation contributions
of $100,000. This amount will be taken into account in
determining whether or not Daniel's ETO claim is affected by
the income test.
2.
In the 2009-10 income year, Aaron runs a bookkeeping
business from his home. The net income from his business is
$20,000 (that is, $32,000 turnover less $12,000 business
expenses). This amount is Aaron's net small business
income. In addition he works as an accountant and receives
salary and wages of $75,000. Aaron has no dependants and he
is in a defacto relationship with Lisa. Lisa works part-
time and earns $15,000 per annum. Aaron and Lisa have no
other income. On 3 June 2010 Aaron and Lisa legally
separate.
Applying the existing eligibility criteria, Aaron would be
entitled (before the application of the income test) to an
ETO of $1239.32.
As Aaron does not have a spouse as at 30 June 2010 the lower
threshold amount will apply for the purposes of the ETO
income test. The relevant threshold amount will be $70,000.
Aaron's salary and wages ($75,000) are taken into
consideration in determining the amount of non-ETO small
business income. Aaron's net small business income of
$20,000 is not included in this amount. Lisa's income is
not included as she was not his spouse on the last day of
the income year.
As Aaron's non-ETO small business income is above the
$70,000 threshold, the income test will reduce Aaron's ETO
of $1239.32 for the 2009-10 income year by $1,000. As a
result, Aaron is entitled to an ETO of $239.32 ($1239.32 -
$1000) for the 2009-10 income year.
128. In determining a taxpayer's income for the purposes of the ETO
income test, the 'net small business income' of the ETO claimant
which has given rise to their ETO entitlement will be excluded.
129. In respect of beneficiaries of trusts and partners of partnerships,
it will be their share of the net small business income (rather
than the entire net small business income) of the trust or
partnership that is excluded. Such income would already have been
taken into account when determining eligibility for, and the
quantum of, the ETO under the turnover test, so its exclusion will
prevent double counting of the income in the ETO turnover test and
the income test. However, any net small business income of the
claimant which has not given rise to an ETO entitlement will not
have been subject to the turnover test and will not be excluded
from a taxpayer's income for the purpose of the ETO income test.
Further, any net small business income of a taxpayer's spouse will
not be excluded from the spouse's taxable income, reportable fringe
benefits total, total net investment loss and reportable
superannuation contributions for the relevant income year.
[Schedule 4, item 8, definition of 'non-ETO small business income'
in section 61-523]
1.
Michael is a partner of a partnership that is a small
business entity with aggregated turnover of $70,000 for the
2009-10 income year. Applying the turnover test, Michael is
eligible to claim the ETO in respect of any distribution
from this partnership. Michael receives a partnership
distribution of $25,000 for the 2009-10 income year.
Michael is also a beneficiary of a small business trust with
an aggregated turnover of $120,000 for the 2009-10 income
year. As the trust's turnover is more than $75,000, its
income (including that distributed to beneficiaries) will
not be eligible for the ETO. Michael is required to include
a $30,000 trust distribution in his assessable income for
the 2009-10 income year.
In addition to the income received from the partnership and
trust, Michael also earns $41,000 in the 2009-10 income year
from investments he holds. As such, for the 2009-10 income
year Michael has income of $96,000. However, for the
purpose of the ETO income test Michael will be regarded as
having income of $71,000.
Calculation of the ETO following the introduction of the income test
130. The calculation of the ETO applying the current turnover test
involves the application of a five step process to arrive at a
taxpayer's offset. Step by step examples and guidance on how the
ETO is calculated under the existing law can be found in the
explanatory memorandum to the Tax Laws Amendment (2004 Measures No.
7) Bill 2004 (Chapter 1). The income test will operate in addition
to the current eligibility requirements (namely, the turnover test)
and will operate to reduce the offset amount as currently
calculated (but will not operate to reduce the offset amount below
zero). As a consequence, if the initial turnover test is not
satisfied, the income test does not need to be applied. [Schedule
4, item 8, section 61-523]
131. While, under the Bill, the income test operates to reduce the
offset already calculated under the existing provisions, it
nonetheless acts as an additional eligibility criteria as it can
operate to reduce the amount of the offset to nil.
132. Under the ETO income test the amount of the offset worked out under
the current turnover test is then reduced by the amount calculated
under the following formula:
[pic]
[Schedule 4, item 8, section 61-523]
1. : Income test for a sole trader
In the 2009-10 income year, Jenny runs a physiotherapy
practice from her home. The net income from her practice is
$20,000 (that is, $30,000 turnover less $10,000 business
expenses). This amount is Jenny's net small business
income. In addition she has a part-time job as a shop
assistant from which she receives salary and wages of
$25,000. She is married to Geoff who works as a pharmacist
and earns $98,000 per annum. Geoff has no other income.
Applying the existing eligibility criteria, Jenny would be
entitled (before the application of the income test) to an
ETO of $816.67.
As she is married as at 30 June 2010, the 'family' threshold
will apply for income test purposes. Both Jenny's and
Geoff's salary and wages ($25,000 + $98,000 = $123,000)
are taken into consideration in determining the amount of
non-ETO small business income. Jenny's net small business
income of $20,000 is not included in this amount.
Jenny's ETO will therefore be reduced by:
[pic]
As a result, Jenny will be entitled to an ETO of $216.67
($816.67 - $600) for the 2009-10 income year.
2. : Income test for a beneficiary of a trust
ABC Trust is a small business entity, with an aggregated
turnover of $50,000 in the 2009-10 income year.
Marylyn is a beneficiary of ABC Trust and receives a
distribution of $20,000 for the 2009-10 income year. She
also receives salary and wages of $75,000 from her job as an
accountant. She has no dependants and no spouse.
Applying the existing eligibility criteria Marylyn would be
entitled (before the application of the income test) to an
ETO of $1,239.47.
Marylyn's non-ETO small business income for the purposes of
the income test is $75,000. As she is single with no
dependants the relevant threshold amount is $70,000.
Marylyn's ETO will therefore be reduced by:
[pic]
As a result, Marylyn will be entitled to an ETO of $239.47
($1239.47 - $1,000) for the 2009-10 income year.
3. : Income test for a partner in a partnership
Lina and Geoff are equal partners in Partnership A which
runs a costume-making business. The partnership has an
aggregated turnover of $58,000 and net income of $50,000 in
the 2009-10 income year. In addition to her costume-making
business Lina has a part-time job. She earns $60,000 from
this job and a further $15,000 from various investments.
Lina has two young children and no spouse.
Applying the existing eligibility criteria, Lina is entitled
(before the application of the income test) to an ETO of
$1,081.63.
Lina's non-ETO small business income is $75,000 (her wages
and investment income). While this amount would be above
the $70,000 threshold for singles, as Lina has two dependant
children the higher 'family' threshold of $120,000 applies.
As Lina's non-ETO small business income is below this
threshold, the income test does not impact on Lina's claim
and she will be entitled to an ETO of $1,081.63 for the 2009-
10 income year.
Application and transitional provisions
133. The amendments made by this Schedule apply in relation to
assessments for income years that commence on or after 1 July 2009.
Chapter 5
Consolidation
Outline of chapter
134. Schedule 5 to this Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to:
. clarify the operation of certain aspects of the
consolidation regime; and
. improve interactions between the consolidation regime and
other parts of the law.
Context of amendments
135. The consolidation regime applies primarily to a group of Australian
resident entities wholly-owned by an Australian resident company
that choose to form a consolidated group. Specific rules provide
for the membership of certain resident wholly-owned subsidiaries of
a foreign holding company (a multiple entry consolidated group
(MEC group)).
136. Unless otherwise specified, references in this chapter to a
consolidated group include a MEC group.
137. Following a choice to consolidate, members of a consolidated group
are treated as a single entity for income tax purposes. Subsidiary
entities lose their individual income tax identity on entry into
the group and are treated as part of the head company.
138. A number of issues have arisen from the practical operation of the
consolidation regime since its introduction in 2002. These
amendments respond to those issues by clarifying the operation of
certain aspects of the consolidation regime and improving
interactions with other parts of the law.
Summary of new law
139. Schedule 5 to this Bill amends the consolidation provisions in the
income tax law to clarify the operation of certain aspects of the
consolidation regime and improve interactions between the
consolidation regime and other parts of the law. In particular,
the amendments will:
. ensure that the tax cost that is set for an asset of a
joining entity can be used for the purposes of applying
other provisions of the income tax law;
. subject to certain integrity rules, allow consolidated
groups to convert to MEC groups, and vice versa, with
minimal tax consequences;
. improve the treatment of pre-capital gains tax (CGT)
membership interests held in a joining entity;
. clarify and improve the operation of various aspects of
the tax cost setting rules that apply when an entity joins
or leaves a consolidated group;
. treat units in cash management trusts and certain rights
to future income held by a joining entity as retained cost
base assets;
. repeal CGT event L7;
. reduce the tax cost setting amount of a joining entity
that has impaired debts at the joining time;
. ensure the blackhole expenditure provisions that apply to
consolidated groups also apply to MEC groups;
. ensure that certain consolidation transitional rules apply
to the head company of a group which has a substituted
accounting period where the group consolidated after
30 June 2003 on a day before the first day of its income
year;
. improve the operation of the inter-entity loss
multiplication rules for widely held companies;
. modify the CGT timing rules where:
- an entity which holds a CGT asset joins or leaves a
consolidated group; and
- a CGT event happens in relation to the asset which
straddles the joining or leaving time;
. modify the mechanism for making various choices relating
to the formation of, or changes to, a consolidated group
or MEC group;
. modify the mechanism for working out the taxable income of
consolidated groups that have life insurance company
members in respect of intra-group transactions; and
. modify the tax cost setting rules where an entity that has
issued non-membership equity interests joins or leaves a
consolidated group.
Comparison of key features of new law and current law
|New law |Current law |
|Use of the tax cost setting amount |
|The head company can use |The tax cost setting |
|the tax cost setting |rules set the tax cost |
|amount of an asset for |setting amounts for |
|the purpose of working |assets held by an entity |
|out the amount included |that joins a consolidated|
|in assessable income or |group. When a tax |
|allowed as a deduction |consequence arises in |
|when applying other |relation to an asset for |
|provisions of the income |a head company, the tax |
|tax law. |cost setting amount is |
| |intended to be used by |
| |the head company to |
| |determine those tax |
| |consequences. However, |
| |for the purposes of |
| |applying certain |
| |provisions in the income |
| |tax law, the head company|
| |is unable to use the tax |
| |cost setting amount of an|
| |asset. |
|Group restructures |
|Subject to certain |Significant tax |
|integrity rules, minimal |consequences arise for |
|tax consequences will |the on-going members of a|
|arise for the ongoing |group when: |
|members of the group | |
|when: |a consolidated group |
|a consolidated group |converts to a MEC group; |
|converts to a MEC group; |or |
|or |a MEC group converts to a|
|a MEC group converts to a|consolidated group. |
|consolidated group. | |
|Pre-capital gains tax proportions |
|The pre-CGT status of |When an entity joins a |
|membership interests held|consolidated group its |
|in a joining entity will |membership interests |
|be preserved by: |cease to be recognised |
|working out the |for income tax purposes. |
|proportion of pre-CGT |If the membership |
|membership interests in |interests are pre-CGT |
|the joining entity; and |assets, this status is |
|subject to integrity |preserved by attributing |
|rules, attaching pre-CGT |a pre-CGT factor to the |
|status to an equivalent |underlying assets of the |
|proportion of membership |joining entity. |
|interests when the entity| |
|leaves the group. | |
|Modifications to the tax cost setting rules of a |
|joining entity |
|When an entity joins a |Under the tax cost |
|consolidated group, the |setting rules, the tax |
|amendments will, broadly:|costs of a joining |
| |entity's assets are |
|ensure adjustments to the|generally reset by |
|allocable cost amount are|allocating the joining |
|not double counted; |entity's allocable cost |
|clarify the operation of |amount to each of the |
|the adjustment to the |joining entity's assets |
|allocable cost amount in |in proportion to their |
|respect of certain |market value. This |
|pre-joining time CGT |allocation process |
|roll-overs that applied |ensures that, broadly, |
|to a joining entity's |the costs incurred by the|
|assets; and |head company to acquire |
|phase out the |the joining entity's |
|over-depreciation |membership interests are |
|adjustment to the |pushed down into the tax |
|allocable cost amount. |costs of the underlying |
| |assets of the joining |
| |entity. |
| |The allocable cost amount|
| |is basically the sum of |
| |the cost bases of the |
| |head company's membership|
| |interests in the joining |
| |entity held by members of|
| |the joined group and the |
| |joining entity's |
| |liabilities. Several |
| |adjustments are made to |
| |this amount. |
|Modifications to the tax cost setting rules of a |
|leaving entity |
|When an entity leaves a |When an entity leaves a |
|consolidated group, the |consolidated group, the |
|amendments will, broadly:|tax costs of the |
| |membership interests in |
|clarify that the |the leaving entity needs |
|liabilities taken into |to be reconstructed. |
|account in working out |Under the tax cost |
|the old group's allocable|setting process that |
|cost amount are the |applies when an entity |
|liabilities held just |leaves a consolidated |
|before the leaving time; |group, the old group's |
|and |allocable cost amount is |
|ensure that an |worked out to determine |
|appropriate adjustment is|the tax costs of the |
|made to the old group's |membership interests in |
|allocable cost amount in |the leaving entity. |
|respect of a liability | |
|when that liability was | |
|taken into account in | |
|working out the allocable| |
|cost amount for an entity| |
|that joined the group. | |
|Modifications to the tax cost setting rules of a |
|joining or leaving entity |
|When an entity joins or |Some elements of the tax |
|leaves a consolidated |cost setting rules apply |
|group, the amendments |both: |
|will, broadly: |when an entity joins a |
|clarify the accounting |consolidated group; and |
|principles that apply to |when an entity leaves a |
|determine the accounting |consolidated group. |
|liabilities which are | |
|recognised under the tax | |
|cost setting rules; | |
|clarify the scope and | |
|amount of the adjustment | |
|to the allocable cost | |
|amount in respect of | |
|inherited deductions; and| |
| | |
|if the joining or leaving| |
|entity is a general | |
|insurance company, ensure| |
|that the tax cost setting| |
|rules apply appropriately| |
|to its deferred | |
|acquisition costs, | |
|deferred reinsurance | |
|expenses and recoveries | |
|receivable. | |
|Retained cost base assets |
|The range of assets that |Under the tax cost |
|are treated as retained |setting rules some assets|
|cost base assets will |are treated as retained |
|include: |cost base assets. The |
|units in cash management |tax cost of a retained |
|trusts held by a joining |cost base asset is |
|entity; and |generally set at an |
|certain rights to future |amount that is equal to |
|income assets held by a |the joining entity's cost|
|joining entity. |of the asset. |
|CGT event L7 |
|CGT event L7 will be |CGT event L7 happens |
|repealed. |when: |
| |a liability that was |
| |taken into account in |
| |working out the allocable|
| |cost amount is discharged|
| |for a different amount; |
| |and |
| |the allocable cost amount|
| |would have been different|
| |if the discharged amount |
| |was used at the joining |
| |time. |
|Reduction in the tax cost setting amount that |
|exceeds the market value of certain retained cost |
|base assets |
|The tax cost setting |A capital gain arises |
|amount of an impaired |under CGT event L3 if the|
|debt held by a joining |total tax cost setting |
|entity will be reduced by|amounts for all retained |
|the amount of the capital|cost base assets exceed |
|gain arising under |the joining entity's |
|CGT event L3 (but not |allocable cost amount. |
|below zero). As a |Impaired debts qualify as|
|result, the capital gain |retained cost base |
|arising under CGT event |assets. The tax cost |
|L3 will be reduced by an |setting amount of |
|equivalent amount. |impaired debts is the |
| |face value of those debts|
| |at the joining time. |
| |As the face value of |
| |impaired debts is likely |
| |to be higher than the |
| |amount that could be |
| |recovered, the capital |
| |gain arising under CGT |
| |event L3 is overstated. |
|Blackhole expenditure for MEC groups |
|The cost base of a CGT |A capital gain arises if |
|asset held by a MEC group|the capital proceeds |
|will include certain |received by a taxpayer |
|expenditure paid to a |when a CGT event happens |
|third party in relation |to an asset exceed the |
|to the asset. |asset's cost base. |
| |Under the blackhole |
| |expenditure provisions, |
| |the cost base of a |
| |CGT asset held by a |
| |consolidated group (but |
| |not by a MEC group) |
| |includes certain |
| |expenditure paid to a |
| |third party in relation |
| |to the asset. |
|Transitional concessions for groups with |
|substituted accounting periods |
|The transitional |A transitional concession|
|concession will apply |that allows the allocable|
|where the head company of|cost amount of a joining |
|a consolidated group has |entity to be increased by|
|a substituted accounting |the undistributed, |
|period and the group |untaxed profits accrued |
|consolidated between |to the group before 1 |
|1 July 2003 and |July 2003 applies to: |
|30 June 2004 on a day |a consolidated group that|
|that is on or before the |came into existence |
|first day of its income |before 1 July 2003; or |
|year. |a consolidated group that|
| |came into existence |
| |between 1 July 2003 and |
| |30 June 2004, provided |
| |that it came into |
| |existence on the first |
| |day of the income year of|
| |the head company starting|
| |after 30 June 2003. |
|Loss multiplication rules for widely held |
|companies |
|A widely held company |The inter-entity loss |
|will not have a relevant |multiplication rules |
|equity interest or |apply to an entity that |
|relevant debt interest in|has a relevant equity |
|a loss company at a |interest or relevant debt|
|particular time under the|interest in a loss |
|inter-entity loss |company at a particular |
|multiplication rules |time. |
|unless an entity has a |Subject to certain |
|controlling stake in the |exceptions, an entity has|
|loss company and that |a relevant equity |
|entity has a direct or |interest or relevant debt|
|indirect interest in, or |interest in a loss |
|is owed a debt by, the |company at a particular |
|widely held company in |time if, broadly, the |
|respect of which, |entity has a controlling |
|broadly: |stake in the loss company|
|the entity could, if a |and satisfies certain |
|CGT event happened to the|other tests. |
|interest or debt, make a |Widely held companies |
|capital loss that |have difficulty in |
|reflects any part of the |satisfying the exceptions|
|loss company's overall |to these tests. As a |
|loss; or |result, in some |
|the entity has deducted |circumstances the losses |
|an amount in respect of |of a loss company receive|
|the interest or debt, |no tax recognition at |
|where the deduction |all. |
|reflects any part of the | |
|loss company's overall | |
|loss. | |
|CGT straddles |
|When a CGT event |Under the CGT rules, a |
|straddles the time that |capital gain or loss |
|an entity joins or leaves|arises when a CGT event |
|a consolidated group, the|happens to an asset. A |
|CGT event will be taken |CGT event will usually |
|to happen at the time |happen at a time which is|
|that the circumstances |different to the time |
|which gave rise to the |that the capital proceeds|
|CGT event occurred - that|are received. |
|is, for example, at the |For example, if a |
|time of settlement of the|contract is entered into |
|relevant contract. |for the disposal of a CGT|
| |asset, the CGT event |
| |happens at the time the |
| |contract is entered into |
| |(rather than at the time |
| |of settlement). |
| |Difficulties arise where |
| |the period between the |
| |time that the contract is|
| |entered into and the time|
| |of settlement straddles |
| |the period an entity |
| |joins or leaves a |
| |consolidated group. In |
| |these circumstances, the |
| |entity that entered into |
| |the contract (and makes a|
| |capital gain or loss) |
| |will be different to the |
| |entity that holds the |
| |asset at the time of |
| |settlement (and receives |
| |the capital proceeds). |
|Choice to consolidate |
|The choices relating to |Choices relating to the |
|the formation of, or |formation of, or changes |
|changes to, a |to, a consolidated group |
|consolidated group or MEC|or MEC group must be made|
|group will need to be |in the approved form |
|made in writing but will |which is given to the |
|not need to be given to |Commissioner. These are |
|the Commissioner of |the choices to: |
|Taxation (Commissioner). |consolidate a |
|However, the head company|consolidatable group; |
|of the group must still |consolidate a potential |
|advise the Commissioner |MEC group; |
|of relevant information |consolidate a potential |
|relating to the choice in|MEC group following a |
|writing in the approved |special conversion event;|
|form. | |
| |make a new eligible |
| |tier-1 company a member |
| |of a MEC group; and |
| |appoint a new provisional|
| |head company to a MEC |
| |group. |
| |Difficulties have arisen |
| |where a choice has been |
| |ineffective because of a |
| |technical deficiency in |
| |completing the approved |
| |form. |
|Life insurance companies |
|Intra-group transactions |Life insurance companies |
|of a consolidated group |essentially carry on |
|that has a life insurance|three different types of |
|company member will be |business: |
|recognised for the |ordinary business - which|
|purposes of: |is taxed at 30 per cent; |
|determining the amount of|complying |
|a head company's |superannuation/FHSA |
|complying |business - which is taxed|
|superannuation/FHSA class|at 15 per cent; and |
|income and segregated |immediate annuity |
|exempt asset income; and |business - which is |
|determining the value of |non-assessable non-exempt|
|the head company's |income. |
|complying |If a life insurance |
|superannuation/FHSA asset|company joins a |
|pool and segregated |consolidated group, |
|exempt assets. |difficulties arise in |
| |identifying the income |
| |that relates to each |
| |class in respect of |
| |intra-group transactions.|
|Non-membership equity interests |
|Non-membership equity |Non-membership equity |
|interests issued by an |interests issued by an |
|entity that joins or |entity that joins or |
|leaves a consolidated |leaves a consolidated |
|group will be |group are not recognised |
|appropriately recognised |under the tax cost |
|under the tax cost |setting rules. |
|setting rules. |Consequently, when an |
|As a result, the |entity joins a |
|allocable cost amount for|consolidated group, the |
|a joining entity will be |allocable cost amount for|
|increased to reflect the |the joining entity is |
|amount received by the |understated. |
|joining entity from the |When an entity leaves a |
|issue of non-membership |consolidated group: |
|equity interests. |if the leaving entity has|
|In addition, when an |issued non-membership |
|entity leaves a |equity interests to |
|consolidated group: |entities that are members|
|if the leaving entity has|of the old group, no tax |
|issued non-membership |cost arises for those |
|equity interests to |membership interests; and|
|entities that are members| |
|of the old group, a tax |if the leaving entity has|
|cost will arise for those|issued non-membership |
|membership interests; and|equity interests to |
| |entities that are not |
|if the leaving entity has|members of the old group,|
|issued non-membership |the old group's allocable|
|equity interests to |cost amount for the |
|entities that are not |leaving entity is |
|members of the old group,|overstated. |
|the old group's allocable| |
|cost amount for the | |
|leaving entity will be | |
|reduced to reflect the | |
|amount received by the | |
|old group from the issue | |
|of the non-membership | |
|equity interests. | |
Detailed explanation of new law
Part 1 - Use of the tax cost setting amount
140. When an entity joins a consolidated group, the cost of each asset
of the joining entity is given a new tax cost setting amount under
the tax cost setting rules in Division 705.
141. Section 701-55 ensures the new tax cost setting amount for an asset
is used by the head company as the basis for applying other
provisions in the income tax law. In this regard:
. subsection 701-55(2) applies to treat the asset as if it
were acquired by the head company at the joining time for
an amount equal to its tax cost setting amount for the
purposes of applying certain depreciating asset
provisions;
. subsection 701-55(3) applies to an asset that is trading
stock for the purposes of Division 70 and deems the head
company to have held the trading stock from the start of
the income year in which the joining time occurs with a
value equal to its tax cost setting amount;
. subsection 701-55(4) applies to an asset that is a
qualifying security for the purposes of Division 16E of
Part III of the Income Tax Assessment Act 1936 (ITAA 1936)
and deems the head company to have acquired the asset at
the joining time for a payment equal to its tax cost
setting amount;
. subsection 701-55(5) applies to adjust the cost base or
reduced cost base of an asset so that it equals the
asset's tax cost setting amount where the CGT provisions
apply to the asset;
. subsections 701-55(5A) and (5B) apply to an asset that is
a financial arrangement and specifies the use of the tax
cost setting amount for the purposes of applying
Division 230; and
. new subsection 701-55(5C), which is being inserted by this
Bill, applies to an asset that is a right to future income
covered by new section 716-410.
142. Subsection 701-55(6) is a residual or catch all provision that
operates to treat the tax cost setting amount as the cost of an
asset when any provision of the income tax law not specifically
mentioned in section 701-55 applies to the asset.
143. The purpose of subsection 701-55(6) is to ensure that the tax cost
setting amount of an asset (rather than its original tax cost) is
used when applying a provision of the income tax law that is not
specifically covered by subsections 701-55(2) to (5C). The
determination of which provision in the income tax law is to apply
to an asset is a question of fact that will depend on the
particular circumstances of each case.
144. Subsection 701-55(6) is modified to ensure that it gives effect to
its policy intent. Under these modifications, subsection 701-55(6)
will apply where a provision of the income tax law, other than a
provision specifically mentioned in subsections 701-55(2) to (5C),
is to apply in relation to an asset by including an amount in
assessable income, or by allowing an amount as a deduction, in a
way that brings into account (directly or indirectly) any of the
following amounts:
. the cost of the asset;
. outgoings incurred, or amounts paid, in respect of the
asset;
. expenditure in respect of the asset; or
. an amount of a similar kind in respect to the asset.
[Schedule 5, item 3, subsection 701-55(6)]
145. In these circumstances, the other provision of the income tax law
applies for the purposes of determining the amount included in
assessable income or determining the amount of the deduction as if
the cost, outgoing, expenditure or other amount had been incurred
or paid to acquire the asset at the particular time for an amount
equal to the tax cost setting amount. [Schedule 5, item 3,
subsection 701-55(6)]
146. The deemed acquisition in subsection 701-55(6) solely facilitates
the application of a provision of the income tax law to the tax
cost setting amount for the purposes of determining the amount
included in assessable income or allowed as a deduction. In this
regard, the deemed acquisition does not affect the operation of the
entry history rule (section 701-5) where pre-joining time facts may
be relevant in determining which provision of the income tax law is
to apply to the tax cost setting amount of an asset. [Schedule 5,
item 3, note to subsection 701-55(6)]
147. These facts may include, for example:
. the original acquisition date of an asset;
. whether an asset is held on revenue account or capital
account; and
. whether the tax cost setting amount for an asset that is a
reset cost base asset has been reduced to the asset's
market value or terminating value under section 705-40.
148. The scope of the operation of subsection 701-55(6) is clarified by
section 701-56, which specifies that:
. subsection 701-55(6) does not override history (other than
cost);
. subsection 701-55(6) does not apply to trading stock; and
. subsection 701-55(6) does not apply to certain capital
expenditure provisions.
Subsection 701-55(6) does not override history (other than cost)
149. First, if subsection 701-55(6) applies in relation to an asset at a
time an entity joins a consolidated group, the things that are
taken to have happened in relation to the head company under the
entry history rule (section 701-5) do not include:
. the cost, outgoing, expenditure or other amount incurred
or paid to acquire the asset by the joining entity; or
. whether the cost, outgoing, expenditure or other amount
incurred or paid by the joining entity to acquire the
asset has been deducted by the joining entity before the
joining time.
[Schedule 5, item 3, subsection 701-56(1)]
1. : Consumable stores
Company J operates a transport business and pays $100,000 to
acquire a quantity of fuel on 25 June 2009. The fuel is for
use in its transport business.
Taxation Ruling No. IT 333 specifies that a deduction for
consumables is allowed on either an incurred or usage basis,
depending on the circumstances.
. Where consumables are acquired to meet immediate
requirements, deductions may be claimed in the income year
in which the expenditure was incurred (the incurred basis).
. Where the taxpayer builds up a store or stockpile of
consumables in excess of immediate requirements, deductions
may be claimed only as the consumables are used up (the
usage basis).
Company J applies the incurred basis to deduct the amount
paid to acquire the fuel ($100,000) in the 2008-09 income
year.
On 1 July 2009, Head Co acquires all the membership
interests in Company J. As a result, Company J joins Head
Co's consolidated group.
Company J still holds 70 per cent of the fuel that it
acquired on 25 June 2009 at the joining time. Under the tax
cost setting rules, consumable stores are a reset cost base
asset and the tax cost setting amount for the fuel is
$70,000.
Company J continues to apply the incurred basis to its
transport business fuel acquisitions. Therefore, Head Co
can deduct the tax cost setting amount for the fuel
($70,000) in the 2009-10 income year.
The fact that another member of the consolidated group may
be applying the usage basis to its consumables does not
affect this outcome.
However, if Company J had applied the usage basis to its
fuel acquisitions, Head Co would generally deduct the tax
cost setting amount for the fuel ($70,000) as the fuel is
used.
The consumable store of fuel is a CGT asset. However,
subsection 701-55(5) does not apply to increase the cost
base of the CGT asset by the tax cost setting amount for the
fuel. In this regard, as Head Co can deduct the tax cost
setting amount for the fuel under section 8-1,
subsection 110-45(2) applies to prevent the tax cost setting
amount from being included in the cost base of the CGT
asset.
2. : Assets held on revenue account
Company J is an investment company with a significant share
portfolio. Company J regularly switches between investments
to maximise dividend yields and any profit made on the sale
of its shares constitutes ordinary income (per London
Australia Investments Co Ltd v. FC of T (1977) 138 CLR
106). The shares are therefore held as revenue assets (as
defined in section 977-50).
Company J acquired two parcels of shares to add to its share
portfolio:
. parcel A for a cost of $100,000; and
. parcel B for a cost of $80,000.
Company J subsequently joins Head Co's consolidated group.
Under the tax cost setting rules:
. the tax cost setting amount for the parcel A shares is
$105,000; and
. the tax cost setting amount for the parcel B shares is
$82,000.
Head Co also holds the two parcels of shares on revenue
account. It subsequently sells the parcel A shares for
$120,000. The gain on the disposal of the shares is the
difference between the disposal proceeds ($120,000) and the
tax cost setting amount ($105,000) - that is, $15,000.
Therefore, Head Co will include $15,000 in its assessable
income as ordinary income (section 6-5) in respect of the
disposal of the parcel A shares.
The parcel A shares are a CGT asset. Therefore,
subsection 701-55(5) applies to increase the cost base of
the CGT asset by the tax cost setting amount for the parcel
A shares. Consequently, Head Co makes a capital gain of
$15,000 on the disposal of the shares. However, section 118-
20 applies to reduce this capital gain to nil.
Head Co also sells the parcel B shares for $75,000. The
loss on the disposal of the shares is the difference between
the disposal proceeds ($75,000) and the tax cost setting
amount ($82,000) - that is, $7,000. Therefore, Head Co's
can deduct $7,000 as a general deduction (section 8-1) in
respect of the disposal of the parcel B shares.
The parcel B shares are a CGT asset. Therefore,
subsection 701-55(5) applies to increase the cost base of
the CGT asset by the tax cost setting amount for the parcel
B shares. However, Head Co does not make a capital loss on
the disposal of the shares because Head Co can deduct the
amount of the loss under section 8-1.
3. : Traditional securities
Company J acquires two assets that are traditional
securities (as defined in subsection 26BB(1) of the
ITAA 1936) on 1 July 2005 - asset A was acquired for a cost
of $10,000 and asset B for a cost of $20,000.
Head Co acquires all of Company J's membership interests.
Consequently, Company J joins Head Co's consolidated group.
Under the tax cost setting rules, the traditional securities
held by Company J are a reset cost base asset and:
. the tax cost setting amount for asset A is $11,000; and
. the tax cost setting amount for asset B is $19,000.
Head Co subsequently disposes of asset A for $13,000.
Therefore, it makes a gain of $2,000 on the disposal of the
asset - that is, the amount received on the disposal of the
asset ($13,000) less the tax cost setting amount ($11,000).
The amount of this gain is included in Head Co's assessable
income under subsection 26BB(3).
Head Co also disposes of asset B for $15,000. Therefore, it
makes a loss of $4,000 on the disposal of the asset - that
is, the amount received on the disposal of the asset
($15,000) less the tax cost setting amount ($19,000). Head
Co can deduct the amount of this loss under
subsection 70B(2).
Note that if the securities are financial arrangements that
are taxed under the taxation of financial arrangements
provisions (Division 230), subsections 701-55(5A) and (5B)
will apply to specify the use of the tax cost setting amount
for the securities.
Subsection 701-55(6) does not apply to trading stock
150. Second, subsection 701-55(6) does not apply in relation to an asset
that is trading stock. In this regard, if an asset is trading
stock, subsection 701-55(3) applies to determine the use of the tax
cost setting amount of the asset (even though a deduction may be
allowed under section 8-1 in respect of the asset). [Schedule 5,
item 3, subsection 701-56(2)]
Subsection 701-55(6) does not apply to certain capital expenditure
provisions
151. Third, subsection 701-55(6) does not apply in relation to an
asset if any of the following provisions apply to the asset:
. Subdivision 40-F (Primary production depreciating assets);
. Subdivision 40-G (Capital expenditure of primary producers
and other landholders);
. Subdivision 40-H (Capital expenditure that is immediately
deductible);
. Subdivision 40-I (Capital expenditure that is deductible
over time), other than section 40-880 (Business related
costs);
. Subdivision 40-J (Capital expenditure for the
establishment of trees in carbon sink forests);
. Division 41 (Additional deduction for new business
investment); and
. Division 43 (Capital works).
[Schedule 5, item 3, subsection 701-56(3)]
152. The deductions allowed under these capital expenditure provisions
are, in most cases, based on:
. the original capital expenditure incurred by a taxpayer to
construct or create the asset, rather than on the amount
paid (by a subsequent or different taxpayer) to acquire
the asset; or
. the amount of capital expenditure incurred that is not
associated with an asset.
153. Section 40-880 is excepted because it does not have this
limitation. However, the tests in section 40-880 need to be
satisfied for an amount to be deducted for business related costs.
If those tests are satisfied, the amount of the deduction will be
based on the tax cost setting amount for the relevant asset.
154. If a joining entity is entitled to a deduction under the capital
expenditure provisions, the head company of the group may be
entitled to a deduction because of the operation of the single
entity rule (subsection 701-1(1)) and the entry history rule
(section 701-5). The amount of the deduction is based on the
remaining balance of the capital expenditure, rather than the tax
cost setting amount allocated to the asset.
1. : Capital works
Company J holds a building at the time it joins Head Co's
consolidated group. At the joining time, Company A has
undeducted construction expenditure of $75,000 in relation
to the building.
Under the tax cost setting rules, the building is a reset
cost base asset. The tax cost setting amount allocated to
the building is $300,000.
Generally, a taxpayer can deduct an amount for undeducted
construction expenditure in relation to capital works under
Division 43. The amount that can be deducted is the
undeducted construction expenditure in relation to the
capital works.
The deduction under Division 43 is based on the construction
costs of the capital works. Therefore, Head Co can deduct
the balance of the undeducted construction expenditure
($75,000) under Division 43 by applying the entry history
rule (section 701-5).
Head Co cannot claim deductions for undeducted construction
expenditure in relation to the building based on the tax
cost setting amount allocated to the building.
Assets that give rise to bad debts
155. A deduction is allowed under section 25-35 for a debt, or part of a
debt, that is written off as bad during an income year if, broadly:
. the debt was included in the taxpayers' assessable income
for an income year;
. the debt is in respect of money that the taxpayer lent in
the ordinary course of their business of lending money; or
. the taxpayer bought the debt in the ordinary course of
their business of lending money.
156. To overcome difficulties in applying section 25-35 to the tax cost
setting amount for a debt, the operation of section 25-35 is
modified to ensure that the head company can claim a deduction if
the debt goes bad. [Schedule 5, item 4, subsection 716-400(1)]
157. The modifications apply if:
. the tax cost of an asset was set at the time that an
entity joins a consolidated group at the asset's tax cost
setting amount;
. the asset is a debt;
. any of the following apply in relation to the asset:
- the debt was included in the joining entity's assessable
income before the joining time;
- the debt was in respect of money that the joining entity
lent before the joining time in the ordinary course of a
business of lending money; or
- the joining entity bought the debt before the joining
time in the ordinary course of a business of lending
money; and
. the asset is not an intra-group asset (that is,
section 701-58 does not apply to the asset).
[Schedule 5, item 4, subsection 716-400(2)]
158. In these circumstances, subsection 716-400(3) clarifies that, in
determining the extent to which the head company of the group can
deduct an amount under section 25-35 in relation to the asset, the
entry history rule (section 701-5) and subsection 701-55(6) have
the effect that:
. in a case where the debt was included in the joining
entity's assessable income before the joining time - the
head company is taken to have included an amount equal to
the tax cost setting amount in its assessable income in
respect of the debt before the joining time;
. in a case where the debt was in respect of money that the
joining entity lent before the joining time in the
ordinary course of a business of lending money - the head
company is taken to have lent an amount of money equal to
the tax cost setting amount in the ordinary course of a
business of lending money before the joining time; or
. in a case where the joining entity bought the debt before
the joining time in the ordinary course of a business of
lending money - the head company is taken to have incurred
expenditure equal to the tax cost setting amount in buying
the debt in the ordinary course of a business of lending
money before the joining time.
[Schedule 5, item 4, subsection 716-400(3)]
1. : Australian dollar trade receivables
Company J sells trading stock valued at $20,000 to a
customer on credit (30 day terms) on 25 June 2009. As
Company J is taxed on an accruals basis, it includes the
amount derived ($20,000) in its assessable income for the
2008-09 income year. Therefore, on 30 June 2009, Company J
holds an Australian dollar trade receivable of $20,000.
On 1 July 2009, Head Co acquires all the membership
interests in Company J. As a result, Company J joins Head
Co's consolidated group.
Under the tax cost setting rules, the Australian dollar
trade receivable is a right to receive an amount of
Australian currency, and therefore is a retained cost base
asset (paragraph 705-25(5)(b)). The tax cost setting amount
is the amount of Australian currency concerned - that is,
$20,000.
Head Co eventually collects $18,000 in respect of the
Australian dollar trade receivable and writes off the
balance of $2,000.
Head Co can deduct the amount of the Australian dollar trade
receivable written-off as a general deduction under
section 8-1 or as a bad debt deduction under section 25-35.
In this regard, for the purpose of applying section 25-35,
as the debt was included in the Company J's assessable
income before the joining time, Head Co is taken to have
included an amount equal to the tax cost setting amount
($20,000) in its assessable income in respect of the debt
before the joining time.
2. : Foreign currency trade receivables
On 1 May 2003 Company J derives ordinary income of $100 by
selling trading stock to Entity Z on credit for US$80. At
that time, A$1 is equivalent to US$0.80.
Company J joins Head Co's consolidated group on 1 July 2003
when A$1 is equivalent to US$0.75 and the trade receivable
translates to A$106.67. Under the tax cost setting rules, a
tax cost setting amount of A$106.67 is allocated to the
trade receivable. As the trade receivable is a revenue
asset in the hands of Company J, subsection 701-55(6)
applies to the tax cost setting amount.
Entity Z pays US$75 to Company J in settlement of its trade
debt on 30 November 2003. At that time, under the exchange
rate, A$1 is equivalent to US$0.78 and A$96.15 cash is
received by Head Co.
Head Co writes of the remainder of the US$5 owed as a bad
debt.
The amount that can be deducted under section 25-35 in
respect of a foreign currency debt that was included in
assessable income is the amount translated to Australian
currency at the exchange rate applicable at the time of
translating the income (Item 8A of Regulation 960.50.01 of
the Income Tax Assessment Regulations 1997).
Head Co is taken to have included an amount equal to the tax
cost setting amount (A$106.67) in its assessable income in
respect of the debt (paragraph 716-400(3)(a)). As section
715-370 applies to the debt, the exchange rate applicable at
the time of translating the US$80 to A$106.67 is A$1 equals
US$0.75 (being the rate applying at joining time).
Consequently, Head Co can deduct an amount of A$6.67 (that
is, A$106.67 - A$100) under section 25-35 for the US$5
written-off as a bad debt.
As the amount received by Head Co (A$96.15) is less than the
portion of the tax cost setting amount that relates to the
US$75 received (A$100), a capital loss of A$3.85 (that
is, A$96.15 - A$100) arises under CGT event C2.
However, this difference is wholly attributable to the
movement in the exchange rate from 1 July 2003 to 30
November 2003. Therefore, Head Co can deduct the amount of
the difference (A$3.85) under section 8-1 (reducing the
capital loss to nil).
Division 775 does not apply to the right to receive foreign
currency as, under the entry history rule, Head Co is taken
to have acquired the right prior to 1 July 2003 and has not
made an election under section 775-150 for the Division to
apply to the right.
However, if Division 775 did apply, the combined operation
of subsection 701-55(6) and section 715-370 in respect of
the tax cost setting amount for the debt would result in a
forex realisation loss of A$3.85 arising under
forex realisation event 2 (ceasing to have a right to
receive foreign currency (section 775-45)).
159. In some cases a deduction for bad debts is allowed under the
general deduction provision (section 8-1). If that provision
applies to allow a deduction for a bad debt, the amount of the
deduction will be based on the tax cost setting amount for the
asset.
Deduction for tax cost setting amount for assets that are rights to
future income assets
160. A joining entity may hold an asset at the joining time that
represents:
. a right to receive income for things it has already
provided or done, but for which it is not yet entitled to
bill (such as work-in-progress under a long-term
construction contract); or
. a right to receive income for things that are to be
provided or done after the joining time.
161. The market value of the asset at the joining time will derive from
the expected future income reduced by associated future outlays.
162. Where the joining entity was a wholly-owned subsidiary of the head
company at the time the contract or agreement giving rise to the
future income asset was created, the asset will be treated as a
retained cost base asset and its tax cost setting amount will be
limited to its terminating value, which in most cases is expected
to be nil (see the amendments in Part 11 of this Schedule).
163. Where the joining entity was not a wholly-owned subsidiary of the
head company at the time the contract or agreement giving rise to
the future income asset was created, the asset will be a reset cost
base asset and will receive a tax cost setting amount based on its
relative market value at the joining time.
164. Uncertainties arise regarding when and how the tax cost setting
amount allocated to such an asset may be recognised for the head
company's tax purposes.
165. To overcome these uncertainties, if section 716-410 covers an
asset, section 716-405 may apply in relation to the tax cost
setting amount allocated to the asset. [Schedule 5, item 3,
subsection 701-55(5C)]
166. Section 716-410 covers an asset if:
. the asset is a right (including a contingent right) to
receive an amount for the doing of a thing;
. the asset is held by an entity just before the time it
becomes a subsidiary member of a consolidated group; and
. it is reasonable to expect that an amount will be included
in the assessable income of the head company of the group
after the joining time in relation to the right.
[Schedule 5, item 4, section 716-410]
167. Section 716-405 allows a deduction for the tax cost setting amount
for an asset if:
. an entity became a subsidiary member of a consolidated
group; and
. subsection 701-55(5C) applies in relation to the asset -
that is, the asset is a 'right to future income' asset
covered by section 716-410 that is held by the joining
entity.
[Schedule 5, item 4, subsection 716-405(1)]
168. An asset covered by section 716-410 may be solely comprised of a
right to future income. Alternatively, the asset may be a right
that is embedded in a contract or agreement that includes a range
of rights and associated obligations.
169. Where the right to future income asset is embedded in a contract or
agreement that includes a range of rights and associated
obligations, section 716-405 will apply to allow a deduction for
that part of the tax cost setting amount for the asset that relates
to the right to future income.
170. The deduction will be available to the entity that is qualified for
a deduction under subsection 716-405(5) for the right to future
income asset. In most cases this will be the head company of a
consolidated group that holds the asset because of the single
entity rule (subsection 701-1(1)). However, if an entity ceases to
be a member of the consolidated group and takes the right to future
income asset with it, the leaving entity will be entitled to the
deduction. [Schedule 5, item 4, subsections 716-405(2) and (5)]
171. The amount that can be deducted in a particular income year is
generally the unexpended tax cost setting amount for the right to
future income asset, to the extent that an amount is included in
the entity's assessable income for that income year in respect of
the right to future income asset. [Schedule 5, item 4,
paragraph 716-405(2)(a)]
172. However, unless subsection 716-405(3) applies, if the right to
future income asset ceases to exist in an income year or it is
reasonable to expect that no amount will be included in the
assessable income of any entity for a later income year in respect
of the asset, the amount that can be deducted in that income year
by the entity that holds the asset at the time it ceases to exist
or have any value is the unexpended tax cost setting amount for the
asset. [Schedule 5, item 4, paragraph 716-405(2)(b)]
173. Subsection 716-405(3) applies to prevent the head company from
being able to deduct the unexpended tax cost setting amount for the
asset in an income year if:
. another entity ceased to be a subsidiary member of the
group in that income year; and
. that other entity can deduct an amount for the right to
future income asset because it is also qualified for a
deduction under subsection 716-405(5) for the asset for
that income year.
[Schedule 5, item 4, subsection 716-405(3)]
174. If the asset is disposed of, section 716-405 will not apply to
allow a deduction for the unexpended tax cost setting amount. The
income tax treatment of the asset on disposal will depend on the
particular facts in each case. For example:
. if the asset is a CGT asset that is taxed under the
CGT provisions, subsection 701-55(5) will apply so that,
in working out the amount of any capital gain or loss, the
cost base or reduced cost base is increased by the
unexpended tax cost setting amount; or
. if the asset is taxed on revenue account, subsection 701-
55(6) will apply so that, in working out the amount of any
profit or loss, the tax cost of the asset is the
unexpended tax cost setting amount.
175. The unexpended tax cost setting amount for the right to future
income asset for an income year is the tax cost setting amount for
the asset reduced by the amounts (if any) of all deductions under
section 716-405 in respect of the asset for previous income years.
[Schedule 5, items 4 and 5, paragraph 716-405(4)(a) and the
definition of 'unexpended tax cost setting amount' in
subsection 995-1(1)]
176. In addition, in determining the amount of a deduction for a right
to future income asset for an income year for an entity that ceased
to be a subsidiary member of the group in that income year, the tax
cost setting amount is reduced by the amount (if any) that the head
company of the group can deduct under section 716-405 in respect of
the asset for that income year. [Schedule 5, items 4 and 5,
paragraph 716-405(4)(b) and the definition of 'unexpended tax cost
setting amount' in subsection 995-1(1)]
177. An amount that is deducted under section 716-405 for the tax cost
setting amount for the right to future income asset:
. cannot be deducted under any other provision in the income
tax law;
. is not taken into account in determining the amount
included in assessable income of the head company or an
entity that has ceased to be a member of the group for
any income year for the asset;
. is not taken into account in determining the amount of a
deduction for the head company or an entity that has
ceased to be a member of the group for any income year for
the asset; and
. is not taken into account in working out any of the
elements of the CGT cost base of the asset.
[Schedule 5, item 4, subsection 716-405(6)]
178. As a consequential amendment, the table of deductions in section 12-
5 is modified to refer to the deduction that is allowed under
section 716-405. [Schedule 5, item 1, section 12-5]
1. : Right to future income under a long-term construction contract
Head Co acquires all of Company J's membership interests on
1 July 2010. Consequently, Company J joins Head Co's
consolidated group.
Company J has a partially completed construction contract at
the joining time - that is, broadly, it has partially
performed some work under the contract that has not yet been
completed to a stage where a recoverable debt has arisen.
For accounting purposes, Company J has estimated the amount
of partly earned unbilled income as $15,000.
Substantial gross revenues are expected to be generated
under the contract with an estimated profit over the period
of the contract of $500,000.
Taxation Ruling TR 2004/13 addresses the question of what is
an asset for the purposes of the tax cost setting rules.
If, applying the principles in that ruling, the construction
contract is identified as a separate asset, the market value
of the asset must be determined using a recognised market
valuation methodology.
A valuer will typically have regard to a number of factors
in determining the market value of the asset, such as:
. the value of future work yet to be performed;
. the remaining life of the asset;
. forecast revenue;
. the cost and charges of other assets that are related to the
work that is yet to be performed; and
. appropriate discount rates.
Having regard to these factors, the market value of the
asset is determined to be $215,000.
The construction contract is a reset cost base asset to
which section 705-40 applies. The tax cost setting amount
allocated to the asset under the tax cost setting rules is
$180,000.
Head Co can deduct the tax cost setting amount for the asset
($180,000) under section 716-405 because:
. the asset is solely a right to receive an amount for the
doing of a thing (being the unbilled work already done and
the work yet to be done); and
. it is reasonable to expect that the Head Co will include an
amount in assessable income after the joining time in
relation to the right.
During the 2010-11 income year, invoices issued in respect
of the contract totalled $100,000. As a result, Head Co
includes $100,000 in assessable income in that year. The
contract is 10 per cent completed as at 30 June 2011.
Taxation Ruling IT 2450 specifies two methods that are
acceptable for accounting for the taxable income from long-
term construction contracts - the basic approach and the
estimated profits basis.
If Company J uses the basic approach for income tax
purposes, Head Co will be able to deduct $100,000 of the tax
cost setting amount for the asset under section 716-405 in
the 2010-11 income year. The unexpended tax cost setting
amount ($80,000) will be deductible in the 2011-12 income
year, provided that invoices equal to or exceeding that
amount are issued, and a corresponding amount is included in
assessable income, in that income year.
If Company J uses the estimated profit (percentage of
completion) basis for income tax purposes, Head Co will
include $50,000 (10 per cent of the $500,000 total estimated
profit) in its assessable income in the 2010-11 income year.
Therefore Head Co will be able to deduct $50,000 of the tax
cost setting amount for the asset under section 716-405 in
the 2010-11 income year. The unexpended tax cost setting
amount ($130,000) will be deductible in subsequent years as
the assessable income is derived by Head Co under the
contract.
If the contract is completed and actual total profit is less
than the tax cost setting amount for the asset ($180,000),
then the balance of the unexpended tax cost setting amount
would generally be deductible under section 716-405 at that
time.
2. : Right to receive trailing commissions
Head Co acquires all of Company J's membership interests on
1 July 2010. Consequently, Company J joins Head Co's
consolidated group.
Company J is a commission agent and reasonably expects to
receive trailing commissions from an insurance company in
respect of insurance products sold in the 2008-09 income
year, provided customers do not terminate their insurance
cover. Although no recoverable debt exists at the joining
time, it is reasonable to expect that trailing commissions
of $40,000 will be received during the 2010-11 and 2011-12
income years ($20,000 per year) from the sales in the 2008-
09 income year.
Taxation Ruling TR 2004/13 addresses the question of what is
an asset for the purposes of the tax cost setting rules.
If, applying the principles in that ruling, the right to
trailing commissions is identified as a separate asset, the
market value of the asset must be determined using a
recognised market valuation methodology. The market value
of the asset is determined to be $30,000.
The asset is a reset cost base asset to which section 705-40
applies. The tax cost setting amount allocated to the asset
under the tax cost setting rules is $30,000.
Head Co can deduct the tax cost setting amount for the right
to receive trailing commissions ($30,000) under section 716-
405 because:
. the asset is solely a contingent right to receive an amount
for the doing of a thing (being the sale of insurance
products prior to the joining time); and
. it is reasonable to expect that the Head Co will include an
amount in assessable income after the joining time in
relation to the asset.
In the 2010-11 income year, Head Co derives trailing
commissions of $19,000 which are included in assessable
income. Therefore, Head Co will be able to deduct $19,000
of the tax cost setting amount for the asset in that income
year.
In the 2011-12 income year, Head Co derives trailing
commissions of $17,000 which are included in assessable
income. Therefore, Head Co will be able to deduct the
balance of the unexpended tax cost setting amount for the
asset ($11,000) in that income year.
3. : Land development agreement
Head Co acquires all of Company J's membership interests on
1 July 2010. Consequently, Company J joins Head Co's
consolidated group.
Company J is a land development company that has acquired a
development agreement over land owned by a third party.
Under that right, Company J is entitled to develop and sell
the land to customers as agent for the owner. It is also
entitled to retain a proportion of the sale proceeds as its
fee.
Taxation Ruling TR 2004/13 addresses the question of what is
an asset for the purposes of the tax cost setting rules.
If, applying the principles in that ruling, the development
agreement is identified as a separate asset, the market
value of the asset must be determined using a recognised
market valuation methodology. The market value of the asset
is determined to be $6 million.
The asset is a reset cost base asset to which section 705-40
applies. The tax cost setting amount allocated to the asset
under the tax cost setting rules is $5 million.
Head Co can deduct the tax cost setting amount for the
development right ($5 million) under section 716-405
because:
. the asset is solely a right to receive an amount for the
doing of a thing (being the development and sale of land);
and
. it is reasonable to expect that the Head Co will include an
amount in assessable income after the joining time in
relation to the asset.
Each time Head Co sells, as agent, a subdivided block of
land, it will include a proportion of the sale proceeds that
is its fee in assessable income. Therefore, Head Co can
progressively deduct the tax cost setting amount for the
development right ($5 million) under section 716-405 over
the income years it receives the fees and includes them in
assessable income.
4. : Right to deferred management fees
Company J operates a retirement village business and has a
right to deferred management fees in respect of each
resident's unit - that is, a right to fees that accrue over
a resident's tenure in a retirement village unit but are not
payable until the time the resident ceases to reside at the
retirement village.
Head Co acquires all of Company J's membership interests on
1 July 2010. Consequently, Company J joins Head Co's
consolidated group.
Taxation Ruling TR 2004/13 addresses the question of what is
an asset for the purposes of the tax cost setting rules.
If, applying the principles in that ruling, the right to
deferred management fees is identified as a separate asset,
the market value of the asset must be determined using a
recognised market valuation methodology. The market value
of the asset is determined to be $80,000.
The asset is a reset cost base asset to which section 705-40
applies. The tax cost setting amount allocated to the asset
under the tax cost setting rules is $80,000.
Head Co can deduct the tax cost setting amount for the asset
($80,000) under section 716-405 because:
. the asset is solely a contingent right to receive an amount
for the doing of a thing (being the management of the
retirement village); and
. it is reasonable to expect that the Head Co will include an
amount in assessable income after the joining time in
relation to the asset.
Head Co derives management fees of $70,000, and includes
this amount in its assessable income, when the resident
ceases to reside in the retirement village in the 2015-16
income year. Therefore, Head Co can deduct part of the tax
cost setting amount for the right to deferred management
fees ($70,000) in the 2015-16 income year.
The tax cost setting amount allocated to the right to
deferred management fees ($80,000) exceeds the total
management fees included in Head Co's assessable income
($70,000). However, as the right to deferred management
fees comes to an end in the 2015-16 income year, Head Co can
deduct the balance of the unexpended tax cost setting amount
for the right ($10,000) in that income year.
5. : Rights to unbilled income for the supply of gas
Company J carries on the business of supplying gas to its
customers (being both domestic and commercial gas consumers)
in very similar circumstances to those in FC of T v
Australian Gas Light Co 83 ATC 4800; (1983) 15 ATR 105.
In its profit and loss statement for the income year ended
30 June 2010, Company J recorded unbilled gas income of
$25,000. Its balance sheet contained an unbilled gas asset
of the same amount. The unbilled gas income is recognised
as income for accounting purposes but has not yet been
recognised as assessable income for income tax purposes in
accordance with Taxation Ruling No. IT 2095.
On 1 July 2010, Head Co acquires all of Company J's
membership interests. As a result, Company J joins Head
Co's consolidated group.
Taxation Ruling TR 2004/13 addresses the question of what is
an asset for the purposes of the tax cost setting rules.
If, applying the principles in that ruling, the right to
unbilled gas income is identified as a separate asset, the
market value of the asset must be determined using a
recognised market valuation methodology. The market value
of the asset is determined to be $25,000.
The asset is a reset cost base asset to which section 705-40
applies. The tax cost setting amount allocated to the asset
under the tax cost setting rules is $20,000.
Head Co can deduct the tax cost setting amount for the asset
($20,000) under section 716-405 because:
. the asset is solely a contingent right to receive an amount
for the doing of a thing (being the supply of gas); and
. it is reasonable to expect that the Head Co will include an
amount in assessable income after the joining time in
relation to the asset.
Head Co derives assessable income for gas supplied in excess
of $20,000 in the 2010-11 income year. This includes
amounts derived for gas supplied by Company J as at
30 June 2010. Therefore, Head Co will be able to deduct the
tax cost setting amount for the asset ($20,000) in that
income year.
Land carrying trees and rights to fell trees
179. When a taxpayer fells trees for sale or manufacture, a deduction is
available under section 70-120 for so much of the capital costs of
acquiring land carrying trees as is referable to trees that have
been felled in the income year.
180. A deduction is also available under section 70-120 for the capital
cost of acquiring rights to fell trees, but only to the extent the
amount paid is attributable to the trees that are felled in the
income year. The amount that is attributable to the trees that are
felled in the income year is generally worked out based on the
relative market value of the trees that are felled to the land or
rights.
181. Currently, if the trading stock provisions in Division 70 apply in
relation to an asset, subsection 701-55(3) specifies the use of the
tax cost setting amount. The provisions in the income tax law that
allow a deduction for the capital costs relating to land carrying
trees and to rights to fell trees (section 70-20) are in
Division 70. However, the use of the tax cost setting amount
specified in subsection 701-55(3) does not work appropriately for
the purposes of applying section 70-120.
182. To avoid confusion, a technical amendment will clarify that
subsection 701-55(6), rather than subsection 701-55(3), applies to
specify how the head company uses the tax cost setting amounts
allocated to land carrying trees and to rights to fell trees for
the purpose of applying section 70-120. [Schedule 5, item 2,
subsection 701-55(3)]
183. The joining entity's history relating to the deduction of amounts
under section 70-120 is not inherited by the head company under the
entry history rule (section 701-5) for the purpose of determining
whether the head company is entitled to deductions under section 70-
120 for the tax cost setting amount allocated to an asset that is
land carrying trees. [Schedule 5, item 3, subsection 701-56(1)]
1. : Land carrying trees
Company J paid $850,000 to acquire land carrying trees. At
that time $50,000 is set out in the contract as being
attributable to the trees.
Before the joining time, Company J fells 50 per cent of the
trees, claiming a deduction of $25,000. Company J then
replants trees on the land.
Head Co acquires all of Company J's membership interests.
Consequently, Company J joins Head Co's consolidated group.
At the joining time, Head Co obtains a valuation of the land
which documents that the market value of the land (including
the trees) at the joining time is $900,000. The value
attributable to the remaining trees is $25,000.
Under the tax cost setting rules, the tax cost setting
amount for the land (including the trees) is $850,000.
Therefore, the tax cost setting amount attributable to the
trees is $23,611 (that is, $25,000 / $900,000 ×
$850,000).
Head Co subsequently fells the trees, and sells the timber
for $50,000. Head Co will include the amount received on
the sale of the timber ($50,000) in its assessable income
and can deduct the tax cost setting amount attributable to
the trees ($23,611) under subsection 70-120(4).
Interactions with Division 775 (Foreign currency gains and losses)
184. The primary purpose of Division 775 is to ensure that foreign
currency gains and losses are recognised for income tax purposes.
185. The amendments clarify the time for determining the currency
exchange rate effect where:
. an entity becomes a subsidiary member of a consolidated
group at a time;
. taking into account the operation of the single entity
rule (subsection 701-1(1)), the head company of the group
held an asset at the joining time because the joining
entity became a subsidiary member of the group;
. the asset is a reset cost base asset at the joining time;
and
. in working out the asset's tax cost setting amount, the
currency exchange rate of a particular foreign currency is
taken into account in determining the market value of the
asset.
[Schedule 5, item 6, subsection 715-370(1)]
186. In these circumstances, for the purposes of Division 775, the
extent of any currency exchange rate effect after the joining time
in relation to the asset is determined by reference to the currency
exchange rate for the foreign currency at the joining time.
[Schedule 5, item 6, subsection 715-370(2)]
1. : Foreign currency trade receivable and forex realisation event 2
On 1 May 2010 Company J derives ordinary income of $100 by
selling trading stock to Company Z on credit for US$80. At
that time, A$1 is equivalent to US$0.80.
Company J joins Head Co's consolidated group on 1 July 2010
when A$1 is equivalent to US$0.75 and the trade receivable
translates to A$106.67. Under the tax cost setting rules, a
tax cost setting amount of A$106.67 is allocated to the
trade receivable.
As Division 775 is to apply to the foreign currency trade
receivable, subsection 701-55(6) applies to deem the tax
cost setting amount to be an amount paid by the head company
to acquire the asset at the joining time.
As the trade receivable is a reset cost base asset and the
US$ currency exchange rate applying at the joining time has
been taken into account in working out its tax cost setting
amount, section 715-370 also applies to the asset for the
purpose of Division 775.
The combined operation of subsection 701-55(6) and section
715-370 in respect of the asset results in the A$106.67 tax
cost setting amount becoming the forex cost base of the debt
(section 775-85) for the purpose of forex realisation event
2 (ceasing to have a right to receive foreign currency
(section 775-45)).
Subsection 701-55(6) and section 715-370 operate to treat
the tax cost setting amount as an amount paid by Head Co at
the joining time to acquire a right to receive US$80 for the
purpose of forex realisation event 2.
Company Z pays US$80 to Company J in settlement of its trade
debt on 30 November 2010. At that time the exchange rate is
A$1 equals US$0.78 and A$102.56 cash is received by Head Co.
As the forex cost base of the debt is A$106.67, Head Co
makes a forex realisation loss of A$4.11 under forex
realisation event 2.
Application of Part 1
187. The amendments in Division 1 of Part 1 (that is, the amendments
other than those which clarify interactions with the foreign
currency gains and losses provisions (Division 775)) apply on or
after 1 July 2002. [Schedule 5, item 7]
188. These amendments, which have been sought by taxpayers, are
beneficial as they ensure that the head company of a consolidated
group receives appropriate recognition for the tax cost setting
amount allocated to an asset under the tax cost setting rules.
189. The amendments in Division 2 of Part 1, which clarify interactions
with the foreign currency gains and losses provisions
(Division 775) when an entity joins a consolidated group, apply
from the date of introduction of this Bill into the House of
Representatives. That is, the amendments will apply to an entity
that joins a consolidated group on or after that date. [Schedule
5, item 7]
190. However, the head company of a consolidated group can make a choice
to apply the amendments in Division 2 of Part 1 in relation to an
entity that joins a consolidated group on or after 1 July 2002.
The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 7]
191. This option to apply the amendments from 1 July 2002 will ensure
that taxpayers do not need to disturb past practices. However, it
will allow consolidated groups to take advantage of the amendments,
having regard to the compliance cost implications of applying the
changes retrospectively.
Transitional treatment of foreign currency trade receivables
192. In Draft Taxation Determination TD 2004/D80 the Australian Taxation
Office (ATO) advised that a capital gain would arise when an amount
received in payment of a foreign currency denominated trade
receivable exceeds its tax cost setting amount.
193. The ruling was withdrawn on 22 August 2006 following the former
government's announcement to modify the operation of subsection 701-
55(6).
194. To ensure taxpayer's are not disadvantaged by the withdrawal of
Draft Taxation Determination TD 2004/D80, a transitional
modification will be made to preserve the CGT character of the gain
or loss that arises when the amount received in payment of a
foreign currency denominated trade receivable exceeds its tax cost
setting amount, provided the amount was derived between 1 July 2002
and 23 August 2006.
195. The transitional modification will apply if:
. the tax cost of a joining entity's asset was set at the
joining time at the asset's tax cost setting amount;
. the asset is a trade receivable that is denominated in
foreign currency;
. CGT event C2 happens to the asset between the joining time
and 23 August 2006;
. just before the CGT event, the head company of the group
held the asset because of the operation of the single
entity rule (subsection 701-1(1));
. disregarding section 118-20, there is a capital gain or
capital loss from the event; and
. the head company makes a choice (which is reflected in the
way that it completed its income tax return) to apply the
transitional provision.
[Schedule 5, item 8]
196. In these circumstances, except to the extent that any capital gain
or capital loss from the event is attributable to currency exchange
rate fluctuations, the following provisions do not apply to the CGT
event:
. section 6-5 (about ordinary income);
. any other provision that includes an amount in assessable
income (other than a CGT provision);
. section 8-1 (about amounts that can be deducted);
. any other provision that allows a deduction for the
amount; and
. section 118-20 (which reduces a capital gain by the amount
that it is otherwise assessable).
[Schedule 5, item 8]
197. This transitional provision will preserve the position set out in
Draft Taxation Determination TD 2004/D80 until 23 August 2006.
After that date, an asset that is a trade receivable denominated in
foreign currency may be treated as being on revenue account.
Subsection 701-55(6) will apply to ensure that the tax cost setting
amount for the asset can be used to determine the amount that is
included in assessable income or allowed as a deduction.
Part 2 - Group restructures
198. In this Part, references to a consolidated group do not include a
MEC group.
199. Under the consolidation regime wholly-owned groups are treated as
single taxpaying entities for their income tax purposes. Wholly-
owned groups that have an Australian resident head company can form
a consolidated group. Resident wholly-owned subsidiaries of a
foreign holding company can form a MEC group.
200. When a change in the group structure occurs, it can result in:
. a consolidated group converting to a MEC group
(section 719-40); or
. a MEC group converting to a consolidated group
(section 703-55).
201. Currently, when a group conversion occurs, the old group ceases to
exist and a new group comes into existence. As a result,
significant tax consequences inappropriately arise for members of
the old group that become members of the new group - that is, for
entities that are ongoing members of the group. For example:
. the tax cost setting rules that apply when an entity
ceases to be a member of a consolidated group or MEC group
operate to set the tax costs of the membership interests
in each subsidiary member that leaves the old group,
potentially causing a capital gain to arise if CGT event
L5 happens; and
. the tax cost setting rules that apply when an entity
becomes a member of a consolidated group or MEC group
operate to reset the tax costs of the assets of each
subsidiary member that becomes a member of the new group.
Minimal tax consequences for ongoing members
202. Subdivision 719-BA will ensure that there will be minimal tax
consequences when, at a particular time (the conversion time):
. a consolidated group is created from a MEC group; or
. a MEC group is created from a consolidated group.
[Schedule 5, item 15, subsection 719-120(1)]
New group retains the history of the old group
203. When Subdivision 719-BA applies, the head company of the new group
will retain the history of the head company of the old group. That
is, everything that happened in relation to the head company of the
old group before the conversion time is instead taken to have
happened in relation to:
. if the head company of the old group is the same entity as
the head company of the new group, that entity in its role
as the head company of the new group; or
. otherwise, the head company of the new group (just as if
the head company of the new group had been the head
company of the old group at all times before the
conversion time).
[Schedule 5, item 15, subsection 719-125(1)]
204. The history that is retained by the head company of the new group
includes everything that, immediately before the conversion time,
was taken to have happened in relation to the head company of the
old group because of:
. the single entity rule (subsection 701-1(5));
. the entry history rule (section 701-5);
. the effects of a choice under section 703-75 to continue a
consolidated group or MEC group after an interposed
company becomes a new head company;
. the effects under section 719-90 that arise because of a
change in the head company of a MEC group; and
. any previous applications of Division 719.
[Schedule 5, item 15, subsection 719-125(2)]
205. Consequently, if, for example, the old group is a MEC group and
there has been one or more changes to the head company of the group
prior to the conversion time, the entity that is the head company
of the old MEC group at the conversion time is taken to have
inherited all of the group's previous history just as if it had
always been the head company of the group (section 719-90). The
head company of the new consolidated group will retain all the
relevant history of the old MEC group, including the history
obtained because of the effects under section 719-90 that arise
because of a change in the head company of the old MEC group.
206. The provisions that ensure the head company of the new group
retains the history of the head company of the old group
(subsections 719-125(1) and (2)) have effect for:
. the head company core purposes in relation to an income
year ending after the conversion time;
. the entity core purposes in relation to an income year
ending after the conversion time; and
. the purpose of determining the balance of the franking
account of the head company, or provisional head company,
of the new group at or after the conversion time.
[Schedule 5, item 15, subsection 719-125(3)]
207. Therefore, for example, for the purposes of applying the joint and
several liability provisions in Division 721, a tax-related
liability that is a group liability of the head company of the old
group will be a group liability of the head company of the new
group. In addition, an entity that was a subsidiary member of the
old group for part of the period to which the liability relates
will be taken to be a subsidiary member of the new group in respect
of that period.
208. Subsections 719-125(1) and (2) do not override:
. the exit history rule (section 701-40); and
. a provision of the income tax law to which the exit
history rule is subject because of exceptions to the core
rules (section 701-85).
[Schedule 5, item 15, subsection 719-125(4)]
209. Consequently, if, for example, the old group is a transitional
group, the new group will also be a transitional group. Similarly,
if an entity that is an ongoing member is a transitional entity or
chosen transitional entity, the entity will retain that status.
Therefore, sections 701-40, 701-45 and 701-50 of the Income Tax
(Transitional Provisions) Act 1997 will apply when these entities
leave the new group.
Certain provisions do not apply when an entity joins the new group
210. The provisions that ordinarily apply when an entity joins a
consolidated group or MEC group, other than the single entity rule
(subsection 701-1(1)), do not apply to an ongoing member that joins
the group because of a group conversion. In particular, the
following provisions do not apply:
. CGT events L1, L2, L3, L4 and L8, which may apply when an
entity joins a consolidated group or MEC group
(Subdivision 104-L);
. the modification to the operation of the same business
test that ordinarily applies when an entity becomes a
subsidiary member of a consolidated group or MEC group
(section 165-212E);
. the consolidation provisions in Part 3-90 that ordinarily
apply when an entity joins a consolidated group or MEC
group (other than the single entity rule and
Subdivision 719-BA); and
. the transitional consolidation provisions in Part 3-90 of
the Income Tax (Transitional Provisions) Act 1997 that
ordinarily apply when an entity joins a consolidated group
or MEC group.
[Schedule 5, item 15, subsections 719-130(1), (2) and (5)]
211. An entity is an ongoing member (and therefore obtains the benefit
of section 719-130) only if it was a member of the old group just
before the conversion time and becomes a member of the new group at
that time. [Schedule 5, item 15, subsection 719-120(2)]
212. Therefore, section 719-130 does not apply to:
. entities that are members of the new group but were not
members of the old group just before the conversion
time - that is, entities that are new members of the
group; or
. entities that were members of the old group before the
conversion time that cannot be members of the new group at
that time, such as entities that were transitional foreign-
held subsidiaries or transitional foreign-held indirect
subsidiaries (see sections 701C-10 and 719-10 of the
Income Tax (Transitional Provisions) Act 1997).
213. Some key impacts of switching-off the consolidation provisions in
Part 3-90 that ordinarily apply when an entity joins a consolidated
group or MEC group (other than the single entity rule and
Subdivision 719-BA) are that:
. the tax cost setting rules in Division 705 do not apply
when an entity that is an ongoing member becomes a member
of the new group as a result of a group conversion -
consequently, the tax costs of the ongoing member's assets
are not reset;
. the loss transfer rules in Subdivision 707-A do not apply
when an ongoing member becomes a member of the new group
as a result of a group conversion - as a result, losses
transferred from ongoing member to the head company of the
old group are taken to be transferred to the head company
on the new group.
Certain provisions do not apply when an entity leaves the old group
214. Similarly, unless the entity becomes an eligible tier-1 company in
respect of the new MEC group, the following provisions that
ordinarily apply when an entity leaves a consolidated group or
MEC group will not apply when an ongoing member ceases to be a
member of the group because of a group conversion:
. CGT event L5, which ordinarily applies when an entity
leaves a consolidated group or MEC group (Subdivision 104-
L);
. the consolidations provisions in Part 3-90 that ordinarily
apply when an entity leaves a consolidated group or
MEC group (other than Subdivision 719-BA); and
. the transitional consolidation provisions in Part 3-90 of
the Income Tax (Transitional Provisions) Act 1997 that
ordinarily apply when an entity leaves a consolidated
group or MEC group.
[Schedule 5, item 15, subsections 719-120(2) and 719-130(3) to (5)]
215. A key impact of switching-off the consolidation provisions in
Part 3-90 that ordinarily apply when an entity leaves a
consolidated group or MEC group (other Subdivision 719-BA) is that
the tax cost setting rules in Division 711 do not apply when an the
entity that is an ongoing member ceases to be a member of the old
group as a result of a group conversion. Consequently, the tax
costs of the membership interests in the on-going member are not
reconstructed.
Certain provisions continue to apply
216. Where an on-going member becomes an eligible tier-1 company in
respect of a new MEC group because a foreign resident company
acquires all the membership interests, tax consequences will arise
for the head company of the old consolidated group in respect of
the disposal of the membership interests in the ongoing member to
the foreign resident company. Therefore, the tax cost setting
amount of those membership interests will be worked out under
Division 711.
217. Where this eligible tier-1 company holds membership interests in
another ongoing subsidiary member (that is, a lower tier subsidiary
member) of the group, the old group's allocable cost amount for
this lower tier subsidiary member will need to be worked out to
determine the tax costs for the membership interests in the
eligible tier-1 company. However, section 719-130 will ensure that
CGT event L5 is not triggered in relation to the lower tier
subsidiary member.
218. The disposal of the membership interests in the on-going member
that becomes an eligible tier-1 company to a foreign resident
company may result in the head company of the old group making:
. a capital gain or loss under CGT event A1; or
. a capital gain under CGT event L5.
219. However, if a capital gain arises under CGT event A1 and these
membership interests are taxable Australian property (as defined in
section 855-20) both before and after the CGT event, the CGT roll-
over for companies in the same wholly-owned group (Subdivision 126-
B) may apply.
220. The disposal of the membership interests has no effect on the
underlying tax attributes of the old group, such as the tax cost
and tax history of its assets. These attributes are transferred to
the head company of the new MEC group under section 719-125.
221. Despite subsections 719-130(1) and (3), where a consolidated group
is created from a MEC group as result of a conversion,
Subdivision 719-K (sections 719-550 to 719-570), together with any
other provision to the extent that it is necessary for the
application of Subdivision 719-K, will continue to apply to an
ongoing member of the group. [Schedule 5, item 15, subsection 719-
120(2) and section 719-135]
222. Subdivision 719-K determines the tax cost setting amount for pooled
interests when, among other things, an eligible tier-1 company
ceases to be a member of a MEC group. Subject to the limitations
set out in subsection 719-560(2), a pooled interest is a membership
interest that an entity, other than an entity that is a member of
the MEC group, holds in an eligible tier-1 company of the MEC
group.
223. The following provisions will continue to apply when a MEC group is
created from a consolidated group as result of a conversion:
. sections 719-300 and 719-325, which will apply only if the
conversion involves (or is due to) the acquisition of a
new eligible tier-1 company (that is an expansion) and
have the effect of:
- deeming prior group losses to be transferred losses; and
- if the group has existing bundles of transferred losses,
adjusting the available fraction for each of those
bundles and for prior group loss bundles; and
. sections 719-700 and 719-720, which apply to set the
reference time for the head company of the new MEC group
at the time the group comes into existence for any future
application of the loss integrity rules in
Subdivisions 165-CC and 165-CD.
224. Section 719-130 does not affect the operation of these provisions
because they are not triggered by an ongoing member joining a
MEC group or leaving a consolidated group.
Certain provisions do not apply because a MEC group ceases to exist
225. If the new group is a consolidated group, the following provisions
that ordinarily apply when a MEC group ceases to exist at the
conversion time, or which apply merely because the potential MEC
group of which the old group consisted ceases to exist at that
time, do not apply:
. section 719-280, which deems a continuity of ownership
test failure to happen to the head company of the MEC
group in relation to unused losses because a MEC group or
potential MEC group ceases to exist;
. section 719-465, which deems a continuity of ownership
test failure to happen to the head company of the MEC
group in relation to bad debts because a MEC group or
potential MEC group ceases to exist;
. sections 719-705 and 719-725, which deem a changeover time
and an alteration time under the loss integrity rules for
the head company of the group at the time a MEC group or
potential MEC group ceases to exist; and
. any other provision in Part 3-90, to the extent that the
application of the provision is necessary for the
application of any of those sections - this would include,
for example, other provisions in Subdivisions 719-F, 719-I
and 719-T.
[Schedule 5, item 15, section 719-140]
226. As a group conversion may not result in an actual change of
ultimate beneficial ownership, it is inappropriate to deem a
continuity of ownership test failure when a MEC group or potential
MEC group ceases to exist because of a group conversion.
227. Section 719-125 ensures that the head company of the new
consolidated group inherits the history of the old MEC group or
potential MEC group just as if the head company of the new group
had been the head company of the old group at all times before the
conversion time (including the history obtained because of the
effects under section 719-90 that arise when there is a change in
the head company of the old MEC group). Therefore:
. continuity of ownership test losses made by the old
MEC group are taken to have been made by the head company
of the new consolidated group at the time they were made;
. continuity of ownership test losses transferred to the old
MEC group are taken to have been transferred to the head
company of the new consolidated group at the time they
were transferred to the head company of the old MEC group
under Subdivision 707-A; and
. for the purposes of applying the continuity of ownership
test after the conversion time, the head company of the
new consolidated group inherits the history of any
ownership changes to the old MEC group - this will
override the ownership history of the company prior to the
time that it became the head company of the old MEC group.
228. In addition, as the new group is a consolidated group, the
provisions in Subdivision 719-F which modify the continuity of
ownership test for MEC groups will not apply to the group after the
conversion time.
Consequential amendments
229. Sections 703-65 to 703-80 contain special rules if a shelf company
is interposed into a consolidated group or MEC group and becomes
the head company of the group. When the special rules apply,
everything that happened in relation to the original head company
before the completion time is taken to have happened in relation to
the interposed company instead of in relation to the original head
company.
230. A consequential amendment will clarify that everything that
happened in relation to the original head company because of a
group conversion involving a MEC group is also taken to have
happened in relation to the interposed company (which becomes the
new head company). [Schedule 5, items 9 and 10, paragraph 703-
75(2)(d)]
231. Similarly, sections 719-90 and 719-95 set out the consequences that
arise when there is a change in the head company of a MEC group
since the previous income year. In these circumstances, everything
that happened in relation to the original head company before the
start of the income year for which there is a new head company is
taken to have happened in relation to the new head company.
232. A consequential amendment will clarify that everything that
happened in relation to the original head company because of a
group conversion involving a MEC group is also taken to have
happened in relation to the new head company. [Schedule 5,
item 14, paragraph 719-90(2)(ca)]
233. In addition, consequential amendments will clarify that:
. the members of a MEC group are the head company of the
group and the subsidiary members of the group; and
. the members of a potential MEC group are, broadly, the
eligible tier-1 companies of the group and the subsidiary
members of the group.
[Schedule 5, items 11, 12 and 16, subsection 719-25(3) and the
definition of 'member' in subsection 995-1(1)]
Circumstances in which a company is eligible to be appointed as the
provisional head company of a MEC group
234. Where the provisional head company of a MEC group ceases to be
wholly-owned by its foreign holding company (that is, a cessation
event happens), it is no longer eligible to be the head company of
the group. In these circumstances, the MEC group will need to
appoint a new provisional head company so that the group can
continue to exist.
235. Where a MEC group is created part way through an income year and a
cessation event happens to the original provisional head company in
the same income year as the MEC group was created, the new
provisional head company must have been a member of the MEC group
from the start of the original provisional head company's income
year (subparagraph 719-65(3)(d)(ii)).
236. Therefore, if the MEC group comes into existence after the start of
the original provisional head company's income year because, for
example, a MEC group is created from a consolidated group, and the
cessation event happens before the end of that income year, the
MEC group is effectively prevented from appointing a new
provisional head company because no company is capable of
satisfying the requirements in subparagraph 719-65(3)(d)(ii).
237. To overcome this difficulty, a company will be eligible to be
appointed as the new provisional head company of a MEC group in
these circumstances provided the company was a member of the
MEC group from the time the MEC group came into existence.
[Schedule 5, item 13, subparagraph 719-65(3)(d)(i)]
Application of Part 2
238. The amendments in Part 2 (other than the amendment in item 13 to
modify the circumstances in which a company is eligible to be
appointed as the provisional head company of a MEC group) apply
from 27 October 2006. That is, the amendments will apply to:
. a consolidated group that is created from a MEC group on
or after 27 October 2006; or
. a MEC group that is created from a consolidated group on
or after 27 October 2006.
[Schedule 5, item 17]
239. However, the head company of a consolidated group or MEC group can
make a choice to apply the amendments in Part 2 (other than the
amendment in item 13) from 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 17]
240. The amendments, which were announced by the former government on
27 October 2006, were sought by affected taxpayers and are
beneficial as they will significantly reduce compliance costs.
241. The option to apply the amendments from 1 July 2002 will allow
consolidated groups and MEC groups that are adversely affected by
the operation of the current law to take advantage of the
amendments, having regard to the compliance cost implications of
applying the changes retrospectively.
242. The amendment in item 13 to modify the circumstances in which a
company is eligible to be appointed as the provisional head company
of a MEC group applies from 1 July 2002. [Schedule 5, item 17]
243. This amendment, which has been sought by taxpayers, is beneficial
as it will allow greater access to certain transitional concessions
that were available on the introduction of the consolidation
regime.
Part 3 - Pre-CGT proportions
244. When an entity joins a consolidated group its membership interests
cease to be recognised for income tax purposes. If those
membership interests are pre-CGT assets (that is, interests
acquired before 20 September 1985 that have not stopped being pre-
CGT assets under the CGT provisions), the existing law preserves
this status by attributing a pre-CGT factor to the underlying
assets of the joining entity.
245. Due to the mechanics of the pre-CGT factor calculation, depending
on the circumstances, only a proportion of the pre-CGT status of
the group's membership interests in a joining entity is maintained
when that entity later leaves the group. As a result, small and
medium sized groups that have a significant proportion of pre-CGT
membership interests may be disadvantaged by electing into the
consolidation regime.
246. To overcome these concerns, the mechanism for preserving the pre-
CGT status of membership interests in a joining entity will be
modified. The new mechanism will involve working out the
proportion (measured by market value) of membership interests in
the joining entity that have pre-CGT status - that is, the pre-CGT
proportion. The pre-CGT proportion is used when an entity leaves a
consolidated group to work out the number of its membership
interests that are pre-CGT assets. [Schedule 5, items 18, 19 and
34, subsection 705-125(1) and the definition of 'pre-CGT
proportion' in subsection 995-1(1)]
247. The pre-CGT proportion is the amount worked out using the formula:
[pic]
where:
. the market value of pre-CGT membership interests is the
sum of the market value of each membership interest in the
joining entity that:
- is held by a member of the group at the joining time;
and
- is a pre-CGT asset; and
. the market value of all membership interests is the sum of
the market value of each membership interest in the
joining entity that is held by a member of the group at
the joining time.
[Schedule 5, item 20, subsection 705-125(2)]
248. When the entity ceases to be a member of the consolidated group,
subject to integrity rules, some or all of the membership interests
in the leaving entity will be treated as pre-CGT assets. [Schedule
5, items 25 and 26, subsection 711-65(1)]
249. This includes a leaving entity that ceases to be a member of a
consolidated group because it is a wholly-owned subsidiary of
another entity that ceases to be a member of the group. [Schedule
5, item 26, subsection 711-65(1A)]
250. The membership interests in the leaving entity that are treated as
pre-CGT assets is worked out using the formula:
[pic]
251. For the purposes of applying the formula, the leaving entity's pre-
CGT proportion is the amount worked out under section 705-125.
[Schedule 5, item 28, subsection 711-65(4)]
1. : Pre-CGT proportion - single class of shares
Company J has 10,000 ordinary shares on issue. Head Co owns
all 10,000 shares, 8,000 of which are pre-CGT assets. The
remaining 2,000 shares are post-CGT assets.
On 1 July 2002 Head Co forms a consolidated group.
Company J is a subsidiary member of the group. The net
market value of Company J at the joining time is $450,000.
Each share has a market value of $45.
The pre-CGT proportion of the membership interests in
Company J is calculated as follows:
[pic]
[pic]
[pic]
On 1 July 2004, Head Co sells 1,000 shares to a third party.
As a result, Company J leaves Head Co's consolidated group.
The pre-CGT proportion of Head Co's membership interests in
Company J is 80 per cent. Therefore, 8,000 shares are pre-
CGT assets.
Head Co chooses to sell 1,000 shares that are pre-CGT
assets. Therefore, of the 9,000 shares that Head Co
continues to hold in Company J:
. 7,000 shares are pre-CGT assets; and
. 2,000 shares are post-CGT assets.
2. : Pre-CGT proportion - more than one class of shares
Company Z has 50 class A shares and 50 class B shares on
issue.
Head Co owns:
. 25 of Company Z's class A shares - these shares are pre-CGT
assets as they were acquired by Head Co prior to
20 September 1985 and have not stopped being pre-CGT assets
under the CGT provisions; and
. 30 of Company Z's class B shares - these shares are post-CGT
assets as they were acquired by Head Co after
19 September 1985.
Company Y, which is wholly-owned by Head Co, owns:
. 25 of Company Z's class A shares - these shares are pre-CGT
assets as they were acquired by Company Y prior to
20 September 1985 and have not stopped being pre-CGT assets
under the CGT provisions; and
. 20 of Company Z's class B shares - these shares are post-CGT
assets as they were acquired by Company Y after
19 September 1985.
On 1 July 2003, Head Co forms a consolidated group.
Company Y and Company Z are subsidiary members of the group.
The net market value of Company Z at the joining time is
$5 million. The market value of each Class A share is
$60,000 ($3 million in total) and the market value of each
Class B share is $40,000 ($2 million in total).
The pre-CGT proportion of the membership interests in
Company Z is 60 per cent, calculated as follows:
[pic]
[pic]
[pic]
After the consolidated group is formed the following intra-
group transactions occur;
. Company Z buys back the 20 Class B shares held by Company Y
(leaving Head Co with 30 Class B shares in Company Z); and
. Company Y sells the 25 Class A shares it holds in Company Z
to another subsidiary member (Company W).
As these are intra-group transactions, they are ignored by
Head Co for income tax purposes.
On 15 May 2008, Head Co sells 25 Class A shares and 30 Class
B shares that it holds in Company Z to a third party. As a
result, Company Z leaves Head Co's consolidated group.
As Company Z has two classes of shares, the pre-CGT
proportion is applied separately to each class as if the
shares in that class were all the shares held by the old
group in the leaving entity. Therefore:
. 30 of the class A shares are pre-CGT assets
(that is, 50 × 60 per cent); and
. 18 of the class B shares are pre-CGT assets
(that is, 30 × 60 per cent).
In relation to the shares that are sold:
. Head Co chooses to treat all of the 25 Class A shares as pre-
CGT assets; and
. 18 class B shares (out of the 30 shares that are sold) are
pre-CGT assets.
Head Co continues to hold 25 Class A shares in Company Z, 5
of which are pre-CGT assets.
Application of Division 149 to the head company
252. Division 149 sets out when an asset acquired before
20 September 1985 will stop being a pre-CGT asset for CGT purposes.
253. Broadly, for an asset's pre-CGT status to be maintained, entities
must be able to demonstrate that the same ultimate owners who held
(directly or indirectly) more than 50 per cent of the beneficial
interests in the asset, and in the ordinary income derived from the
asset, just before 20 September 1985 have continued to hold more
than 50 per cent of these interests at the relevant time.
254. An integrity rule will apply to ensure broadly consistent treatment
for membership interests in a leaving entity that are taken to be
pre-CGT assets under the pre-CGT proportion rules.
255. The integrity rule will apply if the leaving entity held assets
when it became a subsidiary member of the old group (disregarding
the single entity rule (subsection 701-1(1)), and:
. some or all of the assets stopped being pre-CGT assets
under Division 149 at a time (the Division 149 time) when
they were held by the head company of the group (because
of the single entity rule), provided that the leaving
entity was a subsidiary member of the group at that time;
or
. some or all of the assets would have stopped being pre-CGT
assets under Division 149 at a time (also the Division 149
time) when they were held by the head company of the group
(because of the single entity rule) if they had been pre-
CGT assets just before that time, provided that the
leaving entity was a subsidiary member of the group at
that time.
[Schedule 5, item 30, subsection 711-70(1)]
256. If the integrity rule applies, the pre-CGT proportion of a leaving
entity at the leaving time is taken to be nil. [Schedule 5,
item 30, subsection 711-70(2)]
257. In addition, if the integrity rule applies, an adjustment may be
made to the old group's allocable cost amount for the leaving
entity.
258. The purpose of this adjustment is to provide, broadly, parity with
the outcome that would arise if Division 149 applied to an entity
that is not a member of a consolidated group. The integrity rule
adjusts the tax costs of the membership interests in the leaving
entity on the assumption that, because of Division 149, those
membership interests lost their pre-CGT status at the time when the
integrity rule applies.
259. The amount of the adjustment is worked out by comparing the amount
worked under subsection 711-70(4) (the subsection 711-70(4) amount)
with the amount worked out under subsection 711-70(6) (the
subsection 711-70(6) amount).
. If the subsection 711-70(4) amount exceeds the
subsection 711-70(6) amount, the old group's allocable
cost amount for the leaving entity is increased by the
amount of the excess.
. If the subsection 711-70(4) amount is less than the
subsection 711-70(6) amount, the old group's allocable
cost amount for the leaving entity is reduced by the
amount of the shortfall.
[Schedule 5, item 30, subsection 711-70(3)]
260. The subsection 711-70(4) amount is:
. if the tax cost setting rules in Subdivision 705-A applied
in relation to the leaving entity at the time it became a
subsidiary member of the old group, the total of the
amounts that were taken into account under subsection 711-
65(1) for membership interests in the leaving entity at
that time; or
. otherwise, the total of the amounts that would have been
taken into account under subsection 711-65(1) for
membership interests in the leaving entity at the time it
became a subsidiary member of the old group assuming that
the tax cost setting rules in Subdivision 705-A (rather
than the rules in Subdivisions 705-B or 705-D) had applied
in relation to the leaving entity at that time.
[Schedule 5, item 30, subsection 711-70(4)]
261. For these purposes, if a membership interest in the leaving entity
was a pre-CGT interest when the entity joined the group, the amount
that taken into account under subsection 711-65(1) for the
membership interest is taken to be the market value of the interest
just after the Division 149 time (rather than the amount actually
taken into account under subsection 711-65(1) at the joining time).
[Schedule 5, item 30, subsection 711-70(5)]
262. The subsection 711-70(6) amount is the amount of the old group's
allocable cost amount worked out on the assumption that the leaving
entity ceased to be a subsidiary member of the old group just after
the Division 149 time. [Schedule 5, item 30, subsection 711-70(6)]
1. : Application of Division 149 to the head company
Head Co was incorporated on 1 July 1980 with share capital
of $1,000 (1,000 ordinary shares). Suzanne and Wayne were
each issued with 500 ordinary shares in Head Co.
Subco A was incorporated on 1 July 1983 with a share capital
of $680 (680 ordinary shares). All of those ordinary shares
were immediately issued to Head Co.
Subco B was incorporated on 1 August 1983 with share capital
of $400 (400 ordinary shares). At that time, 280 ordinary
shares were issued to Subco A. Subco A acquired the
remaining 120 ordinary shares in 2000 for $1,583 (when the
market value of Subco B was $5,275).
On 1 July 2002, Head Co formed a consolidated group, with
Subco A and Subco B as subsidiary members of the group.
The market value and terminating value Subco A's assets and
liabilities as at 1 July 2002 are as follows:
|Subco A |Market value |Terminating |
| |($) |value ($) |
|Assets | | |
|Cash |930 |930 |
|Land and |3,000 |400 |
|buildings | | |
|(pre-CGT) | | |
|Shares in |5,765 |1,863 |
|Subco B | | |
|Total assets |9,695 |3,193 |
|Equity | | |
|Share capital | |680 |
|Retained taxed | |2,513 |
|profits | | |
|Total equity | |3,193 |
The pre-CGT proportion of Subco A is 100 per cent.
Under the tax cost setting rules in Division 705, the assets
brought into the group by Subco A receive the following tax
cost setting amounts:
. Cash $930
. Land and buildings (pre-CGT) $775
. Shares in Subco B $1,488
The market value and terminating value Subco B's assets and
liabilities as at 1 July 2002 are as follows:
|Subco B |Market value |Terminating |
| |($) |value ($) |
|Assets | | |
|Cash |405 |405 |
|Trading stock |2,300 |2,300 |
|Plant and |1,360 |1,360 |
|equipment | | |
|Goodwill |4,000 | 0 |
|(pre-CGT) | | |
|Total assets |5,795 |4,065 |
|Liabilities | | |
|Creditors |2,300 |2,300 |
|Net assets |5,765 |1,765 |
|Equity | | |
|Share capital | |400 |
|Retained taxed | |1,365 |
|profits | | |
|Total equity | |1,765 |
The pre-CGT proportion of Subco B is 70 per cent (that
is, 280 / 400).
Under the tax cost setting rules in Division 705, the assets
brought into the group by Subco B receive the following tax
cost setting amounts:
. Cash $405
. Trading stock $1,347
. Plant and equipment $796
. Goodwill (pre-CGT) $2,343
After formation of the consolidated group, Suzanne sells 30
of the ordinary shares she owns in Head Co to Melissa.
The share sale by Suzanne results in Division 149 applying
to:
. the pre-CGT land and buildings asset brought into the group
by Subco A; and
. the pre-CGT goodwill asset brought into the group by Subco
B.
The market value of the land and buildings asset at the time
that Division 149 applies is $3,000. Therefore, for CGT
purposes, the asset is taken to have been acquired by
Head Co for $3,000 at that time.
The market value of the goodwill asset at the time that
Division 149 applies is $4,000. Therefore, for CGT
purposes, the asset is taken to have been acquired by
Head Co for $4,000 at that time.
Division 149 adjustment to the old group's allocable cost
amount for Subco B
As Division 149 applies to the goodwill asset brought into
the group by Subco B, the pre-CGT proportion allocated to
Subco B's membership interests will be taken to be nil if it
ceases to be a subsidiary member of the group (subsections
711-70(1) and (2)).
To compensate for the loss of the pre-CGT proportion, the
old group's allocable cost amount for Subco B is adjusted
when it leaves the group.
The Division 149 adjustment is worked out in three steps.
For these purposes, it is assumed that the assets,
liabilities and market value of Subco B just after the
Division 149 time are the same as at 1 July 2002.
Step 1 is to work out the subsection 711-70(4) amount for
the membership interests in Subco B, which is the sum of:
. the amount taken into account under section 705-65(1) for
the 120 ordinary shares acquired after 20 September 1985, on
the assumption that Subdivision 705-A applied to work out
the tax cost setting amount for Subco B when it joined the
group - that is, $1,583; and
. the amount that would have been included for the 280
ordinary shares acquired prior to 20 September 1985 if
Subco B had joined the group just after the Division 149
time - that is, $4,036 (that is, $5,765 × 70 per cent).
Therefore, the subsection 711-70(4) amount is $5,619.
Step 2 is to work out the subsection 711-70(6) amount, which
is the old group's allocable cost amount for Subco B on the
assumption that if it left the group just after the Division
149 time, as follows:
. the terminating values of Subco B's assets just before the
leaving time (step 1 of the old group's allocable cost
amount) is $6,548 - that is, the sum of the following
amounts:
- Cash $405
- Trading stock $1,347
- Plant and equipment $796
- Goodwill $4,000
. reduced by the amount of Subco B's liabilities just before
the leaving time (step 4 of the old group's allocable cost
amount) - that is, $2,300.
Therefore, the subsection 711-70(6) amount is $4,248.
Step 3 is to compare the subsection 711-70(4) amount with
the subsection 711-70(6) amount. The subsection 711-70(4)
amount ($5,619) exceeds the subsection 711-70(6) amount
($4,248) by $1,371.
Therefore, if Subco B leaves the group, the old group's
allocable cost amount for Subco B will be increased by
$1,371.
Division 149 adjustment to the old group's allocable cost
amount for Subco A
As Division 149 applies to the land and buildings asset
brought into the group by Subco A, the pre-CGT proportion
allocated to Subco A's membership interests will be taken to
be nil if it ceases to be a subsidiary member of the group
(subsections 711-70(1) and (2)).
To compensate for the loss of the pre-CGT proportion, the
old group's allocable cost amount for Subco A is adjusted
when it leaves the group.
The Division 149 adjustment is worked out in three steps.
For these purposes, it is assumed that the assets,
liabilities and market value of Subco A just after the
Division 149 time are the same as at 1 July 2002.
Step 1 is to work out the subsection 711-70(4) amount for
the membership interests in Subco A. As all the membership
interests in Subco A are pre-CGT assets, the subsection 711-
70(4) amount is the amount that would have been included for
the 680 ordinary shares acquired prior to 20 September 1985
if Subco A had joined the group just after the Division 149
time - that is, $9,695.
Step 2 is to work out the subsection 711-70(6) amount, which
is the old group's allocable cost amount for Subco A on the
assumption that if it left the group just after the Division
149 time. As Subco A has no liabilities, the subsection 711-
70(6) amount is the terminating values of Subco A's assets
just before the leaving time (step 1 of the old group's
allocable cost amount). Therefore, the subsection 711-70(6)
amount is $9,549 - that is, the sum of the following
amounts:
- Cash $930
- Land and buildings $3,000
- Shares in Subco B $5,619
The terminating value for the shares in Subco B ($5,619) is
the old group's allocable cost amount for those shares just
after the Division 149 time ($4,248) increased by the
adjustment made under paragraph 711-70(3)(a) ($1,371).
Step 3 is to compare the subsection 711-70(4) amount with
the subsection 711-70(6) amount. The subsection 711-70(4)
amount ($9,695) exceeds the subsection 711-70(6) amount
($9,549) by $146.
Therefore, if Subco B leaves the group, the old group's
allocable cost amount for Subco B will be increased by $146.
Application of CGT event K6
263. CGT event K6 (section 104-230) happens if certain CGT events happen
to pre-CGT shares in a company or pre-CGT interests in a trust and,
just before the time of the event, the market value of the post-CGT
property of the company or trust, or of other entities in which the
company or trust has a direct or indirect interest, is 75 per cent
or more of the net value of the company or trust.
264. An integrity rule will apply to ensure broadly consistent treatment
for membership interests in a leaving entity that are taken to be
pre-CGT assets under the pre-CGT proportion rules.
265. The integrity rule will apply if the leaving entity ceases to be a
member of the old group and, as a result, one of the following CGT
events happens to one or more of its membership interests:
. CGT event A1 (disposal of a CGT asset);
. CGT event C2 (cancellation, surrender and similar endings
of an intangible CGT asset);
. CGT event E1 (creating a trust over a CGT asset);
. CGT event E2 (transferring a CGT asset to a trust); or
. CGT event E8 (disposal by a beneficiary of a capital
interest in a trust).
[Schedule 5, item 30, subsection 711-75(1)]
266. In these circumstances, two modifications are made to the operation
of CGT event K6 (section 104-230).
267. The first modification to the operation of CGT event K6 is that,
for the purpose of applying subsections 104-230(2) and (8) in
relation to those membership interests:
. the single entity rule (subsection 701-1(1)) is
disregarded for the purpose of working out the net value
of the leaving entity, which includes working out the
market value of both the pre-CGT and post-CGT property;
and
. subsection 104-230(2) is applied just before the leaving
time (rather than just before the other event happened).
[Schedule 5, item 30, subsection 711-75(2)]
268. The single entity rule is still taken into account for the purpose
of determining whether the property mentioned in subsection 104-
230(2) for the leaving entity was acquired on or after the 20
September 1985. Consequently, if the property is pre-CGT property
for the head company's tax purposes, then it will be pre-CGT
property for the purposes of applying subsection 104-230(2), even
if it was transferred to the leaving entity by another member of
the group after joining time.
269. In the case where two or more entities leave the group at the same
time (that is, a multiple exit (section 711-55)), the property
referred to in subsection 104-230(2) may include membership
interests in another entity which leaves the group at the leaving
time. The pre-CGT proportion rules in section 711-65 apply to
determine which of those membership interests are post-CGT assets
for the purposes of applying subsection 104-230(2).
270. As the single entity rule is disregarded for the purpose of working
out the net value of the leaving entity, intra-group acquisitions
of property by the leaving entity or the discharge or release of
intra-group liabilities may still be taken into account for the
purpose of applying subsection 104-230(8). The intra-group
transaction would be taken into account if, for example, the
acquisition, discharge or release was done for a purpose of
ensuring that the requirement in subsection 104-230(2) would not be
satisfied in a particular situation.
271. The second modification to the operation of CGT event K6 is that,
for the purpose of determining the sum of the cost bases of the
property mentioned in subsection 104-230(6), the cost base of an
asset that is included in that property is taken to be:
. if the asset has its tax cost set at the leaving time
under section 701-50 - the asset's tax cost setting
amount;
. if the terminating value of the asset is taken into
account in working out the step 1 amount under section 711-
25 for the leaving entity - the asset's terminating value;
or
. if the asset is taken into account in working out the
step 3 amount under section 711-40 for the leaving entity
- the value of the asset taken into account for that
purpose.
[Schedule 5, item 30, subsection 711-75(3)]
Consequential amendments
272. Consequential amendments will:
. modify a cross reference in subsection 705-125(4);
. repeal the existing pre-CGT factor rules in sections 705-
165, 705-205 and 705-245, the note to subsection 711-
65(2), subsection 711-65(5), sections 713-245 and 713-270;
and
. repeal the definition of 'pre-CGT factor' in
subsection 995-1(1).
[Schedule 5, items 21 to 24, 27, 29 and 31 to 33, sections 705-125,
705-165,705-205, 705-245, 711-65, 713-245, 713-270 and the
definition of 'pre-CGT factor' in subsection 995-1(1)]
Application of Part 3
273. The amendments in Part 3 apply from the date of introduction of
this Bill into the House of Representatives. That is, the
amendments will apply to an entity that joins a consolidated group
on or after that date. [Schedule 5, item 35]
274. However, the head company of a consolidated group can make a choice
to apply the amendments in Part 3 to an entity that joins a
consolidated group on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 35]
275. This option to apply the amendments from 1 July 2002 will allow
consolidated groups that are adversely affected by the operation of
the current law to take advantage of the amendments, having regard
to the compliance cost implications of applying the changes
retrospectively.
Modifications to the tax cost setting rules when an entity joins a
consolidated group
276. Under the tax cost setting rules, the tax costs of a joining
entity's assets are generally reset by allocating the joining
entity's allocable cost amount to each of the joining entity's
assets in proportion to their market value. This allocation
process ensures that, broadly, the costs incurred by the head
company to acquire the joining entity's membership interests are
pushed down into the tax costs of the underlying assets of the
joining entity.
277. The allocable cost amount is basically the sum of the cost bases of
the head company's membership interests in the joining entity held
by members of the joined group and the joining entity's
liabilities. Several adjustments are made to this amount.
278. The amendments will clarify and improve the operation of the tax
cost setting rules when an entity joins a consolidated group to:
. ensure adjustments to the allocable cost amount are not
double counted;
. clarify the operation of the adjustment to the allocable
cost amount in respect of certain pre-joining time
CGT roll-overs that applied to a joining entity's assets;
and
. phase out the over-depreciation adjustment to the
allocable cost amount.
Part 4 - No double counting of amounts in the allocable cost amount
279. Under the tax cost setting rules, several adjustments are made to
the allocable cost amount. In some circumstances the adjustments
to the allocable cost amount can be duplicated. As a result, the
tax costs allocated to the joining entity's assets can be
distorted.
280. A duplication can arise, for example, because integrity measures in
the income tax law prevent the duplication of losses by reducing
the cost base of shares. This adjustment to the cost base of
shares causes a potential double adjustment to the allocable cost
amount because:
. it may be reflected in an adjustment to step 1;
. it may be reflected in reduced undistributed profits of
the joining entity at step 3; and / or
. it may be reflected in the tax losses of the joining
entity at step 5.
281. The object of section 705-62 is to prevent a particular amount from
being taken into account more than once when calculating the
allocable cost amount for the joining entity for the purpose of
promoting the object of Subdivision 705-A. [Schedule 5, item 36,
subsection 705-62(1)]
282. The object of Subdivision 705-A, which is set out in
subsections 705-10(2) and (3), is broadly:
. to recognise the head company's cost of becoming a holder
of the joining entity's assets as an amount reflecting the
group's cost of acquiring the entity; and
. to align the costs of the assets with the costs of
membership interests, and to preserve this alignment until
the entity ceases to be a subsidiary member, in order to:
- prevent double taxation of gains and duplication of
losses; and
- remove the need to adjust costs of membership interests
in response to transactions that shift value between
them, as the required adjustments occur automatically.
283. Section 705-62 applies if two or more provisions of the income tax
law operate with the result of:
. altering the allocable cost amount for the joining entity
because of a particular economic attribute of the joining
entity; or
. altering the allocable cost amount for another entity that
becomes a subsidiary member of the group at the joining
time because of a particular economic attribute of the
joining entity.
[Schedule 5, item 36, subsection 705-62(2)]
284. The economic attributes of the joining entity include:
. the joining entity's retained profits;
. the joining entity's distributions of profits to other
entities;
. the joining entity's realised and unrealised losses;
. the joining entity's deductions;
. the joining entity's accounting liabilities (within the
meaning of subsection 705-70(1)); and
. consideration received by the joining entity for issuing
membership interests in itself.
[Schedule 5, item 36, subsection 705-62(6)]
285. Where section 705-62 applies, the head company can choose which
alteration is made. The choice must be made in writing by the day
on which the head company lodges its income tax return for the
income year in which the joining time occurs or within such further
time as the Commissioner allows. [Schedule 5, item 36,
paragraph 705-62(3)(a) and subsections 705-62(4) and (5)]
286. If the head company does not make a choice, only the alteration
that is most appropriate, in the light of the object of
Subdivision 705-A, is to be made. [Schedule 5, item 36,
paragraph 705-62(3)(b)]
1. : No double counting of adjustments to the allocable cost amount
Holding Co incorporates Admin Co with $200,000. Admin Co
uses the $200,000 to incorporate Beta Co. Beta Co realises
a tax loss of $50, and has assets of $150,000 remaining.
There is an alteration in underlying majority ownership of
Holding Co so that Subdivision 165-CD applies to reduce the
reduced cost base of Admin Co's membership interests in Beta
Co, and Holding Co's membership interests in Admin Co, by
$50,000 to $150,000. For the purposes of this example, any
tax effects arising as a result of the alteration have been
ignored.
Holding Co then forms a consolidated group.
Under the current law, the tax cost setting rules apply to
Admin Co as follows.
. Step 1 of the allocable cost amount is the reduced cost base
of Holding Co's membership interests in Admin Co (that is,
$150,000) - the reduced cost base of the membership
interests is used because the market value of those
membership interests is less than or equal to their reduced
cost base.
. No other steps apply, so Holding Co's allocable cost amount
for Admin Co is $150,000.
. This allocable cost amount will be allocated to the
membership interests in Beta Co (the only asset of Admin
Co).
Under the current law, the tax cost setting rules apply to
Beta Co as follows.
. Step 1 of the allocable cost amount is the reduced cost base
of Admin Co's membership interests in Beta Co (that is,
$150,000).
. The step 1 amount is reduced by the amount of losses
accruing to joined group before the joining time (that is,
$50,000) under step 5 of the allocable cost amount.
. Holding Co's allocable cost amount for Beta Co is $100,000.
. This allocable cost amount will be allocated to the assets
of Beta Co.
This is an inappropriate outcome. Holding Co invested
$200,000 in Admin Co which, in turn, invested $200,000 in
Beta Co. Beta Co had a tax loss of $50,000. Therefore, the
correct tax cost setting amount for both companies should be
$150,000.
Applying section 705-62, the allocable cost amount for Admin
Co will be unchanged - that is, it will continue to be
$150,000.
However, to prevent double counting, Holding Co chooses to
ignore the step 5 adjustment. This is because the loss has
already been taken into account in calculating the step 1
amount for Beta Co. As a result, the allocable cost amount
for Beta Co will be increased to $150,000.
Application of Part 4
287. The amendments in Part 4 apply from the date of introduction of
this Bill into the House of Representatives. That is, the
amendments will apply to an entity that joins a consolidated group
on or after that date. [Schedule 5, item 37]
288. However, the head company of a consolidated group can make a choice
to apply the amendments in Part 4 to an entity that joins a
consolidated group on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 37]
289. This option to apply the amendments from 1 July 2002 will allow
consolidated groups that are adversely affected by the operation of
the current law to take advantage of the amendments, having regard
to the compliance cost implications of applying the changes
retrospectively.
290. Where a choice is made to apply the amendments retrospectively (so
that the joining time occurs before the day on which this Bill
obtains Royal Assent), a transitional rule allows the choice to
determine the alteration to the allocable cost amount which is most
appropriate (that is, the choice in subsection 705-62(4)) to be
made on or before 30 June 2011, or within such further time as the
Commissioner allows. [Schedule 5, item 38]
Part 5 - Pre-joining time roll-overs
291. Step 3A (section 705-93) adjusts the allocable cost amount for a
joining entity where the joining entity has a deferred capital gain
or loss that arose because of a CGT roll-over from a foreign
resident company before the joining time.
292. The step 3A amount is also adjusted where there has been a pre-
formation time CGT roll-over of an asset from the head company to a
member of the wholly-owned group (section 705-150).
293. The adjustment at step 3A of the allocable cost amount is intended
to prevent the deferred gain or loss arising from the pre-joining
time CGT roll-over of an asset between members of the same wholly-
owned group from being included in the tax costs of a joining
entity's assets as a result of the tax cost setting process. This
adjustment removes the amount of the deferred gain or loss from the
allocable cost amount and prevents it from being indefinitely
deferred for tax purposes.
294. Currently the step 3A adjustment is deficient because, for example:
. the adjustment does not apply if a subsequent CGT event
(such as CGT event G1) happened to the roll-over asset
where that CGT event does not cause the deferred gain or
loss to be brought to account for tax purposes;
. the adjustment may apply inappropriately when an entity
becomes a member of a consolidated group after the tax
costs of its membership interests has been set under
Division 711 because it left another consolidated group;
and
. the amount of the adjustment under section 705-150 may be
incorrect.
295. To overcome these concerns, section 705-93 will be modified so that
a step 3A amount arises where:
. before the joining time, there was a Subdivision 126-B
roll-over or a former section 160ZZO roll-over in relation
to an asset (existing paragraph 705-93(1)(a));
. at the joining time, as a result of the Subdivision 126-B
roll-over or the former section 160ZZO roll-over, the roll-
over asset has a deferred roll-over gain or a deferred
roll-over loss;
. the originating company in relation to the Subdivision 126-
B roll-over, or the transferor in relation to the former
section 160ZZO roll-over:
- was a foreign resident; or
- is the head company in relation to the joined group;
. the recipient company in relation to the Subdivision 126-B
roll-over, or the transferee in relation to the former
section 160ZZO roll-over:
- was an Australian resident; and
- is a spread entity in relation to the joined group;
. if the recipient company was previously a subsidiary
member of another consolidated group, the conditions in
section 104-182 (which prevents CGT event J1 from
happening if the recipient company ceases to be a
subsidiary member of a consolidated group at the time the
group breaks up) were not satisfied at any time in
relation to the other group between:
- the time of the Subdivision 126-B roll-over and the
joining time; or
- the time of the former section 160ZZO roll-over and the
joining time;
. the roll-over asset is not a pre-CGT asset at the joining
time (existing paragraph 705-93(1)(e)); and
. the roll-over asset becomes that of the head company of
the joined group because the single entity rule
(subsection 701-1(1)) applies when the joining entity
becomes a subsidiary member of the group (existing
paragraph 705-93(1)(f)).
[Schedule 5, items 41 to 45, paragraphs 705-93(1)(a) to (d)]
296. The step 3A amount is the amount of the deferred roll-over gain or
the deferred roll-over loss. [Schedule 5, item 46, subsection 705-
93(2)]
297. If the step 3A amount is a deferred roll-over gain, the allocable
cost amount is reduced by the amount of the deferred roll-over
gain. If the step 3A amount is a deferred roll-over loss, the
allocable cost amount is increased by the amount of the deferred
roll-over loss. [Schedule 5, item 40, item 3A in the table in
section 705-60]
298. An asset has a deferred roll-over gain at a particular time if:
. before that time there was a CGT roll-over in relation to
a disposal or a CGT event that happened in relation to the
asset; and
. as a result of the roll-over, all or part of a capital
gain from the CGT event was disregarded.
[Schedule 5, item 50, paragraphs (a) and (b) of the definition of
'deferred roll-over gain' in subsection 995-1(1)]
299. The amount of the deferred roll-over gain is the amount of the
capital gain that was disregarded, reduced by the amount (if any)
by which the gain has been taken into account in working out a net
capital gain or net capital loss in relation to the asset between
the roll-over time and the particular time. [Schedule 5, item 50,
the definition of 'deferred roll-over gain' in subsection 995-1(1)]
300. An asset has a deferred roll-over loss at a particular time if:
. before that time there was a CGT roll-over in relation to
a disposal or a CGT event that happened in relation to the
asset; and
. as a result of the roll-over, all or part of a capital
loss from the CGT event was disregarded.
[Schedule 5, item 51, paragraphs (a) and (b) of the definition of
'deferred roll-over loss' in subsection 995-1(1)]
301. The amount of the deferred roll-over loss is the amount of the
capital loss that was disregarded, reduced by the amount (if any)
by which the loss has been taken into account in working out a net
capital gain or net capital loss in relation to the asset between
the roll-over time and the particular time. [Schedule 5, item 51,
the definition of 'deferred roll-over loss' in subsection 995-1(1)]
302. A stick entity, in relation to a consolidated group, means a member
of the group that is:
. the head company of the group;
. a chosen transitional entity; or
. a transitional foreign-held subsidiary.
[Schedule 5, item 53, paragraph (a) of the definition of 'stick
entity' in subsection 995-1(1)]
303. A stick entity, in relation to a MEC group, means a member of the
group that is:
. the head company of the group;
. a chosen transitional entity;
. a transitional foreign-held subsidiary; or
. an eligible tier-1 company.
[Schedule 5, item 51, paragraph (b) of the definition of 'stick
entity' in subsection 995-1(1)]
304. A spread entity, in relation to a consolidated group or a
MEC group, means a member of the group that is not a stick entity
in relation to the group. [Schedule 5, item 52, the definition of
'spread entity' in subsection 995-1(1)]
305. Section 705-147 modifies the operation of step 3A of the allocable
cost amount (section 705-93) in the case of a group formation to:
. apportion the step 3A amount among the first level
interposed entities; and
. take account of a roll-over asset that is a membership
interest in an entity that becomes a subsidiary member at
the formation time.
306. As a result of the amendments to section 705-93, consequential
amendments to section 705-147 clarify the scope of its operation
and remove redundant elements of the section. [Schedule 5,
item 47, subsection 705-147(3)]
307. Section 705-150 adjusts the step 3A amount for pre-formation time
CGT roll-overs by the head company to a subsidiary member. The
amendments broaden the scope of section 705-93. As a result,
section 705-150 is no longer necessary and is therefore being
repealed. [Schedule 5, item 48]
308. As a result of the modifications to section 705-93 and the repeal
of section 705-150, consequential amendments will:
. remove the reference to section 705-150 in paragraph 104-
505(1)(b); and
. replace the reference to section 705-150 with a reference
to section 705-93 in section 126-165 of the Income Tax
(Transitional Provisions) Act 1997.
[Schedule 5, items 39 and 54, paragraph 104-505(1)(b) of the
ITAA 1997 and section 126-165 of the Income Tax (Transitional
Provisions) Act 1997]
309. Section 705-227 modifies the operation of step 3A of the allocable
cost amount (section 705-93) for linked entities that join a
consolidated group to:
. apportion the step 3A amount among the first level
interposed entities; and
. take account of a roll-over asset that is a membership
interest in a linked entity that is held by another linked
entity.
310. As a result of the amendments to section 705-93, consequential
amendments to section 705-227 clarify the scope of its operation
and remove redundant elements of the section. [Schedule 5,
item 49, subsection 705-227(3)]
Application of Part 5
311. The amendments in Part 5 apply from 1 July 2002. [Schedule 5,
item 55]
312. These amendments, which ensure that the income tax law operates as
originally intended, prevent the duplication of capital gains in
some circumstances and therefore are beneficial to taxpayers.
Part 6 - Phasing out over-depreciation adjustments
313. In some cases the amount of the reset tax cost setting amount that
would otherwise apply to an over-depreciated asset of a joining
entity is reduced (section 701-50).
314. The over-depreciation adjustment prevents the indefinite deferral
of tax on the profits sheltered due to the over-depreciation of the
asset. This can arise where the accelerated depreciation of assets
has brought forward the joining entity's depreciation deductions,
thus deferring the payment of tax on its profits. The profits
remain untaxed when the entity joins the group where:
. the asset is over-depreciated at that time;
. the profits have been distributed to another entity that
was entitled to the former inter-corporate dividend
rebate; and
. the profits have not been distributed to another entity
that did not have access to the former inter-corporate
dividend rebate.
315. Currently, to work out whether the reset tax cost setting amount of
an over-depreciated asset of a joining entity needs to be reduced
by an over-depreciation adjustment, the joining entity needs to
determine whether it paid unfranked or partly franked dividends to
shareholders that were entitled to the former inter-corporate
dividend rebate prior to the joining time. The inter-corporate
dividend rebate for unfranked dividends was removed from
1 July 2004 following the introduction of the simplified imputation
system.
316. To reduce compliance costs, a joining entity will have to look only
at the five years of dividend history prior to the joining time to
determine whether an over-depreciation adjustment is required.
[Schedule 5, item 56, paragraph 705-50(2)(b)]
317. As a consequence, the over-depreciation adjustment ceases to have
any effect after 1 July 2009. Therefore, the over-depreciation
adjustment is being repealed with effect from that date. [Schedule
5, items 58 to 77, sections 705-50, 705-55, 705-57, 705-59, 705-
190, 713-225, 713-230, 715-900, 716-330, 716-340 and the
definitions of 'over-depreciated' and 'over-depreciation' in
subsection 995-1(1) of the ITAA 1997 and sections 126-165, 701-40
and 705-305 of the Income Tax (Transitional Provisions) Act 1997]
Application of Part 6
318. The amendments in Part 6 that modify the operation of the over-
depreciation adjustment apply in relation to entities that become
members of a consolidated group between 9 May 2007 and
30 June 2009. [Schedule 5, item 57]
319. In this regard, these amendments, which were sought by an industry
representative body, are beneficial to taxpayers as they will
significantly reduce compliance costs.
320. The amendments to repeal the over-depreciation adjustment apply in
relation to entities that become members of a consolidated group on
or after 1 July 2009. [Schedule 5, item 78]
Modifications to the tax cost setting rules when an entity leaves a
consolidated group
321. When an entity leaves a consolidated group, the tax costs of the
membership interests in the leaving entity are reconstructed. That
is, the tax cost setting amount for each membership interest held
in the leaving entity by members of the old group is worked out by,
broadly, allocating a proportion of the old group's allocable cost
amount to each membership interest (section 711-15).
322. The amendments will clarify and improve the operation of the tax
cost setting rules when an entity leaves a consolidated group to:
. clarify that the liabilities taken into account in working
out step 4 of the old group's allocable cost amount are
the liabilities held just before the leaving time; and
. ensure that an appropriate adjustment is made to the
amount included at step 4 of the old group's allocable
cost amount in respect of a liability when that liability
was taken into account in working out the allocable cost
amount for an entity that joined the group.
Division 1 of Part 7 - Leaving time liabilities: Timing
323. When an entity leaves a consolidated group, the group's cost of the
membership interests in the leaving entity is set so that it
reflects the cost to the group of the net assets of the leaving
entity. The cost of the membership interests in the leaving entity
is determined by working out the old group's allocable cost amount.
The old group's allocable cost amount broadly consists of the
terminating values of the leaving entity's assets less the value of
the liabilities and certain equity interests of the leaving entity.
324. For these purposes, the liabilities that are included in step 4 of
the old group's allocable cost amount are the liabilities of the
leaving entity at the leaving time (section 711-45).
325. In Handbury Holdings Pty Ltd v Commissioner of Taxation
[2009] FCAFC 141, a subsidiary member left a consolidated group
when a debt held by a non-group member was converted to equity.
The taxpayer argued that the debt was not included in step 4 of the
old group's allocable cost amount because it was not a liability
that the leaving entity takes with it when it ceases to be a
subsidiary member of the group.
326. The Full Federal Court concluded that subsection 711-45(1) includes
liabilities held by the leaving entity just before the leaving
time. As a result, the debt is included in step 4 of the old
group's allocable cost amount.
327. However, to remove any doubt, the amendments will clarify that
step 4 of the old group's allocable cost amount applies to
liabilities of the leaving entity that exist just before the
leaving entity ceases to be a subsidiary member of the group - that
is, just before the leaving time. [Schedule 5, items 79 to 86,
sections 711-20, 711-25, 711-45 and 713-265]
Application of Division 1 of Part 7
328. The amendments in Division 1 of Part 7 apply from the date of
introduction of this Bill into the House of Representatives. That
is, the amendments will apply to an entity that leaves a
consolidated group on or after that date. [Schedule 5, item 87]
329. However, the amendments in Division 1 of Part 7 are disregarded for
the purposes of interpreting:
. sections 711-20, 711-25, 711-45 and 713-265, as they
applied before the date of introduction of this Bill into
the House of Representatives; and
. any other provision of the ITAA 1997 or the Income Tax
(Transitional Provisions) Act 1997, as that provision
applied before the date of introduction of this Bill into
the House of Representatives, to the extent that it
relates to section 711-20, 711-25, 711-45 or 713-265.
[Schedule 5, item 87]
330. In this regard, the purpose of the amendments in Division 1 of
Part 7 is to clarify the operation of sections 711-20, 711-25, 711-
45 and 713-265. However, the amendments are not intended to alter
the practical operation of the relevant provisions as reflected by
the decision of the Full Federal Court in the Handbury Holdings
case.
Division 2 of Part 7 - Leaving time liabilities: Adjustment of the
step 4 amount
331. Currently, subsection 711-45(8) adjusts the amount of the liability
that is subtracted from the old group's allocable cost amount for a
joining entity under step 4 if:
. the liability was taken into account in working out the
allocable cost amount for a subsidiary member when it
joined a consolidated group (under Division 705);
. the entry amount of the liability taken into account at
that time is different to the step 4 exit amount of the
liability; and
. the entry allocable cost amount was different from what it
would have been if the exit amount instead of the entry
amount, had been taken into account in working it out.
332. In these circumstances, for the purpose of applying step 4, the
liability is taken to be equal to the entry amount.
333. Subsection 711-45(8) is being modified to clarify its operation and
reduce compliance costs by limiting the circumstances in which it
applies.
334. As a result, the amount of liability included at step 4 of the old
group's allocable cost amount under section 711-45 will be adjusted
under subsection 711-45(10) if the four conditions in
subsection 711-45(8) are satisfied.
335. The first condition is that subsection 711-45(5) applies to the
liability. That is, if:
. an amount (the exit liability amount) was added for the
liability under subsection 711-45(5); or
. the liability is covered by subsection 711-45(5), but no
amount was added for it under that subsection - that is,
the exit liability amount is zero.
[Schedule 5, item 88, paragraph 711-45(8)(a)]
336. Subsection 711-45(5) adjusts the amount of an accounting liability
that is subtracted from the old group's allocable cost amount if
the liability is an accounting liability that is taken into account
at a later time for income tax purposes than for accounting
purposes (such as a liability that is an employee provision or a
movement in a foreign currency liability).
337. The second condition in subsection 711-45(8) is that the liability
was taken into account in working out the allocable cost amount
(the original entry allocable cost amount) for a subsidiary member
(whether or not the leaving entity) of the old group in accordance
with Division 705. [Schedule 5, item 88, paragraph 711-45(8)(b)]
338. The third condition in subsection 711-45(8) is that the exit
liability amount is not the same as the entry liability amount.
The entry liability amount is the amount of the liability that was
taken into account in working out the original entry allocable cost
amount after any adjustments made under:
. section 705-70, 705-75 or 705-80; and
. subsection 711-45(9).
[Schedule 5, item 88, paragraph 711-45(8)(c)]
339. The entry liability amount is generally the amount of the liability
that was actually included at step 2 of the joined group's
allocable cost amount for a joining entity.
340. However, the entry liability amount is adjusted if, at a time when
the leaving entity was a subsidiary member of the old group, the
head company paid an amount which reduced the liability. In this
event, the entry liability amount is reduced by the amount of the
reduction. [Schedule 5, item 88, subsection 711-45(9)]
341. In addition, if the payment gave rise to an amount being included
in the assessable income of the head company, the entry liability
amount is further reduced by the following amount:
[pic].
[Schedule 5, item 88, subsection 711-45(9)]
342. Alternatively, if the payment gave rise to a deduction for the head
company, the entry liability amount is increased by the following
amount:
[pic].
[Schedule 5, item 88, subsection 711-45(9)]
343. Where the entry liability amount is reduced to nil after the
application of subsection 711-45(9), then the liability taken into
account at step 4 on exit will no longer be the same as the
liability taken into account on entry. Therefore, the step 4
amount for the liability will not be adjusted under subsection 711-
45(10).
344. The fourth condition in subsection 711-45(8) applies only if the
liability is:
. a provision for annual leave or long service leave; or
. a provision for a liability contingent on a future event
(such as a warranty provision).
[Schedule 5, item 88, paragraph 711-45(8)(d)]
345. In these circumstances, the step 4 amount for the liability will be
adjusted under subsection 711-45(10) only if:
. in the case of a liability that was (in accordance with
the accounting principles that the leaving entity would
have used if it had prepared its financial statements just
before the time it joined the consolidated group) a
current liability at the joining time, the leaving time
occurs less than one year after the joining time; or
. in any other case, the leaving time occurs less than four
years after the joining time.
[Schedule 5, item 88, paragraph 711-45(8)(d)]
346. The purpose of the fourth condition is to reduce compliance costs
because of the difficulty in tracking these types of liabilities.
In addition:
. in the case of a current liability, the liability would
generally have been fully paid out in the year after the
joining time; and
. in the case of a non-current liability relating to a
provision, the liability would generally have been fully
paid out within four years after the joining time.
347. Where the four conditions in subsection 711-45(8) are satisfied,
subsection 711-45(10) applies to adjust the step 4 amount:
. if the entry liability amount exceeds the exit liability
amount, the step 4 amount is increased by the amount of
the excess; or
. if the entry liability amount falls short of the exit
liability amount, the step 4 amount is reduced by the
amount of the shortfall.
[Schedule 5, item 88, subsection 711-45(10)]
1. : Provision for employee leave entitlements
Head Co acquires all of the membership interests in Company
J on 1 July 2010. As a result, Company J joins Head Co's
consolidated group.
Company J's financial reports at the joining time includes a
total liability of $275,000 that is a provision for employee
leave. Part of the liability ($55,000) is classified as a
current liability. The remainder ($220,000) is classified
as a non-current liability.
In working out the allocable cost amount for Company J at
the joining time (the original entry allocable cost amount),
the amount included at step 2 (the entry liability amount)
for the employee provision is $192,500 - that is:
. $38,500 for the current liability - in this regard,
subsection 705-75(1) applies to reduce the amount of the
accounting liability ($55,000) by the amount of the future
income tax deduction in respect of the liability ($55,000 ×
30 per cent = $16,500); and
. $154,000 for the non-current liability - in this regard,
subsection 705-75(1) applies to reduce the amount of the
accounting liability ($220,000) by the amount of the future
income tax deduction in respect of the liability
($220,000 × 30 per cent = $66,000).
After the joining time, Head Co makes leave payments of
$60,000 to employees of Company J.
On 1 August 2012, Company J leaves Head Co's consolidated
group as all of its membership interests are acquired by a
third party entity.
Company J's financial reports at the leaving time includes a
total liability of $285,000 that is a provision for employee
leave. Part of the liability ($50,000) is classified as a
current liability. The remainder ($235,000) is classified
as a non-current liability.
The amount included under subsection 711-45(1) as a
liability for the provision for employee leave is $285,000.
As Company J will be entitled to a future income tax
deduction in respect of the liability, subsection 711-45(3)
applies to reduce this amount to $199,500 - that is, by the
amount of the future income tax deduction
($285,000 × 30 per cent = $85,500).
As the liability is taken into account for income tax
purposes only when it is incurred (that is, at a later time
than the time it is recognised for accounting purposes),
subsection 711-45(5) applies to reduce the amount for the
liability at step 4 to nil - that is to the amount of the
payment that would be necessary to discharge the liability
just before the leaving time without an amount being
included in assessable income of, or allowable as a
deduction to, the head company. This overrides the amount
included at subsection 711-45(1) and the reduction at
subsection 711-45(3).
However, to the extent that the employee leave provision is
a non-current liability, the step 4 amount will be adjusted
under subsection 711-45(10) because the four conditions in
subsection 711-45(8) are satisfied.
. The first condition is satisfied because the non-current
liability is covered by subsection 711-45(5) and the exit
liability amount is nil.
. The second condition is satisfied because the non-current
liability was taken into account in working out the original
allocable cost amount for a joining entity.
. The third condition is satisfied because the exit liability
amount (nil) is not the same as the entry liability amount
($150,500) - the entry liability amount is the sum of:
- the amount taken into account at step 2 of the original
allocable cost amount - $154,000;
- reduced by the amount paid by Head Co to reduce the non-
current liability - $5,000 (that is, the amount paid by Head
Co after the joining time ($60,000) less the amount of the
current liability at that time ($55,000);
- increased by the product of the amount deducted by Head Co
($5,000) multiplied by the corporate tax rate (30 per cent)
- $1,500.
. The fourth condition is satisfied because, even though the
liability is a provision for employee leave, the liability
was a non-current liability at the joining time and the
leaving time is within four years of the joining time.
Therefore, subsection 711-45(10) applies to alter the step 4
amount for the employee leave provision. As the entry
liability amount ($150,500) exceeds the exit liability
amount (nil), the step 4 amount is increased by the amount
of the excess ($150,500).
To the extent that the employee provision is a current
liability, the step 4 amount will not be adjusted under
subsection 711-45(10). This is because the fourth condition
in subsection 711-45(8) is not satisfied in respect of the
liability - that is, the provision for employee leave was a
current liability at the joining time and the leaving time
is more than one year after the joining time.
2. : Foreign exchange liability - partial repayment after the joining
time
Head Co acquires all of the membership interests in Company
J on 1 July 2009. As a result, Company J joins Head Co's
consolidated group.
Prior to joining time Company J borrowed US$100. At that
time, A$1 was equivalent to US$0.80. Company J therefore
received A$125 cash on issue of the foreign exchange (forex)
liability.
At the joining time, A$1 is equivalent to US$0.75.
Therefore, Company J's financial reports at the joining time
include a forex liability of A$133.33 and a forex loss of
A$8.33. As the loss is not deductible for income tax
purposes, Company J has a deferred tax asset of A$2.50.
In working out the allocable cost amount for Company J at
the joining time (the original entry allocable cost amount),
the amount for the forex liability included at step 2 (the
entry liability amount) is A$130.83. In this regard, under
subsection 705-75(1), the step 2 amount is the amount of the
accounting liability (A$133.33) reduced by the amount of the
future income tax deduction in respect of the liability
($2.50).
Head Co repays US$50 of the US$100 forex liability after the
joining time. At the time of the repayment, A$1 is
equivalent to US$0.85. Therefore, Head Co makes a repayment
of A$58.82 and realises a foreign exchange gain of A$3.68
for tax purposes. After taking into account the tax cost to
Head Co of the gain, the repayment has an after-tax cost of
A$59.92 (A$3.68 × 30 per cent = A$1.10).
On 30 June 2013, Company J leaves Head Co's consolidated
group as all of its membership interests are acquired by a
non-group member.
When Company J leaves the consolidated group, A$1 is
equivalent to US$0.85. Therefore, Company J's financial
reports at the leaving time include a forex liability of
A$58.82.
The amount included under subsection 711-45(1) for the forex
liability is A$58.82.
However, as the movement in the forex liability is taken
into account for income tax purposes only when it is
incurred (that is, at a later time than the time it is
recognised for accounting purposes), subsection 711-45(5)
applies to increase the amount for the forex liability at
step 4 to A$62.50 - that is to the amount of the payment
that would be necessary to discharge the forex liability
just before the leaving time without an amount being
included in assessable income of, or allowable as a
deduction to, the head company. This overrides the amount
included at subsection 711-45(1).
The step 4 amount for the forex liability will be adjusted
under subsection 711-45(10) because the four conditions in
subsection 711-45(8) are satisfied.
. The first condition is satisfied because an amount was added
for the liability under subsection 711-45(5) - that is, the
exit liability amount is A$62.50.
. The second condition is satisfied because the liability was
taken into account in working out the original allocable
cost amount for a joining entity.
. The third condition is satisfied because the exit liability
amount (A$62.50) is not the same as the entry liability
amount (A$70.91) - the entry liability amount is the sum of:
- the amount taken into account at step 2 of the original
allocable cost amount - A$130.83;
- reduced by the amount paid by Head Co to reduce the
liability - A$58.82; and
- further reduced by the product of the amount included in
Head Co's assessable income (A$3.68) multiplied by the
corporate tax rate (30 per cent) - A$1.10.
. The fourth condition is satisfied because it does not apply
to a forex liability.
Therefore, subsection 711-45(10) applies to alter the step 4
amount for the forex liability. As the entry liability
amount (A$70.91) exceeds the exit liability amount
(A$62.50), the step 4 amount is increased by the amount of
the excess (A$8.41).
Application of Division 2 of Part 7
348. The amendments in Division 2 of Part 7 apply from the date of
introduction of this Bill into the House of Representatives. That
is, the amendments will apply to an entity that leaves a
consolidated group on or after that date. [Schedule 5, item 89]
Modifications to the tax cost setting rules when an entity joins or leaves
a consolidated group
349. Some elements of the tax cost setting rules apply both:
. when an entity joins a consolidated group; and
. when an entity leaves a consolidated group.
350. The amendments will clarify and improve the operation of the tax
cost setting rules when an entity joins or leaves a consolidated
group to:
. clarify the accounting principles that apply to determine
the accounting liabilities which are recognised under the
tax cost setting rules;
. clarify the scope and amount of the adjustment to the
allocable cost amount in respect of inherited deductions;
and
. if the joining or leaving entity is a general insurance
company, ensure that the tax cost setting rules apply
appropriately to its deferred acquisition costs, deferred
reinsurance expenses and recoveries receivable.
Part 8 - Accounting principles
351. The amendments in Part 8 clarify the accounting principles that
apply to determine the accounting liabilities which are recognised
under the tax cost setting rules when an entity joins or leaves a
consolidated group.
Modifications when an entity joins a consolidated group
352. When an entity joins a consolidated group, the allocable cost
amount for the joining entity is increased by the value of its
liabilities at the joining time (step 2 in the table in section 705-
60).
353. Generally, as a starting point, the step 2 amount includes the
value of a joining entity's liabilities that are recognised under
the accounting standards or under statements of accounting concepts
made by the Australian Accounting Standards Board.
354. Where the joining entity does not apply the accounting standards or
statements of accounting concepts to prepare a statement of its
financial position, the liabilities of the joining entity that can
or must be recognised under those standards as at the joining time
must be taken into account for the purposes of working out the
step 2 amount.
355. In Envestra Ltd v Federal Commissioner of Taxation [2008] FCA 249;
2008 ATC 20-012, the Federal Court confirmed that a joining entity
cannot adopt an accounting standard to measure a liability for
consolidation purposes if it did not adopt that accounting standard
for the recognition and measurement of the liability for financial
reporting purposes.
356. For the avoidance of doubt, the amendments will modify the tax cost
setting rules to confirm this position.
357. That is, the amendments clarify that a matter is in accordance with
the accounting principles if it is in accordance with:
. accounting standards; or
. if there are no accounting standards applicable to the
matter, authoritative pronouncements of the Australian
Accounting Standards Board that apply to the preparation
of financial statements.
[Schedule 5, item 111, the definition of 'accounting principles' in
subsection 995-1(1)]
358. In this regard, authoritative pronouncements of the Australian
Accounting Standards Board can be relevant in the preparation of
financial statements and would be considered when recognising and
measuring accounting liabilities (and other elements on the balance
sheet). These include:
. the Urgent Issue Group Interpretations;
. the Framework for the Preparation and Presentation of
Financial Statements;
. statements of accounting concepts issued by the Australian
Accounting Standards Board; and
. other authoritative pronouncements of the Australian
Accounting Standards Board.
359. Broadly, when an entity joins a consolidated group, the joining
entity's accounting principles for tax cost setting must be applied
for the purposes of working out the allocable cost amount for the
joining entity. These are the accounting principles that the
joining entity would use if it were to prepare its financial
statements just before the joining time. [Schedule 5, items 97 and
112, subsection 705-70(3) and the definition of 'accounting
principles for tax cost setting' in subsection 995-1(1)]
360. In practical terms, the joining entity's accounting principles for
tax cost setting are:
. the accounting principles that the joining entity actually
used to prepare its financial reports just before the
joining time; or
. if the joining entity did not prepare financial reports
just before the joining time, the accounting principles
that it would use if it were to prepare its financial
reports just before the joining time.
361. In this regard, if the joining entity used audited accounts as the
basis for preparing its financial reports just before the joining
time, the accounting principles applied in the preparation of those
audited accounts are the joining entity's accounting principles for
tax cost setting.
362. Therefore, for the purpose of working out step 2 of the allocable
cost amount for a joining entity, the amendments clarify that the
liabilities that are taken into account are those liabilities that,
in accordance with the joining entity's accounting principles for
tax cost setting, are liabilities of the entity. That is
. for the purpose of applying section 705-70 (other than
subsection 705-70(1A)), the liabilities of the joining
entity that are taken into account are those liabilities
that, in accordance with the joining entity's accounting
principles for tax cost setting, are liabilities of the
entity;
. the adjustment to step 2 under section 705-80, if any,
applies to an accounting liability that is taken into
account at a later time than is the case in accordance
with the joining entity's accounting principles for tax
cost setting; and
. if an adjustment is made to step 2 of the allocable cost
amount under section 705-85, the step 2 amount is
increased by, if relevant, the market value of each thing
that, in accordance with the joining entity's accounting
principles for tax cost setting, is equity in the entity
at the joining time, where the thing is also a debt
interest.
[Schedule 5, items 94, 95, 98 and 99, subsections 705-70(1), 705-
80(1) and 705-85(3)]
363. Subsection 705-70(1A) applies if the amount of an accounting
liability of a joining entity would be different when it becomes an
accounting liability of the joined group. In these circumstances,
the different amount is treated as the amount of the liability. A
consequential amendment ensures that the effect of subsection 705-
70(1A) is unchanged. [Schedule 5, item 96, subsection 705-70(1A)]
364. Finally, consequential amendments clarify that, when an entity
joins a consolidated group:
. the tax cost setting rules in relation to finance leases
under section 705-56 applies to a lease held by the
joining entity that, in accordance with its accounting
principles for tax cost setting, is classified as a
finance lease;
. the consolidation provisions apply separately to each
asset and liability even if, in accordance with accounting
principles, they are required to be set off against each
other (section 701-58);
. the exception for the treatment of linked assets and
liabilities in section 701-59 refers to the assets and
liabilities of the joining entity that, in accordance with
the entity's accounting principles for tax cost setting,
are linked; and
. the undistributed profits taken into account under step 3
of the allocable cost amount (section 705-90) are the
amounts that, in accordance with the joining entity's
accounting principles for tax cost setting, are retained
profits of the entity.
[Schedule 5, items 91 to 93, 100 and 101, subsections 705-56(1),
705-58(1), 705-59(2), and 705-90(2)]
Modifications when an entity leaves a consolidated group
365. When an entity leaves a consolidated group, the old group's
allocable cost amount is reduced by the value of the liabilities
that the leaving entity takes with it when it ceases to be a member
of the old group (step 4 in the table in section 711-20).
366. Broadly, when an entity leaves a consolidated group, the leaving
entity's accounting principles for tax cost setting must be applied
for the purposes of working out the old group's allocable cost
amount for the leaving entity. These are the accounting principles
that the group would use if it were to prepare its financial
statements just before the joining time. [Schedule 5, items 104
and 112, subsection 711-45(1A) and the definition of 'accounting
principles for tax cost setting' in subsection 995-1(1)]
367. In practical terms, the leaving entity's accounting principles for
tax cost setting are:
. the accounting principles that the group actually used to
prepare its financial reports just before the leaving
time; or
. if the group did not prepare financial reports just before
the leaving time, the accounting principles that it would
use if it were to prepare its financial reports just
before the leaving time.
368. In this regard, if the group used audited accounts as the basis for
preparing its financial reports just before the leaving time, the
accounting principles applied in the preparation of those audited
accounts are the leaving entity's accounting principles for tax
cost setting.
369. Therefore, for the purpose of working out step 4 of the old group's
allocable cost amount for a leaving entity, the amendments clarify
that the liabilities that are taken into account are those
liabilities that, in accordance with the leaving entity's
accounting principles for tax cost setting, are liabilities of the
leaving entity just before the leaving time. Therefore:
. the liabilities that are recognised under step 4 of the
old group's allocable cost amount (section 711-45) are
those things that, in accordance with the leaving entity's
accounting principles for tax cost setting, are
liabilities of the leaving entity just before the leaving
time;
. the adjustment to step 4 of the old group's allocable cost
amount under subsection 711-45(5) applies to an accounting
liability that is taken into account at a later time for
tax purposes than for accounting purposes in accordance
with the leaving entity's accounting principles for tax
cost setting; and
. if subsection 711-45(7) applies, step 4 of the old group's
allocable cost amount is increased by the market value of
each thing that, in accordance with the leaving entity's
accounting principles for tax cost setting, is equity in
the leaving entity just before the leaving time, where the
thing is also a debt interest.
[Schedule 5, items 102 to 106, subsections 711-45(1), 711-45(5) and
711-45(7)]
370. In addition, when an entity leaves a consolidated group, the
amendments clarify that the exit history rule (section 701-40)
applies, so far as is relevant, to any liability or other thing
that, in accordance with the accounting principles, is a liability.
[Schedule 5, item 90, subsection 701-40(2)]
Modifications when a partnership joins or leaves a consolidated
group
371. Under Subdivision 713-E, special modifications are made to the tax
cost setting rules when:
. an entity that is a partner in a partnership becomes a
subsidiary member of a consolidated group; or
. a partnership becomes, or ceases to be, a member of a
consolidated group.
372. The amendments modify these special rules so that:
. when a partner in a partnership becomes a subsidiary
member of a consolidated group, the modification to the
treatment of partnership liabilities under the tax cost
setting rules applies to things that, in accordance with
the accounting principles that the partnership would use
if it were to prepare financial statements just before the
joining time, are liabilities of the partnership at the
joining time; and
. when a partner in a partnership leaves a consolidated
group, the modification to the treatment of partnership
liabilities under the tax cost setting rules applies to
things that, in accordance with the accounting principles
that the partnership would use if it were to prepare
financial statements just before the leaving time, are
liabilities of the partnership at the leaving time.
[Schedule 5, items 107 to 110, subsections 713-225(6) and 713-
265(4)]
Application of Part 8
373. The amendments in Part 8 apply from the date of introduction of
this Bill into the House of Representatives. That is, the
amendments will apply to an entity that joins or leaves a
consolidated group on or after that date. [Schedule 5, item 113]
374. In this regard, the amendments are intended to remove doubt but are
consistent with the operation of the current law, as confirmed by
the Federal Court's decision in the Envestra case.
Part 9 - Inherited deductions
375. When an entity joins a consolidated group, the allocable cost
amount of a joining entity is reduced by certain deductions that
are inherited by the head company under step 7 of the allocable
cost amount (section 705-115). The purpose of this adjustment is
to ensure that inherited deductions do not give rise to both a
higher allocable cost amount and a future income tax deduction -
that is, the adjustment prevents the head company from getting a
double benefit.
376. Expenditure on certain assets acquired on or before 13 May 1997
(such as capital works expenditure on buildings) is specifically
excluded from being an inherited deduction. This preserves the
benefit of transitional provisions that grandfather the CGT cost
base treatment of these assets.
377. To ensure that this exclusion operates as intended, inherited
deductions that are covered by step 7 will not include deductions
under section 43-15 for undeducted construction expenditure in
relation to an asset if the asset was acquired by the joining
entity before 7.30 pm, by legal time in the Australian Capital
Territory, on 13 May 1997. [Schedule 5, item 114, subsection 705-
115(3)]
378. When an entity leaves a consolidated group, the old group's
allocable cost amount is increased by the amount of deductions of
the head company inherited by the leaving entity under step 2
(section 711-35).
379. A technical amendment will clarify that the step 2 amount is worked
out by multiplying all the deductions of the head company inherited
by the leaving entity by the corporate tax rate (currently
30 per cent). This will ensure that there is no duplication of the
tax benefit associated with inherited deductions when an entity
leaves a consolidated group. [Schedule 5, item 115, subsection 711-
35(1)]
380. In addition, inherited deductions that are covered by step 2 will
not include deductions under section 43-15 for undeducted
construction expenditure in relation to an asset that, because of
the exit history rule (section 701-40), the leaving entity is taken
to have acquired before 7.30 pm, by legal time in the Australian
Capital Territory, on 13 May 1997. [Schedule 5, item 116,
subsection 711-35(3)]
Application of Part 9
381. The amendments in items 114 and 116 of Part 9, which modify the tax
cost setting rules that apply when an entity joins or leaves a
consolidated group to clarify that inherited deductions do not
include certain deductions for undeducted construction expenditure,
apply from 1 July 2002. [Schedule 5, item 117]
382. These amendments, which ensure that the income tax law operates as
originally intended, reduce the adjustment for inherited deductions
under the tax cost setting rules and therefore are beneficial to
taxpayers.
383. The amendment in item 115 of Part 9, which modifies the amount of
the adjustment for inherited deductions under the tax cost setting
rules that apply when an entity leaves a consolidated group,
applies from the date of introduction of this Bill into the House
of Representatives. That is, the amendment will apply to an entity
that leaves a consolidated group on or after that date. [Schedule
5, item 117]
Part 10 - General insurance companies
384. General insurance companies are taxed on movements in the value of
the unearned premium reserve and movements in the value of the
outstanding claims liabilities.
. The unearned premium reserve broadly represents the amount
of premium income received by a general insurance company
in an income year that relates to risk coverage in a
subsequent income year.
. The outstanding claims liabilities broadly represent the
present value of the amount that a general insurance
company determines to be necessary to set aside to pay
outstanding claims.
385. A general insurance company can deduct the amount of any increase
in the value of these amounts over an income year. The amount of
any decrease in the value of these amounts over an income year is
included in assessable income.
386. The basis for working out the value of the unearned premium reserve
and the value of the outstanding claims liabilities under the
income tax law is different to the basis for working out those
amounts under the accounting standards. In particular, there are
differences between the income tax treatment and the accounting
treatment of:
. deferred acquisition costs - that is, certain costs
incurred by a general insurance company in an income year
in connection with issuing insurance policies that relate
to benefits that are received by the company in a later
income year;
. deferred reinsurance expenses - that is, certain
reinsurance expenses incurred by a general insurance
company in an income year in connection with reinsurance
policies that relate to benefits that are received by the
company in a later income year; and
. recoveries receivable - that is, amounts expected to be
received under reinsurance policies and from other sources
in relation to claims that have been incurred.
387. The differences between the income tax treatment and the accounting
treatment of deferred acquisition costs, deferred reinsurance
expenses and recoveries receivable cause distortions to arise under
the tax cost setting rules.
388. To remove these distortions, the tax cost setting rules will be
modified where a general insurance company joins or leaves a
consolidated group and brings or takes with it:
. deferred acquisition costs in relation to the company's
unearned premium reserve;
. deferred reinsurance expenses in relation to the company's
unearned premium reserve; and
. recoveries receivable in relation to the company's
outstanding claims.
[Schedule 5, item 118, subsections 713-725(1) and (4)]
389. If a general insurance company joins a consolidated group:
. the step 2 amount of the allocable cost amount for the
joining entity is reduced by the amount of the deferred
acquisition costs, deferred reinsurance expenses and
recoveries receivable; and
. the deferred acquisition costs, deferred reinsurance
expenses and recoveries receivable are taken to have a
market value of zero for the purposes of working out their
tax cost setting amount under section 705-35 - as a
result, they will have a tax cost setting amount of nil.
[Schedule 5, item 118, subsection 713-725(2)]
390. If a general insurance company leaves a consolidated group:
. the step 4 amount of the old group's allocable cost amount
for the leaving entity is reduced by the amount of the
deferred acquisition costs, deferred reinsurance expenses
and recoveries receivable; and
. the deferred acquisition costs, deferred reinsurance
expenses and recoveries receivable are taken to have a
terminating value of zero for the purposes of working out
step 1 of the old group's allocable cost amount under
section 711-25.
[Schedule 5, item 118, subsection 713-725(3)]
Application of Part 10
391. The amendments in Part 10 apply in relation to a general insurance
company that joins or leaves a consolidated group on or after
1 July 2002. [Schedule 5, item 119]
392. In this regard, the amendments, which were sought by
representatives of the general insurance industry, are beneficial
as they will reduce compliance costs by confirming existing
industry practice.
Part 11 - Retained cost base assets
393. Under the tax cost setting rules, the cost of some assets is set at
an amount that is equal to the joining entity's cost of those
assets. These assets are known as retained cost base assets (as
distinct from reset cost base assets) and include, among other
things:
. Australian currency; and
. a right to receive a specified amount of Australian
currency (such as a bank deposit).
394. The amendments will ensure that retained cost base assets include:
. units in cash management trusts; and
. certain rights to future income assets.
Division 1 of Part 11 - Cash management trusts
395. Currently units held by a joining entity in a cash management trust
are reset cost base assets. This causes undue compliance costs to
arise where the cash management trust is effectively used like a
bank account to meet day-to-day business needs. For example, a
capital gain or capital loss will arise whenever an amount is
withdrawn from the cash management trust.
396. Therefore, to reduce compliance costs, a unit in a cash management
trust will be a retained cost base asset if:
. the redemption value of the unit is expressed in
Australian dollars; and
. the redemption value of the unit cannot increase.
[Schedule 5, item 121, paragraph 705-25(5)(ba)]
397. The tax cost setting amount for a unit in a cash management trust
that is a retained cost base asset is generally equal to the amount
of Australian currency concerned - that is, the face value of the
unit. [Schedule 5, item 120, subsection 705-25(2)]
398. A cash management trust is a trust of a kind that is commonly known
as a cash management trust where all the units in the trust carry
the same rights. [Schedule 5, item 122, the definition of 'cash
management trust' in subsection 995-1(1)]
Application of Division 1 of Part 11
399. The amendments in Division 1 of Part 11 apply from the date of
introduction of this Bill into the House of Representatives. That
is, the amendments will apply to an entity that joins a
consolidated group on or after that date. [Schedule 5, item 126]
400. However, the head company of a consolidated group can make a choice
to apply the amendments in Division 1 of Part 11 to an entity that
joins a consolidated group on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 126]
401. This option to apply the amendments from 1 July 2002 will allow
consolidated groups that effectively treated units in cash
management trusts as retained cost base assets to retain that
treatment. Other consolidated groups will also be able to choose
to apply the amendments from 1 July 2002 if they wish, having
regard to the compliance cost implications of applying the changes
retrospectively.
Division 2 of Part 11 - Rights to future income assets
402. Rights to future income assets (such as work in progress) held by a
joining entity are reset cost base assets. This is appropriate if
the joining entity was acquired by the head company prior to the
joining time and held the rights to future income assets at the
time of acquisition. In these circumstances, the amount paid by
the head company to acquire the joining entity would reflect the
value of the rights to future income assets at that time.
403. However, distortions can arise under the tax cost setting rules if
rights to future income assets are owned by the group before the
joining time and accrue to the head company.
404. To overcome these distortions, rights to future income assets held
by a joining entity that accrue to the head company will be treated
as retained cost base assets.
405. That is, a right that is an asset covered by section 716-410 will
be a retained cost base asset if, at the time the right was
created:
. the head company was the head company of a consolidatable
group; and
. the joining entity was a subsidiary member of the
consolidatable group.
[Schedule 5, items 124 and 125, paragraph 705-25(5)(d)]
406. An asset is covered by section 716-410 if
. the asset is a right (including a contingent right) to
receive an amount for the doing of a thing;
. the asset is held by an entity just before the time it
becomes a subsidiary member of a consolidated group; and
. it is reasonable to expect that an amount will be included
in the assessable income of the head company of the group
after the joining time in relation to the right.
[Schedule 5, item 4, section 716-410]
407. An asset covered by section 716-410 may be solely comprised of a
right to future income. Alternatively, the asset may be right that
is embedded in a contract or agreement that includes a range of
rights and associated obligations.
408. If a right to future income asset covered by section 716-410 is a
retained cost base asset, the asset's tax cost setting amount will
be equal to the joining entity's terminating value for the asset.
[Schedule 5, item 123, subsection 705-25(4B)]
409. The asset's terminating value is generally the amount that would be
the asset's cost base just before the joining time if the asset
were a CGT asset (subsection 705-30(5)). In most cases, the
terminating value of a right to future income asset held by a
joining entity that accrues to the head company will be nil.
1. : Long-term construction contract
Head Co acquired all the membership interests in Company J
on 1 July 1999.
On 15 March 2003, Company J entered into a long-term
construction contract with a third party.
Head Co formed a consolidated group on 1 July 2003 and
Company J became a subsidiary member of the group.
At that time, Company J has partially performed work under
the construction contract that has not yet been completed to
a stage where a recoverable debt has arisen. For accounting
purposes, Company J has estimated the amount of partly
earned unbilled income as $15,000.
Substantial gross revenues are expected to be generated
under the contract with an estimated profit over the period
of the contract of $500,000. The market value of the asset
at the joining time is determined to be $215,000.
The contract is an asset that is covered by section 716-410
because:
. the asset is solely a right to receive an amount for the
doing of a thing (being the unbilled work already done and
the work yet to be done);
. the asset is held by Company J just before the time it
became a subsidiary member of Head Co; and
. it is reasonable to expect that an amount will be included
in the assessable income of Head Co after the joining time
in relation to the right.
The asset will be a retained cost base asset because it is a
right to future income asset covered by section 716-410 and,
at the time the right was created:
. Head Co was the head company of a consolidatable group; and
. Company J was a subsidiary member of the consolidatable
group.
The tax cost setting amount for the bundle of rights that
make up the contract is equal to Company J's terminating
value for the asset, being its cost base just before the
joining time. As the asset has a nil cost base at this
time, the tax cost setting amount of the contract is nil.
2. : Unbilled income for the supply of gas
Company J has been wholly-owned by Head Co since it was
incorporated on 1 July 1990.
Head Co formed a consolidated group on 1 July 2002.
Therefore, Company J became a subsidiary member of the
group.
Company J carries on the business of supplying gas to its
customers (being both domestic and commercial gas consumers)
in circumstances similar to those considered in FC of T v
Australasian Gas Light Co 83 ATC 4800; (1983) 15 ATR 105.
In its profit and loss statement for the income year ended
30 June 2002, Company J had recorded unbilled gas income of
$25,000. Its balance sheet contains an unbilled gas asset
of the same amount. The unbilled gas income is recognised
as income for accounting purposes but has not yet been
recognised as assessable income for income tax purposes in
accordance with Taxation Ruling No. IT 2095.
The unbilled gas is an asset that is covered by section 716-
410 because:
. the asset is a right to receive an amount for the doing of a
thing (being the supply of gas);
. the asset is held by Company J just before the time it
became a subsidiary member of Head Co; and
. it is reasonable to expect that an amount will be included
in the assessable income of Head Co after the joining time
in relation to the right.
The asset will be a retained cost base asset because it is a
right to future income asset covered by section 716-410 and,
at the time the right was created:
. Head Co was the head company of a consolidatable group; and
. Company J was a subsidiary member of the consolidatable
group.
The tax cost setting amount for the unbilled gas asset is
equal to Company J's terminating value for the asset, being
its cost base just before the joining time. As the asset
has a nil cost base at this time, the tax cost setting
amount of the asset is nil.
Application of Division 2 of Part 11
410. The amendments in Division 2 of Part 11 apply in relation to a
consolidated group on or after 1 July 2002. [Schedule 5, item 126]
411. In this regard, the amendments were sought by affected consolidated
groups. The amendments are beneficial as they remove distortions
that arise under the tax cost setting process.
Part 12 - Removal of CGT event L7
412. CGT event L7 (section 104-30) happens when:
. a liability that was taken into account in working out the
allocable cost amount for a subsidiary member at the
joining time is discharged for a different amount; and
. the allocable cost amount would have been different if the
discharged amount was used at the joining time.
413. A capital gain arises under CGT event L7 if the amount of the
liability ultimately discharged (the realised amount) is less than
the amount taken into account at the joining time. A capital loss
arises if the realised amount is greater than the amount taken into
account at the joining time.
414. The value of liabilities that is used for tax cost setting purposes
is generally the accounting value of those liabilities at the
joining time (section 705-70).
415. The circumstances in which liabilities are discharged for an amount
that is different to the accounting value at the joining time are
generally limited to long standing provisions for liabilities that
are contingent on future events (such as general insurance policy
liabilities, life insurance policy liabilities, warranties and
provisions for long service or annual leave).
416. In many cases movements in the value of liabilities are taxed under
other provisions of the income tax law, such as the provisions for
the taxation of financial arrangements (Division 230) and the
general insurance provisions (Division 321 in Schedule 2J to the
ITAA 1936).
417. In an arm's length acquisition case, the accounting value of the
liabilities at the joining time genuinely reflects the value of
those liabilities at that time - that is, it is the best estimate
of those liabilities at the joining time and is not open to
manipulation.
418. In addition, the value of long standing liability provisions tends
to be calculated on a pooled basis, rather than on an individual
basis. Tracking individual liabilities to determine whether the
amount included at step 2 of the allocable cost amount for an
individual liability exceeded the amount for which the liability
was discharged places an unreasonable compliance cost burden on
affected groups.
419. Therefore, as movements in the value of liabilities are usually
taxed under other provisions of the income tax law and to reduce
compliance costs, CGT event L7 (section 104-530) will be repealed.
[Schedule 5, item 128]
420. Consequential amendments will be made to:
. remove references to CGT event L7 in the table of
CGT events in section 104-5;
. remove references to CGT event L7 in the table that sets
out rules about the cost base and reduced cost base of a
CGT asset in section 110-10; and
. repeal section 701-34 of the Income Tax (Transitional
Provisions) Act 1997 (which provides that CGT event L7
does not happen in respect of certain liabilities).
[Schedule 5, items 127, 129 and 130, sections 104-5 and 110-10 of
the ITAA 1997 and section 701-34 of the Income Tax (Transitional
Provisions) Act 1997]
Application of Part 12
421. The amendments in Part 12 apply on or after 1 July 2002. [Schedule
5, item 131]
422. In this regard, the amendments are beneficial to taxpayers and will
remove an unreasonable compliance cost burden on affected groups.
423. Anecdotal evidence suggests that no capital gains or losses have
arisen under CGT event L7. However, as a transitional rule, if a
taxpayer has made a capital loss under CGT event L7 prior to the
introduction of this Bill into the House of Representatives, that
capital loss will be preserved. [Schedule 5, item 131]
Part 13 - Reduction in the tax cost setting amount that exceeds the market
value of certain retained cost base assets
424. A capital gain arises under CGT event L3 if the total tax cost
setting amounts for all retained cost base assets exceed the
joining entity's allocable cost amount (section 104-510). A
capital loss cannot arise under CGT event L3.
425. Impaired debts qualify as retained cost base assets because they
are a right to receive a specified amount of Australian currency.
The tax cost setting amount of impaired debts is the face value of
those debts at the joining time.
426. However, the face value of the debt is likely to be higher than the
amount that could be recovered under the debt (that is, the market
value of the debt). Therefore, the amount taken into account in
working out the capital gain under CGT event L3 does not reflect
the amount of the debt that is likely to be recovered.
Consequently, the capital gain arising under CGT event L3 is
overstated.
427. To overcome this concern, the tax cost setting amount of an asset
of a joining entity will be reduced if:
. the asset is a retained cost base that is a right to
receive a specified amount of Australian currency covered
by paragraph 705-25(5)(b);
. the market value of the asset is less than the tax cost
setting amount of the asset - the tax cost setting amount
is the amount of Australian currency concerned; and
. the head company makes a capital gain under CGT event L3
(disregarding this modification) as a result of the
joining entity becoming a subsidiary member of the group.
[Schedule 5, item 132, subsection 705-27(1)]
428. Where an asset satisfies these conditions, the tax cost setting
amount of the asset will be reduced by the amount of the capital
gain arising under CGT event L3, but not below zero. [Schedule 5,
item 132, subsection 705-27(1)]
429. As the tax cost setting amount of the asset is reduced, the capital
gain arising under CGT event L3 will also be reduced by an
equivalent amount (paragraph 104-510(1)(b)). The amount of the
capital gain might be reduced to nil.
430. However, the amount of the reduction under subsection 705-27(1) is
reduced if:
. the asset is an intra-group asset of the consolidated
group;
. the joining entity has been entitled to a deduction for an
income year ending on or before the joining time because
the market value of the asset is less than the specified
amount of Australian currency; and
. the accounting liability that corresponds to the asset has
not been reduced under subsection 705-75(2) because it is
an intra-group liability.
[Schedule 5, item 132, subsection 705-27(2)]
431. In these circumstances, the amount of the reduction under
subsection 705-27(1) is reduced by the amount of the deduction (but
not below zero). [Schedule 5, item 132, subsection 705-27(2)]
432. An asset is an intra-group asset if the requirements in
subsection 701-58(1) are satisfied in relation to the asset. Those
requirements are, broadly:
. the tax cost of the asset was set at the joining time
because an entity became a subsidiary member of the group;
. ignoring the operation of the single entity rule
(subsection 701-1(1)), the entity held the asset at the
joining time; and
. taking into account the operation of the single entity
rule, the head company of the group did not hold the asset
at the joining time.
433. If the tax cost setting amount of two or more of a joining entity's
assets could be reduced under subsections 705-27(1) and (2), a
reduction is made sequentially to the tax cost setting amounts of
each of those assets. [Schedule 5, item 132, paragraph 705-
27(3)(a)]
434. The head company can choose the sequence of assets to which the
reduction applies. However, if the head company does not make such
a choice, the reduction applies sequentially to each of the assets
according to the time at which they were created, from the earliest
to the latest. [Schedule 5, item 132, paragraphs 705-27(3)(b) and
(c)]
435. The head company's choice must be made by the day on which the head
company lodges its income tax return for the income year in which
the CGT event happened or within a further time allowed by the
Commissioner. The way that the head company prepares its income
tax return is sufficient evidence of the making of the choice.
[Schedule 5, item 132, subsections 705-27(4) and (5)]
436. Once the amount of the capital gain arising under CGT event L3 is
reduced to nil, no further reductions of the tax cost setting
amount can be made under section 705-27.
437. As a consequence of these changes, paragraph 705-35(1)(b) is
modified to remove a reference to section 705-25. [Schedule 5,
item 133, paragraph 705-35(1)(b)]
Application of Part 13
438. The amendments in Part 13 apply from the date of introduction of
this Bill into the House of Representatives. That is, the
amendments will apply to an entity that joins a consolidated group
on or after that date. [Schedule 5, item 134]
439. However, the head company of a consolidated group can make a choice
to apply the amendments in Part 13 to an entity that joins a
consolidated group on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 134]
440. This option to apply the amendments from 1 July 2002 will allow
consolidated groups that are adversely affected by the operation of
the current law to take advantage of the amendments, having regard
to the compliance cost implications of applying the changes
retrospectively.
Part 14 - Blackhole expenditure for MEC groups
441. In this Part, references to a consolidated group do not include a
MEC group.
442. A capital gain arises if, broadly, the capital proceeds received by
a taxpayer when a CGT event happens to a CGT asset exceed the cost
base of that asset.
443. The cost base of a CGT asset consists of five elements. One of
those elements is incidental costs incurred by the taxpayer
(section 110-35). The ninth category of incidental costs is
expenditure that:
. is incurred by the head company of a consolidated group to
an entity that is not a member of the group;
. reasonably relates to a CGT asset held by the head
company; and
. is incurred because of a transaction between members of
the group.
444. The ninth category of incidental costs was inserted into the income
tax law with effect from 1 July 2005 as part of the business
related costs amendments (section 40-880) to ensure the head
company of a consolidated group gets appropriate tax recognition
for costs paid to third parties in respect of intra-group
transactions affecting CGT assets held by the group.
445. A technical amendment will ensure that consistent treatment applies
to the head company of a MEC group that pays costs to third parties
in respect of intra-group transactions affecting CGT assets held by
the group. [Schedule 5, item 135, paragraph 110-35(10)(a)]
Application of Part 14
446. The amendments in Part 14 apply to CGT events happening on or after
1 July 2005 (that is, from the commencement of the business related
costs amendments). [Schedule 5, item 136]
447. In this regard, the amendments are beneficial as they ensure that
MEC groups get appropriate tax recognition for costs paid to third
parties in respect of intra-group transactions affecting CGT assets
they hold by the group (in the same way as consolidated groups).
Part 15 - Transitional concessions for groups with substituted accounting
periods
448. Under a transitional concession that applied when the consolidation
regime commenced, the allocable cost amount of a joining entity
could be increased by the undistributed, untaxed profits accrued to
the group before 1 July 2003 (former section 701-30 of the Income
Tax (Transitional Provisions) Act 1997). This concession provided
groups with an outcome that could be achieved through the payment
of an unfranked dividend to the head company prior to the removal
of the inter-corporate dividend rebate.
449. This transitional concession applied to:
. a consolidated group that came into existence before
1 July 2003; or
. a consolidated group that came into existence between
1 July 2003 and 30 June 2004, but only if it came into
existence on the first day of the income year of the head
company starting after 30 June 2003.
450. The transitional concession will be modified so that, where a
consolidated group came into existence between 1 July 2003 and
30 June 2004, the concession applies only if the group came into
existence on or before the first day of the income year of the head
company starting after 30 June 2003. [Schedule 5, items 137 and
138, subsection 701-30(1) of the Income Tax (Transitional
Provisions) Act 1997]
451. Therefore, if the head company of a consolidated group had a
substituted accounting period that ended, for example, on
31 March 2004, a joining entity can access the transitional
concession provided the group came into existence on or before
31 March 2004.
Application of Part 15
452. The amendments in Part 15 apply to a consolidated group only if the
head company of the group makes a choice to apply the amendments.
The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 139]
Revocation of choice for transitional entities
453. Under section 701-1 of the Income Tax (Transitional Provisions) Act
1997 a consolidated group could access the transitional concessions
that applied at the commencement of the consolidation regime if:
. the group qualified as a transitional group; and
. an entity which joined the group qualified as a
transitional entity.
454. The transitional concessions applied to a transitional entity only
if the head company of the group made a choice for the entity to be
a chosen transitional entity (section 701-5 of the Income Tax
(Transitional Provisions) Act 1997). The choice for the entity to
be a chosen transitional entity was irrevocable, unless the
revocation took place before 1 January 2006 (subsection 701-5(4) of
the Income Tax (Transitional Provisions) Act 1997).
455. A transitional rule will extend the period for revoking an
irrevocable choice that was made before 1 January 2006 where:
. the head company of a consolidated group makes a choice to
apply the modification made by Part 15; and
. the group came into existence:
- on or after 1 July 2003; and
- on a day other than the first day of the income year of
the head company starting after 1 July 2003.
[Schedule 5, item 140]
456. In these circumstances, the head company will be able to revoke a
choice that was made before 1 January 2006 for a transitional
entity to be, or not to be, a chosen transitional entity. The head
company will be able to revoke its earlier choice within six months
of this Bill receiving Royal Assent. [Schedule 5, item 140]
457. The purpose of this transitional amendment is to ensure that
affected consolidated groups can effectively access the relevant
transitional concessions.
Part 16 - Loss multiplication rules for widely held companies
458. If one or more entities are interposed between individual
shareholders and a company with realised or unrealised losses (a
loss company), the company's losses could be reflected in the value
of shares and loans held between such entities (inter-entity
interests) when they are sold or otherwise realised.
459. The inter-entity loss multiplication rules in Subdivision 165-CD
ensure that the economic losses of companies do not get
inappropriate multiple tax recognition when inter-entity interests
are sold or otherwise realised. Section 165-115K provides that the
inter-entity loss multiplication rules apply where, broadly:
. an alteration time happens in respect of a loss company;
and
. an entity has relevant equity interests or relevant debt
interests in the loss company immediately before the
alteration time.
460. Section 165-115X provides that an entity (other than an individual)
has a relevant equity interest in a loss company at a particular
time if, broadly:
. the entity has a controlling stake in the loss company;
and
. the entity directly or indirectly has interests in the
loss company that give it control of, or the ability to
control, (either directly or indirectly through interposed
entities) 10 per cent or more of the voting power,
dividend rights, or capital distribution rights of the
loss company.
461. However, a company will not have a relevant equity interest if it
satisfies the exception in subsection 165-115X(3).
462. Similarly, section 165-115Y provides that an entity (other than an
individual) has a relevant debt interest in a loss company at a
particular time if, broadly, the entity has a controlling stake in
the loss company and:
. the entity is owed a debt by the loss company of not less
than $10,000; or
. the entity is owed a debt by an entity (the debtor entity)
other than the loss company of not less than $10,000 where
the debtor entity has a relevant equity interest or
relevant debt interest in the loss company.
463. However, a company will not have a relevant debt interest if it
satisfies the exception in subsection 165-115Y(4).
464. Widely held companies have difficulty in satisfying the exceptions
in subsections 165-115X(3) and 165-115Y(4). As a result, in some
circumstances the losses of a loss company receive no tax
recognition at all.
465. To address these concerns, the inter-entity loss multiplication
rules will be modified to make it easier for widely held companies
to claim capital losses or deductions on the disposal of direct and
indirect interests in loss companies. These modifications will
significantly reduce compliance costs for widely held companies.
466. A 'widely held company' is defined in subsection 995-1(1) to mean,
broadly:
. a company whose shares are listed for quotation in the
official list of an approved stock exchange; or
. a company that has more than 50 members, unless no more
than 20 persons had rights to at least 75 per cent of the
value of the shares in the company or at least 75 per cent
of the voting power or dividend rights of the company.
Circumstances in which a widely held company will have a relevant
equity interest
467. For the purpose of applying the inter-entity loss multiplication
rules, a widely held company will not have a relevant equity
interest in a loss company at a particular time unless an entity
has a controlling stake in the loss company and that entity has a
direct or indirect interest in, or is owed a debt by, the widely
held company in respect of which:
. the entity could, if a CGT event happened in respect of
the interest or debt, make a capital loss (other than a
capital loss that would be disregarded) that reflects any
part of the loss company's overall loss; or
. the entity has deducted or can deduct, or could deduct at
a later time, an amount in respect of the cost of the
acquisition, or a net loss on the disposal, of the
interest or debt, where the deduction reflected or would
have reflected, or would reflect, any part of the loss
company's overall loss.
[Schedule 5, item 141, subsections 165-115X(2A) and (2B)]
468. However, subsection 165-115X(2A) will not apply to a widely held
company in respect of a particular time if an entity that had a
direct or indirect interest in, or was owed a debt by, the widely
held company at an earlier time, and had a controlling stake in the
loss company at that earlier time:
. made a capital loss (other than a capital loss that was
disregarded) because a CGT event happened in respect of
the interest or debt, where the capital loss reflected any
part of the loss company's overall loss; or
. has deducted or could have deducted at an earlier time, or
could deduct at a later time, an amount in respect of the
cost of the acquisition, or a net loss on the disposal, of
the interest or debt, where the deduction reflected or
would have reflected, or would reflect, any part of the
loss company's overall loss.
[Schedule 5, item 141, subsection 165-115X(2C)]
469. Consequential amendments will clarify that subsections 165-115X(3)
and (4), which exclude certain interests from being relevant equity
interests, do not apply to widely held companies. [Schedule 5,
items 142 and 143, subsections 165-115X(3A) and (4)]
Circumstances in which a widely held company will have a relevant
debt interest
470. For the purpose of applying the inter-entity loss multiplication
rules, a widely held company will not have a relevant debt interest
in a loss company at a particular time unless an entity has a
controlling stake in the loss company and that entity has a direct
or indirect interest in, or is owed a debt by, the widely held
company in respect of which:
. the entity could, if a CGT event happened in respect of
the interest or debt, make a capital loss (other than a
capital loss that would be disregarded) that reflects any
part of the loss company's overall loss; or
. the entity has deducted or can deduct, or could deduct at
a later time, an amount in respect of the cost of the
acquisition, or a net loss on the disposal, of the
interest or debt, where the deduction reflected or would
have reflected, or would reflect, any part of the loss
company's overall loss.
[Schedule 5, item 144, subsections 165-115Y(3A) and (3B)]
471. However, subsection 165-115Y(3A) will not apply to a widely held
company in respect of a particular time if an entity that had a
direct or indirect interest in, or was owed a debt by, the widely
held company at an earlier time, and had a controlling stake in the
loss company at that earlier time:
. made a capital loss (other than a capital loss that was
disregarded) because a CGT event happened in respect of
the interest or debt, where the capital loss reflected any
part of the loss company's overall loss; or
. has deducted or could have deducted at an earlier time, or
could deduct at a later time, an amount in respect of the
cost of the acquisition, or a net loss on the disposal, of
the interest or debt, where the deduction reflected or
would have reflected, or would reflect, any part of the
loss company's overall loss.
[Schedule 5, item 144, subsection 165-115Y(3C)]
472. Consequential amendments will clarify that subsections 165-115Y(4)
and (5), which exclude certain interests from being relevant debt
interests, do not apply to widely held companies. [Schedule 5,
items 145 and 146, subsections 165-115Y(4A) and (5)]
Application of the inter-entity loss multiplication rules to
consolidated groups
473. Subdivision 715-B clarifies how the inter-entity loss
multiplication rules in Subdivision 165-CD apply when a company or
trust leaves a consolidated group.
474. Consequential amendments will ensure that:
. the consequences which arise under section 715-255 when a
loss company leaves a consolidated group apply only if the
head company has a relevant equity interest under
section 165-115X in the leaving entity at the leaving
time;
. the consequences which arise under section 715-270 when a
trust that is taken to be a loss company leaves a
consolidated group apply only if the head company has a
relevant equity interest under section 165-115X in the
leaving entity at the leaving time; and
. for the purposes of determining whether the head company
has a relevant equity interest in a loss company or trust
that leaves a consolidated group, the operation of the
single entity rule (subsection 701-1(1)) is disregarded in
applying subsections 165-115X(2C) and (4).
[Schedule 5, items 147 to 150, paragraph 715-255(1)(ba),
subsections 715-255(1A), 715-270(5) and (5A)]
Application of the inter-entity loss multiplication rules to MEC
groups
475. Subdivision 719-T clarifies how the inter-entity loss
multiplication rules in Subdivision 165-CD apply to MEC groups.
476. A MEC group is wholly-owned by a foreign resident top company. The
amendments modify the operation of the inter-entity loss
multiplication rules for MEC groups where the foreign resident top
company is a widely held company.
477. The amendments apply for the purpose of determining whether the
head company of a MEC group has a relevant equity interest or
relevant debt interest in a loss company at a particular time -
that is:
. at the time that section 715-255 or 715-270 applies; or
. at the time the head company disposes of an equity
interest or a debt interest in a loss company that is not
a member of the MEC group.
478. That is, for the purpose of applying the inter-entity loss
multiplication rules in Subdivision 165-CD, the head company of a
MEC group is treated as not having a relevant equity interest or
relevant debt interest in a loss company at a particular time if
the top company of the group is a widely held company at that time,
and
. if the interest is an equity interest - because of
subsections 165-115X(2A), (2B) and (2C), the top company
does not have a relevant equity interest under section 165-
115X in the loss company at that time; or
. if the interest is a debt interest - because of
subsections 165-115Y(3A), (3B) and (3C), the top company
does not have a relevant debt interest under section 165-
115Y in the loss company at that time.
[Schedule 5, item 151, subsections 719-740(1) and (3)]
479. In addition, if the interest is an equity interest, for the
purposes of paragraph 719-740(1)(b), the operation of the single
entity rule (subsection 701-1(1)) is disregarded in determining
whether subsection 165-115X(2C) has the effect that the top company
has a relevant equity interest under section 165-115X in the loss
company at a particular time. [Schedule 5, item 151,
subsection 719-740(2)]
Application of Part 16
480. The amendments in Part 16 apply on or after 1 July 2002. [Schedule
5, item 152]
481. In this regard, the amendments are beneficial to, and have been
sought by, taxpayers as they will make it easier make it easier for
widely held companies to claim capital losses or deductions on the
disposal of direct and indirect interests in loss companies. These
modifications will significantly reduce compliance costs for widely
held companies.
Part 17 - CGT straddles
482. Under the CGT rules, a capital gain or loss arises when a CGT event
happens to a CGT asset. For a number of CGT events, the CGT event
is taken to happen at a time which is different to the time when
the capital proceeds are received.
483. For example CGT event A1 happens when there is a change in
beneficial ownership of a CGT asset (subsections 104-10(1) and
(2)). In most cases the change in beneficial ownership of the CGT
asset will occur at the time of settlement of a contract or when
the capital proceeds are received. However, if the CGT event
happened because the taxpayer entered into a contract, CGT event A1
is taken to happen at the time when the contract was entered into
(subsection 104-10(3)).
484. Difficulties arise where the period between the time that the
contract is entered into and the time of settlement straddles the
time that an entity joins or leaves a consolidated group. That is,
for example:
. if an entity enters into a contract to dispose of a CGT
asset, and, prior to settlement, the entity joins a
consolidated group - the entry-sell case; or
. if a member of a consolidated group enters into a contract
to dispose of a CGT asset, and prior to settlement, the
member leaves the group - the exit-sell case.
485. In these circumstances, the entity that entered into the contract
(and makes a capital gain or loss) is different to the entity that
holds the asset at the time of settlement (and receives the capital
proceeds).
486. To overcome these difficulties, the CGT timing rules will be
modified when an entity joins or leaves a consolidated group and
the CGT event straddles the joining or leaving time.
487. In the entry-sell case, the CGT event in relation to a CGT asset
will be taken to happen at the time when the circumstances that
gave rise to the CGT event first existed if:
. an entity becomes a subsidiary member of a consolidated
group;
. disregarding the operation of the single entity rule
(subsection 701-1(1)), the joining entity held the
CGT asset at the joining time;
. taking into account the operation of the single entity
rule, the head company of the group held the CGT asset at
the joining time; and
. a CGT event happened in relation to the asset at a time
before the joining time, but the circumstances that gave
rise to the CGT event first existed at a time on or after
the joining time.
[Schedule 5, item 153, subsections 716-860(1) and (3)]
488. In the exit-sell case, the CGT event in relation to a CGT asset
will be taken to happen at the time when the circumstances that
gave rise to the CGT event first existed if:
. an entity ceases to be a subsidiary member of a
consolidated group;
. taking into account the operation of the single entity
rule, the head company of the group held the asset just
before the leaving time;
. disregarding the operation of the single entity rule, the
leaving entity held the asset just after the leaving time;
and
. a CGT event happened in relation to the asset at a time
before the leaving time, but the circumstances that gave
rise to the CGT event first existed at a time on or after
the leaving time.
[Schedule 5, item 153, subsections 716-860(2) and (3)]
489. A CGT event will straddle the joining or leaving time generally if
the CGT event arises where a contract or some other agreement has
been entered before the joining or leaving time - that is, when CGT
event A1, C2, D3, E8, F1, F4 or F5 happens to a CGT asset. The
modified timing rule for each of these events is outlined in Table
5.1.
1. : Modified CGT timing rules where a CGT event straddles the
joining or leaving time
|CGT event |Time the CGT event|Time the |
| |ordinarily happens|circumstances that|
| | |gave rise to the |
| | |CGT event first |
| | |existed |
|A1 - Disposal of a|When the contract |When the change of|
|CGT asset |is entered into. |beneficial |
| | |ownership occurs. |
|C2 - Cancellation,|When the contract |When ownership of |
|surrender and |is entered into. |the intangible |
|similar endings | |asset ends. |
|D3 - Granting a |When the contract |When the right to |
|right to income |is entered into. |receive ordinary |
|from mining | |income or |
| | |statutory income |
| | |is granted. |
|E8 - Disposal by |When the contract |When the change of|
|beneficiary of a |is entered into. |beneficial |
|capital interest | |ownership of the |
| | |beneficiary's |
| | |interest occurs. |
|F1 - Granting a |When the contract |When the lease, or|
|lease |is entered into. |the renewal or |
| | |extension of the |
| | |lease, starts. |
|F4 - Lessee |When the term of a|When the payment |
|receives payment |lease is varied or|from the lessor is|
|for changing a |waived. |received. |
|lease | | |
|F5 - Lessor |When the term of a|When the payment |
|receives payment |lease is varied or|from the lessee is|
|for changing a |waived. |received. |
|lease | | |
1. : CGT straddle - The entry-sell case
Sub Co enters into a contract to sell an asset on 1 May
2010. On 1 June 2010, Head Co acquires Sub Co. As a
result, Sub Co becomes a subsidiary member of Head Co's
consolidated group. The contract settles on 1 August 2010.
Head Co will make a capital gain or loss under CGT event A1
at the time when the circumstances that gave rise to the CGT
event first existed - that is, when the change in beneficial
ownership of the asset occurs. This would be the time of
settlement of the contract.
2. : CGT straddle - The exit-sell case
Sub Co is a member of Head Co's consolidated group. Head Co
enters into a contract to sell an asset on 1 May 2010. On 1
June 2010, Sub Co leaves the consolidated group and takes
the CGT asset with it. The contract settles on 1 July 2010.
Sub Co will make a capital gain or loss under CGT event A1
at the time when the circumstances that gave rise to the CGT
event first existed - that is, when the change in beneficial
ownership of the asset occurs. This would be the time of
settlement of the contract.
Application of Part 17
490. The amendments in Part 17 apply in relation to CGT events that
happen after 8 May 2007 - that is, after the date of announcement.
[Schedule 5, item 154]
491. In this regard, the amendments are beneficial as they provide
certainty to taxpayers and potentially prevent double taxation.
Part 18 - Choice to consolidate
492. A consolidated group is formed when the head company of a
consolidatable group makes a choice to form a consolidated group
(section 703-50). Currently, notice of the choice in the approved
form must be given to the Commissioner. The group is taken to be
consolidated from the day specified in the choice.
493. Similarly, a MEC group is formed when, broadly:
. a choice is made by two or more eligible tier-1 companies
of a top company (that is, broadly, the foreign resident
owner of the group), which is given to the Commissioner in
the approved form, that the potential MEC group derived
from the eligible tier-1 companies is to be consolidated
(section 719-50); or
. a special conversion event happens to a potential MEC
group derived from the eligible tier-1 company of a top
company, which is notified to the Commissioner in the
approved form (section 719-40).
494. Further, if a company becomes a new eligible tier-1 company of a
top company after a MEC group comes into existence, the provisional
head company must give the Commissioner a notice in the approved
form in order for that new eligible tier-1 company to become a
member of the MEC group (section 719-5).
495. Finally, if a cessation event happens to the provisional head
company of a MEC group, the eligible tier-1 companies that are or
were members of the group immediately after the cessation event may
make a choice to appoint a new provisional head company. The
choice must be given to the Commissioner in the approved form
within 28 days of the cessation event (section 719-60).
496. The requirement that these choices must be given to the
Commissioner in the approved form for the choice to have effect is
causing administrative difficulties. Cases have arisen where
wholly-owned corporate groups have operated for several years on
the basis that they have formed a consolidated group or MEC group,
without having made an effective choice to consolidate because of a
technical deficiency in completing the approved form.
497. This problem was compounded by a recent court decision
(MW MacIntosh Pty Ltd v Commissioner of Taxation [2009] FCAFC 88)
which has caused some practical difficulties relating to the time
that the choice must be made.
498. To overcome these concerns, the amendments will modify the
mechanism for making the following choices:
. the choice to consolidate a consolidatable group;
. the choice to consolidate a potential MEC group;
. the choice to consolidate a potential MEC group following
a special conversion event;
. the choice for a new eligible tier-1 company to become a
member of a MEC group; and
. the choice for a new provisional head company to be
appointed to a MEC group after the group has formed.
499. These choices will no longer need to be given to the Commissioner
in the approved form to be effective. Instead, the choice will
need to be made in writing but will not need to be given to the
Commissioner. However, the head company of the group must give the
Commissioner relevant information relating to the choice.
500. Therefore, the amendments will alleviate the administrative
difficulties that arise when, for example:
. a head company of a consolidatable group or potential
MEC group has inadvertently failed to notify the
Commissioner of a choice to consolidate by a specified day
but nevertheless has lodged an income tax return on the
basis that the group was consolidated from that day;
. a consolidatable group or potential MEC group has chosen
to consolidate but has inadvertently notified the
Commissioner of the choice using the wrong approved form;
or
. the approved form notifying the Commissioner that a
consolidatable group or potential MEC group has chosen to
consolidate contains a clerical error that has the effect
of making the choice to consolidate ineffective.
501. In these circumstances, the amendments will ensure that a choice to
consolidate a consolidatable group or potential MEC group remains
effective despite the administrative defects relating to the
written notice notifying the Commissioner of that choice.
Choice to consolidate a consolidatable group
502. The head company of a consolidatable group can make a choice to
form a consolidated group from the day specified in the choice.
The choice must be in writing. [Schedule 5, item 155,
subsection 703-50(1)]
503. The choice must be made no later than:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - the day on which the
company gives its income tax return to the Commissioner
for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, item 157, subsection 703-50(3)]
504. A choice that is made in writing under section 703-50 to
consolidate a consolidatable group does not need to be given to the
Commissioner.
505. However, if a consolidated group comes into existence from a day
specified in a choice that is made under section 703-50 to
consolidate a consolidatable group, the head company of the group
must give the Commissioner a notice in the approved form containing
the following information:
. the identity of the head company;
. the day specified in the choice on which the
consolidatable group is taken to consolidate;
. the identity of each subsidiary member of the group on
that day;
. the identity of each entity that was a subsidiary member
of the group on that day but has left the group when the
notice is given;
. the identity of each entity that was not a subsidiary
member of the group on that day but joined the group after
that day and is a subsidiary member of the group when the
notice is given; and
. the identity of each entity that joined the group after
that day but is no longer a subsidiary member of the group
when the notice is given.
[Schedule 5, items 156 and 159, subsections 703-50(1) and 703-
58(1)]
506. The notice must be given to the Commissioner:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - by the day on which
the company gives its income tax return to the
Commissioner for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - by
the last day in the period within which the company would
be required to give the Commissioner such a return if it
were required to give the Commissioner such a return.
[Schedule 5, item 159, subsection 703-58(2)]
507. If the notice under section 703-58 contains a technical defect,
that defect does not affect the choice to consolidate a
consolidatable group.
508. Consequential amendments will:
. remove redundant provisions that have the effect of making
the choice ineffective if it contains incorrect
information and allow the Commissioner to give effect to
the choice despite the wrong information;
. ensure that the operation of paragraphs 701-5(2)(a)
and 701D-15(3)(a) of the Income Tax (Transitional
Provisions) Act 1997 are unaffected by the amendments; and
. ensure that the operation of paragraph 45-885(1)(e) of the
Taxation Administration Act 1953 (TAA 1953) is unaffected
by the amendments.
[Schedule 5, items 158, 189 to 191, subsections 703-50(5) and (6)
of the ITAA 1997, paragraphs 701-5(2)(a) and 701D-15(3)(a) of the
Income Tax (Transitional Provisions) Act 1997 and paragraph 45-
885(1)(e) of the TAA 1953]
509. When an entity joins or leaves a consolidated group, or when a
consolidated group ceases to exist, notification in the approved
form of the event must generally be given to the Commissioner
within 28 days of the event (subsection 703-60(1)). The time for
giving the notification to the Commissioner is modified where
certain events happen before the Commissioner is notified that the
group has come into existence (subsections 703-60(2) and (3)).
510. Consequential amendments will ensure that the effect of
subsections 703-60(2) and (3) is maintained.
511. That is, subsection 703-60(2) modifies the time for giving notice
to the Commissioner that an entity joins or leaves a consolidated
group, or that a consolidated group ceases to exist, where:
. the consolidated group comes into existence on a day
specified in a choice under section 703-50; and
. the notifiable event happens before the relevant notice is
given to the Commissioner under section 703-58.
[Schedule 5, item 160, subsection 703-60(2)]
512. In these circumstances, the head company of the group must give the
Commissioner notice in the approved form of the event no later
than:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - the day on which the
company gives its income tax return to the Commissioner
for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, items 161 and 162, subsections 703-60(2) and (2A)]
513. Similarly, subsection 703-60(3) modifies the time for giving notice
to the Commissioner that an entity joins or leaves a consolidated
group, or that a consolidated group ceases to exist, where:
. the consolidated group comes into existence at a time
under subsection 703-55(1) because a MEC group ceased to
exist at that time;
. the MEC group came into existence under paragraph 719-
5(1)(a) because a choice under section 719-50 is made
after that time; and
. the event happens before the relevant notice is given to
the Commissioner under section 719-76.
[Schedule 5, items 163 and 164, subsection 703-60(3)]
514. In these circumstances, the head company of the group must give the
Commissioner notice in the approved form of the event no later
than:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - the day on which the
company gives its income tax return to the Commissioner
for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, items 165 and 166, subsections 703-60(3) and (4)]
Choice to consolidate a potential MEC group
515. The eligible tier-1 companies of a potential MEC group can jointly
make a choice to form a MEC group on and after the day specified in
the choice. The choice must be in writing. [Schedule 5, item 172,
subsection 719-50(1)]
516. The choice must be made no later than:
. if the head company of the MEC group is required to give
the Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
day on which the company gives its income tax return to
the Commissioner for that income year; or
. if the head company of the MEC is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, item 178, subsections 719-50(3) and (3A)]
517. A choice to consolidate a potential MEC group under section 719-50
is taken to have effect from the day specified in the choice.
[Schedule 5, item 180, section 719-55]
518. However, only the eligible tier-1 companies that exist on a
particular day can choose to consolidate a potential MEC group from
the day the choice takes effect. The MEC group that results from
the choice to consolidate a potential MEC group cannot include an
eligible tier-1 company of a top company that did not exist at the
time the choice takes effect. In this regard, an eligible tier-1
company of a top company that comes into existence after the MEC
group has formed can join the MEC group from the time that it comes
into existence (subsection 719-5(4)).
519. The choice that is made in writing under section 719-50 to
consolidate a potential MEC group does not need to be given to the
Commissioner.
520. However, if a MEC group comes into existence on a day specified in
a choice that is made under section 719-50 to consolidate a
potential MEC group, the head company of the group must give the
Commissioner a notice in the approved form containing the following
information:
. the identity of the head company;
. the day specified in the choice on which the MEC group
comes into existence;
. the identity of each eligible tier-1 company of the top
company in relation to the MEC group on that day;
. the identity of each subsidiary member of the group on
that day;
. the identity of each entity that was a subsidiary member
of the group on that day but has left the group when the
notice is given;
. the identity of each entity that was not a subsidiary
member of the group on that day but joined the group after
that day and is a subsidiary member of the group when the
notice is given; and
. the identity of each entity that joined the group after
that day but is no longer a subsidiary member of the group
when the notice is given.
[Schedule 5, items 177 and 183, subsections 719-50(1), 719-76(1)
and (2)]
521. The notice must be given to the Commissioner:
. if the head company of the MEC group is required to give
the Commissioner an income tax return for the income year
during which the day specified in the choice occurs - by
the day on which that the company gives its income tax
return to the Commissioner for that income year; or
. if the head company of the MEC group is not required to
give the Commissioner an income tax return for the income
year during which the day specified in the choice occurs -
by the last day in the period within which the company
would be required to give the Commissioner such a return
if it were required to give the Commissioner such a
return.
[Schedule 5, item 183, subsection 719-76(3)]
522. If the notice under section 719-76 contains a technical defect,
that defect does not affect the choice to consolidate a potential
MEC group.
523. Consequential amendments will:
. ensure that subsection 719-50(4) continues to apply when a
company ceases to be an eligible tier-1 company before a
notice under section 719-76 is given to the Commissioner;
. remove redundant provisions that have the effect of making
the choice ineffective if it contains incorrect
information and allow the Commissioner to give effect to
the choice despite the wrong information; and
. ensure that the operation of section 45-935 of the TAA
1953 is unaffected by the amendments.
[Schedule 5, items 179, 180 and 192, paragraph 719-50(4)(b) and
section 719-55 of the ITAA 1997 and section 45-935 of the TAA 1953]
524. When an entity joins or leaves a MEC group, or when a cessation
event happens to the provisional head company of a MEC group,
notification in the approved form of the event must generally be
given to the Commissioner within 28 days of the event (section 719-
80). The time for giving the notification to the Commissioner is
modified where certain events happen before the Commissioner is
notified that the group has come into existence.
525. Consequential amendments will ensure that the effect of section 719-
80 is maintained.
526. That is, subsection 719-80(2) modifies the time for giving notice
to the Commissioner that an entity joins or leaves a consolidated
group, or when a cessation event happens to the provisional head
company of a MEC group, where:
. the MEC group comes into existence because of a choice
under section 719-50; and
. the event happens before the relevant notice is given to
the Commissioner under section 719-76.
[Schedule 5, item 184, paragraph 719-80(2)(a)]
527. In these circumstances, the head company of the group must give the
Commissioner notice in the approved form of the event no later
than:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - the day on which the
company gives its income tax return to the Commissioner
for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, items 185 and 188, paragraph 719-80(2)(a) and
subsection 719-80(3)]
528. Subsection 719-80(2) also modifies the time for giving notice to
the Commissioner that an entity joins or leaves a consolidated
group, or when a cessation event happens to the provisional head
company of a MEC group, where:
. the consolidated group comes into existence because of a
special conversion event - that is, because a consolidated
group converted to a MEC group;
. the consolidated group came into existence because a
choice under section 703-50 in relation to the group; and
. the notifiable event happens before the relevant notice is
given to the Commissioner under section 703-58.
[Schedule 5, item 186, paragraph 719-80(2)(b)]
529. In these circumstances, the head company of the group must give the
Commissioner notice in the approved form of the event no later
than:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
day specified in the choice occurs - the day on which the
company gives its income tax return to the Commissioner
for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the day specified in the choice occurs - the
last day in the period within which the company would be
required to give the Commissioner such a return if it were
required to give the Commissioner such a return.
[Schedule 5, items 187 and 188, paragraph 719-80(2)(b) and
subsection 719-80(3)]
Special conversion event happens to a potential MEC group
530. A special conversion event happens if, broadly, a consolidated
group becomes a potential MEC group and makes a choice to form a
MEC group - that is, if a consolidated group converts to a MEC
group on a particular day (section 719-40).
531. If a special conversion event happens, the company that is an
eligible tier-1 company and the head company of the consolidated
group can make a choice in writing:
. specifying the companies that are eligible tier-1
companies of the top company; and
. stating that a MEC group is to come into existence at that
time as a result of the specified companies becoming
eligible tier-1 companies of the top company.
[Schedule 5, items 172 and 173, paragraph 719-40(1)(e)]
532. In addition, if an eligible tier-1 company that is specified in the
choice was a member of another MEC group immediately before the
time the choice was made and all the eligible tier-1 companies in
that other MEC group became eligible tier-1 companies of the top
company at that time, then each eligible tier-1 company in that
other MEC group must be specified in the choice. [Schedule 5,
item 174, paragraph 719-40(1)(f)]
533. The choice must be made no later than:
. if the head company of the MEC group is required to give
the Commissioner an income tax return for the income year
during which the special conversion event happens - the
day on which the company gives its income tax return to
the Commissioner for that income year; or
. if the head company of the MEC group is not required to
give the Commissioner an income tax return for the income
year during which the special conversion event happens -
the last day in the period within which the company would
be required to give the Commissioner such a return if it
were required to give the Commissioner such a return.
[Schedule 5, items 172 and 176, paragraph 719-40(1)(e) and
subsection 719-40(2)]
534. The choice that is made in writing under section 719-40 to
consolidate a potential MEC group following a special conversion
event does not need to be given to the Commissioner.
535. However, if a MEC group comes into existence because of a choice
under section 719-40 to consolidate a potential MEC group following
a special conversion event, the head company of the group must give
the Commissioner a notice in the approved form containing the
following information:
. the identity of the head company;
. the time that the special conversion event happens - that
is, the day on which the MEC group comes into existence;
. the identity of each eligible tier-1 company of the top
company in relation to the MEC group on that day;
. the identity of each subsidiary member of the group on
that day;
. the identity of each entity that was a subsidiary member
of the group on that day but has left the group when the
notice is given;
. the identity of each entity that was not a subsidiary
member of the group on that day but joined the group after
that day and is a subsidiary member of the group when the
notice is given; and
. the identity of each entity that joined the group after
that day but is no longer a subsidiary member of the group
when the notice is given.
[Schedule 5, items 175 and 183, subsections 719-40(1), 719-78(1)
and (2)]
536. The notice must be given to the Commissioner:
. if the head company of the MEC group is required to give
the Commissioner an income tax return for the income year
during which the special conversion event happens - by the
day on which the company gives its income tax return to
the Commissioner for that income year; or
. if the head company of the MEC group is not required to
give the Commissioner an income tax return for the income
year during which the special conversion event happens -
by the last day in the period within which the company
would be required to give the Commissioner such a return
if it were required to give the Commissioner such a
return.
[Schedule 5, item 183, subsection 719-78(3)]
537. If the notice under section 719-78 contains a technical defect,
that defect does not affect the choice to consolidate a potential
MEC group following a special conversion event.
New eligible tier-1 companies of a MEC group
538. If a company becomes a new eligible tier-1 company of a top company
at a time after a MEC group comes into existence, the provisional
head company can make a choice in writing:
. specifying the company; and
. stating that the company is to become a member of the
MEC group with effect from that time.
[Schedule 5, item 167, paragraph 719-5(4)(c)]
539. In addition, if the eligible tier-1 company that is specified in
the choice was a member of another MEC group immediately before the
time the choice was made and all the eligible tier-1 companies in
that other MEC group became eligible tier-1 companies of the top
company at that time, then each eligible tier-1 company in that
other MEC group must be specified in the choice. [Schedule 5,
item 168, paragraph 719-5(4)(d)]
540. The choice must be made no later than:
. if the head company of the MEC group is required to give
the Commissioner an income tax return for the income year
during which the company becomes an eligible tier-1
company of the top company - the day on which the company
gives its income tax return to the Commissioner for that
income year; or
. if the head company of the MEC group is not required to
give the Commissioner an income tax return for the income
year during which the company becomes an eligible tier-1
company of the top company - the last day in the period
within which the company would be required to give the
Commissioner such a return if it were required to give the
Commissioner such a return.
[Schedule 5, items 167 and 171, paragraph 719-5(4)(c) and
subsections 719-5(6) and (6A)]
541. If a choice under section 719-5 is made, a new eligible tier-1
company covered by the choice will become a member of the MEC group
with effect from the day that it became an eligible tier-1 company
of the top company. [Schedule 5, item 169, paragraph 719-5(4)(f)]
542. However, a choice for a new eligible tier-1 company to become a
member of a MEC group will not be valid if, for example, that
eligible tier-1 company did not exist at the time the choice takes
effect.
543. The choice that is made in writing under section 719-5 for a new
eligible tier-1 company to become a member of a MEC group does not
need to be given to the Commissioner.
544. However, if a new eligible tier-1 company becomes a member of a MEC
group because of a choice under section 719-5, the head company of
the group must give the Commissioner a notice in the approved form
containing the following information:
. the identity of the head company;
. the day on which the new eligible tier-1 company became a
member of the MEC group - that is, the day the company
became an eligible tier-1 company of the top company;
. the identity of each eligible tier-1 company of the top
company in relation to the MEC group at that time because
of the choice;
. the identity of each entity that becomes a subsidiary
member of the group at that time because of the choice;
and
. the identity of each entity that was a subsidiary member
of the group at that time because of the choice but has
left the group when the notice is given.
[Schedule 5, items 170 and 183, section 719-40 and subsections 719-
77(1) and (2)]
545. The notice must be given to the Commissioner:
. if the head company is required to give the Commissioner
an income tax return for the income year during which the
company becomes an eligible tier-1 company of the top
company - by the day on which the company gives its income
tax return to the Commissioner for that income year; or
. if the head company is not required to give the
Commissioner an income tax return for the income year
during which the company becomes an eligible tier-1
company of the top company - by the last day in the period
within which the company would be required to give the
Commissioner such a return if it were required to give the
Commissioner such a return.
[Schedule 5, item 183, subsection 719-77(3)]
546. If the notice under section 719-77 contains a technical defect,
that defect does not affect the choice for the new eligible tier-1
company to become a member of the MEC group.
547. Only a provisional head company that exists on the relevant day can
choose to include a new eligible tier-1 company in its existing
MEC group.
548. If an eligible tier-1 company comes into existence after a
MEC group has been formed, it is not included in the MEC group
under the written choice to consolidate, as it was not a member of
the potential MEC group that was consolidated. A further choice
must be made in writing to include that eligible tier-1 company in
the group.
549. Under the current law, both the choice to consolidate and the
choice to include a new eligible tier-1 company in a MEC group must
be made in the approved form in order to be effective. In the
majority of cases, the approved forms given to the Commissioner
will contain sufficient information to be considered both a written
choice, and a notice of that written choice under the new
provisions.
550. However, where a defect in an original approved form is such that
it is unclear that a written choice was made to include a new
eligible tier-1 company in a MEC group, the choice may not be
effective.
Appointment of a provisional head company after formation
551. If a cessation event happens to the provisional head company of a
MEC group, the eligible tier-1 companies that are or were members
of the group immediately after the cessation event may make a
choice in writing jointly appointing a new provisional head company
of the group. The appointment is taken to have come into force
immediately after the cessation event. [Schedule 5, items 181
and 182, subsections 719-60(1) and (3)]
552. The choice must generally be made within 28 days of the cessation
event (subsection 719-60(3)).
553. The choice that is made in writing under subsection 719-60(3) for
the appointment of a new provisional head company following a
cessation event does not need to be given to the Commissioner.
554. However, if a choice is made under subsection 719-60(3) to appoint
a new provisional head company following a cessation event, the
provisional head company must give the Commissioner a notice in the
approved form containing the following information:
. the identity of the provisional head company;
. the day on which the choice is made; and
. the day on which the cessation event occurs.
[Schedule 5, item 183, subsections 719-79(1) and (2)]
555. The notice must be given to the Commissioner no later than:
. if the group came into existence because a choice has been
made under section 719-50 to form a MEC group and the
event happens more than 28 days before a notice of a
choice under section 719-76 is given - the day on which
the notice of a choice under section 719-76 is given; or
. otherwise - 28 days after the cessation event.
[Schedule 5, item 183, subsection 719-79(3)]
556. If the notice under section 719-79 contains a technical defect,
that defect does not affect the choice to appoint a new provisional
head company following a cessation event.
Application of the amendments in Part 18
557. The amendments in Part 18 apply from 1 July 2002. [Schedule 5,
item 193]
558. In this regard, the amendments are beneficial to taxpayers and, in
the vast majority of cases, will have no retrospective impact.
That is, where an effective choice has been made before the
introduction of the amendments, that choice is not affected by the
amendments and no further information needs to be given to the
Commissioner.
559. However, where a choice made prior to the introduction of these
amendments is ineffective because of a defect in the approved form,
the amendments may allow that defect to be corrected.
560. Consequently, the amendments will overcome difficulties that have
arisen, for example, where some wholly-owned corporate groups have
operated for a number of years on the basis that they have formed a
consolidated group or MEC group, without having made an effective
choice to consolidate because notice has not been given to the
Commissioner in the approved form.
Part 19 - Life insurance companies
561. Division 320 contains special rules for life insurance companies.
562. Life insurance companies essentially carry on three different types
of business:
. ordinary business - taxable income in respect of this
business is taxed at the corporate tax rate of 30 per
cent;
. complying superannuation/FHSA business - taxable income in
respect of this business is taxed at the complying
superannuation fund and first home saver account (FHSA)
rate of 15 per cent; and
. immediate annuity business - income relating to this
business is non-assessable non-exempt income.
563. To ensure that income belonging to each class of business is
clearly identified, assets belonging to each class must be
segregated.
. Assets relating to the complying superannuation/FHSA
business are called complying superannuation/FHSA assets
(section 320-170).
. Assets relating to immediate annuity business are called
segregated exempt assets (section 320-225).
564. The value of assets and liabilities in each segregated pool must be
valued annually (sections 320-175 and 320-230). Excess assets held
in a segregated pool must be transferred out of that pool at the
end of each income year (sections 320-180 and 320-235). Certain
transactions between the different classes of business are
specifically recognised for tax purposes (sections 320-200 and 320-
255).
565. If a life insurance company joins a consolidated group, the head
company is taken to be a life insurance company (section 713-505).
The purpose of section 713-505 is to ensure that Division 320
applies to the head company of the group.
566. When Division 320 was introduced in 2000, many life insurance
companies invested the assets belonging to each class of business
by acquiring membership interests in wholly-owned subsidiaries.
The segregated asset income of each class could be clearly
identified by the income flowing from the relevant membership
interests.
567. Under the consolidation regime, the life insurance company and all
of its wholly-owned subsidiaries (other than those subsidiaries
covered by section 713-510) are members of the same consolidated
group. Therefore, as a consequence of the single entity rule
(subsection 701-1(1)), the membership interests that a life
insurance company holds in a wholly-owned subsidiary entity are no
longer recognised. This has caused practical difficulties for the
head company in identifying the segregated asset income of each
class.
568. Further difficulties arise because the segregated assets of a life
insurance company may include other types of intra-group assets (in
addition to membership interests) that need to be recognised to
identify the segregated asset income of each class, such as:
. a bank account held by the life insurance company with
another member of the group;
. a leasing arrangement between the life insurance company
and another member of the group; or
. an immediate annuity policy issued by the life insurance
company to another member of the group.
569. To overcome these difficulties, if a life insurance company is a
member of a consolidated group, the single entity rule
(subsection 701-1(1)) will be disregarded for the purposes of
working out:
. amounts of the head company's ordinary income and
statutory income derived from segregated exempt assets
that are non-assessable non-exempt income (see
paragraph 320-37(1)(a));
. the head company's taxable income of the complying
superannuation class (see section 320-137);
. the head company's tax loss of the complying
superannuation/FHSA class (see section 320-141);
. the total transfer value of the head company's complying
superannuation/FHSA assets (see paragraph 320-175(1)(a));
. the amount of the head company's complying
superannuation/FHSA liabilities (see paragraph 320-
175(1)(b));
. the total transfer value of the head company's segregated
exempt assets (see paragraph 320-230(1)(a)); and
. the amount of the head company's exempt life insurance
policy liabilities (see paragraph 320-230(1)(b)).
[Schedule 5, items 194 and 198 to 201, subsections 713-510A(1) and
(3)]
570. However, if the life insurance company is a subsidiary member of
the group, these modifications do not apply:
. for the purposes of working out the tax cost setting
amount of an asset of the life insurance company when it
becomes a subsidiary member of the group; and
. for the purposes of working out the tax cost setting
amount of a membership interest in the life insurance
company if it ceases to be a subsidiary member of the
group.
[Schedule 5, item 194, subsection 713-510A(2)]
571. Prior to the introduction of first home saver accounts in 2007:
. the complying superannuation/FHSA class was called the
virtual pooled superannuation trust (PST) class;
. complying superannuation/FHSA assets were called
virtual PST assets, and
. complying superannuation/FHSA liabilities were called the
virtual PST liabilities.
572. Consequential amendments reflect this change of terminology.
[Schedule 5, items 198 to 201, subsection 713-510A(3)]
573. In addition, a consequential amendment will repeal sections 713-553
to 713-560. Those provisions were inserted to ensure that the
income tax law operated appropriately when, prior to joining the
group, a life insurance company had issued an immediate annuity
policy to another company that has joined the same consolidated
group as the life insurance company. As this is an intra-group
transaction that will be appropriately recognised under the
proposed amendments, these specific rules will no longer be
necessary. [Schedule 5, items 195 and 196]
Application of the amendments in Part 19
574. The amendments in Part 19 apply from 1 July 2002. [Schedule 5,
item 197]
575. In this regard, the amendments are beneficial to taxpayers as they
confirm existing practice and will ensure that life insurance
companies can calculate their taxable income correctly.
576. The technical amendments to update terminology apply on or after
the commencement of the First Home Savers Accounts (Consequential
Amendments) Act 2008. [Schedule 5, item 202]
Part 20 - Non-membership equity interests
577. A gap exists in the tax cost setting rules when an entity that
joins or leaves a consolidated group has issued non-membership
equity interests - that is, interests that are neither membership
interests nor liabilities. An example of non-membership equity
interests is convertible notes.
578. As a result, when an entity that has issued non-membership equity
interests joins a consolidated group, the tax costs of the entity's
assets are understated because of the exclusion of these interests
from the tax cost setting calculation.
579. When an entity that has issued non-membership equity interests
leaves a consolidated group:
. if the leaving entity has issued non-membership equity
interests to entities that are members of the old group,
no tax cost arises for those membership interests; and
. if the leaving entity has issued non-membership equity
interests to entities that are not members of the old
group, the old group's allocable cost amount for the
leaving entity is overstated.
580. The tax cost setting rules will be modified where an entity that
has issued non-membership equity interests joins or leaves a
consolidated group.
581. As a result, the allocable cost amount for a joining entity will be
increased to reflect the amount received by the joining entity from
the issue of non-membership equity interests.
582. In addition, when an entity leaves a consolidated group:
. if the leaving entity has issued non-membership equity
interests to entities that are members of the old group, a
tax cost will arise for those membership interests; and
. if the leaving entity has issued non-membership equity
interests to entities that are not members of the old
group, the old group's allocable cost amount for the
leaving entity will be reduced to reflect the amount
received by the old group from the issue of the non-
membership equity interests.
What is a non-membership equity interest?
583. A non-membership equity interest in an entity is defined to mean an
interest in the entity at a time, to the extent that it is not an
accounting liability (within the meaning of subsection 705-70(1))
in the entity at that time, if:
. the interest is not a membership interest (as defined in
section 960-135) in the entity at that time; and
. the interest is not a debt interest (as defined in
Subdivision 974-B) in the entity at that time.
[Schedule 5, item 219, definition of 'non-membership equity
interest' in subsection 995-1(1)]
584. In this regard, for the purpose of determining the extent to which
an interest is not an accounting liability within the meaning of
subsection 705-70(1):
. each reference in subsection 705-70(1) to the joining
entity is treated as being a reference to the entity; and
. the reference in subsection 705-70(1) to the joining time
is treated as being a reference to the time that the
definition of non-membership equity interest is being
applied.
[Schedule 5, item 219, definition of 'non-membership equity
interest' in subsection 995-1(1)]
585. Examples of the types of interests in an entity that will typically
qualify as non-membership equity interests include:
. a right or option (including a contingent right or option)
created or issued by the entity to acquire a membership
interest in the entity; and
. a convertible note created or issued by the entity.
Modifications when a joining entity has non-membership equity
interests on issue
586. When an entity joins a consolidated group, the tax costs of the
joining entity's assets are generally reset by allocating the
joining entity's allocable cost amount to each of the joining
entity's assets in proportion to their market value. This
allocation process ensures that, broadly, the costs incurred by the
head company to acquire the joining entity's membership interests
are pushed down into the tax costs of the underlying assets of the
joining entity.
587. Step 1 of the allocable cost amount is, broadly, the costs of the
membership interests in the joining entity (section 705-65). For
these purposes, certain rights and options to acquire membership
interests in the joining entity which are held by the members of
the joined group are treated as if they were membership interests
in the joining entity (subsection 705-65(6)).
588. The scope of subsection 705-65(6) will be broadened so that, if at
the joining time a member of the joined group holds a non-
membership equity interest in the joining entity, then the non-
membership equity interest is treated as a membership interest for
the purposes of step 1 of the allocable cost amount. [Schedule 5,
item 203, subsection 705-65(6)]
589. As a result, in most cases the cost bases of non-membership equity
interests that members of the joined group hold in the joining
entity will be included in step 1 of the allocable cost amount.
590. Step 2 of the allocable cost amount is, broadly, the value of the
joining entity's accounting liabilities (section 705-70). However,
the step 2 amount is increased by, among other things, the market
value of certain rights and options to acquire membership interests
in the joining entity which are held by a person who is not a
member of the joined group (paragraph 705-85(3)(a)).
591. Paragraph 705-85(3)(a) will be modified so that the step 2 amount
is increased by the amount that would be the balance of the joining
entity's non-share capital account, assuming that:
. if it is not a company, the joining entity were a company;
. each non-membership equity interest (if any) in the
joining entity held at the joining time by a person other
than a member of the joined group were a non-share equity
interest in the joining entity; and
. those non-share equity interests (if any) were the only
non-share equity interests in the joining entity.
[Schedule 5, item 205, paragraph 705-85(3)(a)]
592. As a result, the step 2 amount will effectively be increased by the
amount received by the joining entity from the issue of non-
membership equity interests to a person who is not a member of the
joined group.
593. Consequential amendments will modify various provisions so that
they appropriately refer to non-membership equity interests (rather
than to rights or options to acquire membership interests).
[Schedule 5, items 204 and 206 to 212, subsections 705-85(3), 705-
145(5), 705-195(1) and (2), 705-200(1) and (3) and 705-225(5)]
Modifications when a leaving entity has non-membership equity
interests on issue
594. When an entity leaves a consolidated group, the tax costs of the
membership interests in the leaving entity are reconstructed. That
is, the tax cost setting amount for each membership interest held
in the leaving entity by members of the old group is worked out by,
broadly, allocating a proportion of the old group's allocable cost
amount to each membership interest (section 711-15).
595. For these purposes, certain rights and options to acquire
membership interests in the leaving entity which are held by the
members of the old group are treated as if they were a separate
class of membership interests in the leaving entity (subsection 711-
15(2)).
596. The scope of subsection 711-15(2) will be broadened so that, if at
the leaving time a member of the old group holds a non-membership
equity interest in the leaving entity, then the non-membership
equity interest is treated as if:
. it were a membership interest in the leaving entity; and
. it were of a different class than any other membership
interest in the leaving entity.
[Schedule 5, item 213, subsection 711-15(2)]
597. As a result, the tax costs of any non-membership equity interests
in the leaving entity held by members of the old group will be
worked out by allocating part of the old group's allocable cost
amount to those non-membership equity interests.
598. The old group's allocable cost amount for a leaving entity is,
broadly, the sum of the terminating value of the leaving entity's
assets (step 1 of the old group's allocable cost amount
(section 711-25)) less the value of its accounting liabilities and
the value of membership interests held in the leaving entity that
are not held by members of the old group (step 4 of the old group's
allocable cost amount (section 711-45)).
599. Section 711-45 will be modified so that the step 4 amount is
increased by the amount that would be the balance of the leaving
entity's non-share capital account, assuming that:
. if it is not a company, the leaving entity were a company;
. each non-membership equity interest (if any) in the
leaving entity held just before the leaving time by a
person other than a member of the old group were a non-
share equity interest in the leaving entity; and
. those non-share equity interests (if any) were the only
non-share equity interests in the leaving entity.
[Schedule 5, item 215, subsection 711-45(6B)]
600. As a result, the step 4 amount will effectively be increased by the
amount received by the old group from the issue of non-membership
equity interests in the leaving entity to a person who is not a
member of the old group.
601. Consequential amendments will modify various provisions so that
they appropriately refer to non-membership equity interests (rather
than to rights or options to acquire membership interests).
[Schedule 5, items 216 to 218, subsections 715-50(6), 715-255(6)
and 715-270(6)]
Application of Part 20
602. The amendments in Part 20 apply from the date of introduction of
this Bill into the House of Representatives. That is, the
amendments will apply to an entity that joins or leaves a
consolidated group on or after that date. [Schedule 5, item 220]
603. However, the head company of a consolidated group can make a choice
to apply the amendments in Part 20 to an entity that joins or
leaves a consolidated group on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 220]
604. This option to apply the amendments from 1 July 2002 will allow
consolidated groups that are adversely affected by the operation of
the current law to take advantage of the amendments, having regard
to the compliance cost implications of applying the changes
retrospectively.
Application and transitional provisions
Measures that apply from 1 July 2002
605. The following measures apply from 1 July 2002 (that is, from the
commencement of the consolidation regime):
. the amendments in Division 1 of Part 1 which ensure the
tax cost setting amount allocated to a joining entity's
assets is used for the purposes of applying other
provisions of the income tax law;
. the amendment in item 13 of Part 2, which modifies the
circumstances in which a company is eligible to be
appointed as the provisional head company of a MEC group;
. the amendments in Part 5, which modify the treatment of
pre-joining time roll-overs under the tax cost setting
rules that apply when an entity joins a consolidated
group;
. the amendments in items 114 and 116 of Part 9, which
modify the tax cost setting rules that apply when an
entity joins or leaves a consolidated group to clarify
that the adjustment for inherited deductions does not
apply to certain deductions for undeducted construction
expenditure;
. the amendments in Part 10, which modify the operation of
the tax cost setting rules that apply when an entity joins
or leaves a consolidated group for general insurance
companies;
. the amendments in Division 2 of Part 11, which ensure that
certain rights to future income assets are treated as
retained cost base assets;
. the amendments in Part 12, which repeal CGT event L7;
. the amendments in Part 15, which ensure certain
consolidation transitional rules apply to the head company
of a group which has a substituted accounting period where
the group consolidated on or after 1 July 2003 on a day
prior to the first day of its income year;
. the amendments in Part 16, which modify the operation of
the loss multiplication rules for widely held companies;
. the amendments in Part 18, which modify the way that a
choice to consolidate is made; and
. the amendments in Part 19, which modify the mechanism for
working out the taxable income of consolidated groups that
have life insurance company members in respect of intra-
group transactions.
[Schedule 5, items 7, 17, 55, 117, 119, 126, 131, 139, 152, 193 and
202]
606. These amendments, which were sought by taxpayers, are beneficial
because, broadly, they ensure that the consolidation provisions
operate as intended and confirm established practice.
607. Business and professional groups representing taxpayers involved in
the consultation process support the application of these measures
from 1 July 2002.
Measures that apply from 1 July 2005
608. The amendments in Part 14, which ensure that the blackhole
expenditure provisions that apply to consolidated groups also apply
to MEC groups, apply from 1 July 2005 (that is, from the
commencement of the blackhole expenditure provisions). [Schedule
5, item 136]
609. These amendments are beneficial as they ensure that MEC groups get
appropriate tax recognition for costs paid to third parties in
respect of intra-group transactions affecting CGT assets they hold
by the group (in the same way as consolidated groups).
Measures that apply from 27 October 2006, but with an option to apply the
measure from 1 July 2002
610. The amendments in Part 2, which allow consolidated groups to
convert to MEC groups, and vice versa, with minimal tax
consequences (other than the modification to the circumstances in
which a company is eligible to be appointed as the provisional head
company of a MEC group), apply to conversion events which happen on
or after 27 October 2006 (that is, from the date of announcement).
[Schedule 5, item 17]
611. However, the head company of a consolidated group or MEC group can
make a choice to apply the amendments in Part 2 from 1 July 2002.
The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
[Schedule 5, item 17]
612. These amendments were sought by affected taxpayers and are
beneficial as they will substantially reduce unnecessary compliance
costs.
613. The option to apply the amendments from 1 July 2002 will allow
consolidated groups and MEC groups that are adversely affected by
the operation of the current law to take advantage of the
amendments, having regard to the compliance cost implications of
applying the changes retrospectively.
614. Business and professional groups representing taxpayers involved in
the consultation process support the optional application of these
measures from 1 July 2002.
Measures that apply from 8 May 2007
615. The following measures apply after 8 May 2007 (that is, from the
date of announcement):
. the amendments in Division 1 of Part 6, which phase out
the over-depreciation adjustment to the allocable cost
amount; and
. the amendments in Part 17, which modify the CGT timing
rules where a CGT event that happens to a CGT asset
straddles the time that an entity joins or leaves a
consolidated group.
[Schedule 1, items 57 and 154]
616. These amendments were sought by affected taxpayers. Business and
professional groups representing taxpayers involved in the
consultation process support the application of these measures from
8 May 2007.
Measures that apply from 1 July 2009
617. The amendments in Division 2 of Part 6, which repeal the over-
depreciation adjustment provisions, apply from 1 July 2009.
[Schedule 5, item 78]
Measures that apply from the date of introduction, but with an option to
apply the measure from 1 July 2002
618. Some measures in this Bill apply from the date of introduction of
this Bill into the House of Representatives. However, the head
company of a consolidated group can make a choice to apply the
amendments on or after 1 July 2002. The choice:
. must be made on or before 30 June 2011, or within such
further time as the Commissioner allows; and
. must be made in writing.
619. These measures are:
. the amendments in Division 2 of Part 1, which clarify
interactions with the foreign currency gains and losses
provisions (Division 775) when an entity joins a
consolidated group;
. the amendments in Part 3, which improve the treatment of
pre-CGT membership interests of a joining entity;
. the amendments in Part 4, which ensure that amounts are
not double counted when working out the allocable cost
amount of a joining entity;
. the amendments in Division 1 of Part 11, which ensure that
units held in cash management trusts are treated as
retained cost base assets;
. the amendments in Part 13, which reduce the tax cost
setting amount of a joining entity where that amount
exceeds the market value of certain retained cost base
assets; and
. the amendments in Part 20, which modify the tax cost
setting rules where an entity that has issued non-
membership equity interests joins or leaves a consolidated
group.
[Schedule 5, items 7, 35, 37, 126, 134 and 220]
620. These amendments, which were sought by taxpayers, are beneficial.
However, taxpayers have taken different positions on the operation
of the current law in relation to these issues.
621. Therefore, the option to apply the amendments from 1 July 2002 will
ensure that taxpayers do not need to disturb past practices.
However, it will allow consolidated groups to take advantage of the
amendments, having regard to the compliance cost implications of
applying the changes retrospectively.
622. Business and professional groups representing taxpayers involved in
the consultation process support the optional application of these
measures from 1 July 2002.
Measures that apply from the date of introduction
623. The following measures apply from the date of introduction of this
Bill into the House of Representatives:
. the amendments in Part 7, which modify the treatment of
liabilities under the tax cost setting rules that apply
when an entity leaves a consolidated group;
. the amendments in Part 8, which clarify the accounting
principles that are used under the tax cost setting rules
that apply when an entity joins or leaves a consolidated
group; and
. the amendment in item 113 of Part 9, which modifies the
amount of the adjustment for inherited deductions under
the tax cost setting rules that apply when an entity
leaves a consolidated group.
[Schedule 5, items 87, 89, 113, and 117]
Amendment of assessments
624. Generally, the Commissioner can amend an assessment of a company,
other than a small business entity, within four years from the date
of the notice of assessment (section 170 of the ITAA 1936).
625. As a number of these amendments apply from 1 July 2002, the period
for amending assessments will be extended. That is, the operation
of section 170 will be modified so that it does not prevent the
amendment of an assessment if:
. the assessment was made before the commencement of
Schedule 5;
. the amendment is made within two years after that date;
and
. the amendment is made for the purpose of giving effect to
the amendments in Schedule 5.
[Section 4]
Chapter 6
Miscellaneous amendments
Outline of chapter
626. Schedule 6 to this Bill makes miscellaneous amendments to the
taxation laws. Most of them are of a minor nature.
Context of amendments
627. The amendments seek to ensure the taxation law operates as
intended, by correcting technical or drafting defects, removing
anomalies and addressing unintended outcomes. These amendments are
part of the Government's commitment to the care and maintenance of
the taxation laws.
628. The package of amendments includes addressing issues raised through
the Tax Issues Entry System (TIES). The TIES website
(www.ties.gov.au), which the Australian Taxation Office (ATO) and
the Treasury jointly operate, provides a vehicle for tax
professionals and the general public to raise issues relating to
the care and maintenance of the tax system. The relevant part of
the explanatory memorandum identifies TIES issues.
Summary of new law
629. The issues these amendments deal with include:
. rectifying incorrect terminology;
. correcting grammatical and spelling errors;
. repealing inoperative material;
. clarifying ambiguities; and
. ensuring that provisions are consistent with their
original policy intent.
630. Part 1 of this Schedule concerns the capital gains tax (CGT) main
residence exemption for a replacement dwelling; Part 2 concerns the
CGT small business retirement exemption; Part 3 concerns a waiver
connected with proceeds of crime proceedings; Part 4 has amendments
relating to higher education; Part 5 concerns pay as you go (PAYG)
withholding from delayed payments for termination of employment;
Part 6 concerns administrative penalties because of false or
misleading statements; Part 7 concerns offsets against the
superannuation charge; Part 8 concerns the status of certain
superannuation funds; Part 9 makes technical corrections; Part 10
repeals redundant material; and Part 11 makes other minor
amendments.
631. The more significant amendments are:
. ensuring that a replacement dwelling that is eligible for
the compulsory acquisition roll-over is also treated as a
continuation of the original dwelling for CGT main
residence exemption purposes (this issue was identified
through TIES 0007-2009) (see Part 1, items 1 to 6);
. correcting an unintended effect on the operation of the
small business CGT retirement exemption made by the
Superannuation Legislation Amendment (Simplification)
Act 2007 which inadvertently exposed payments a trust
makes to a CGT concession stakeholder under the retirement
exemption to CGT event E4 (this issue was identified
through TIES 0045-009) (see Part 2, items 7 to 11);
. enabling the Commissioner of Taxation (Commissioner) to
waive tax-related liabilities in appropriate cases to
facilitate proceedings under the Proceeds of Crime Act
2002 (see Part 3, items 12 to 14);
. extending the administrative penalty for making a false or
misleading statement to cover statements that do not
produce a shortfall amount (see Part 6, items 58 to 105);
and
. clarifying the operation of an anti-avoidance provision
that applies to certain capital benefits paid by a company
(see Part 11, items 124 and 125).
632. All of the amendments in this Schedule commence from Royal Assent
unless otherwise stated.
Detailed explanation of new law
Part 1 - Main residence exemption for replacement dwelling
1. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|118-145(3) |These amendments give effect to a |
|118-147 |suggestion made through |
|118-150(3)(a) |TIES 0007-2009. |
|118-190(3A) |A taxpayer's main residence is usually|
|118-200(4)(b) |not subject to CGT. Section 118-145 |
| |allows a taxpayer to continue to treat|
| |a dwelling as their main residence |
| |(instead of any other dwelling) after |
| |it has actually ceased to be their |
| |main residence. If the dwelling was |
| |used to produce assessable income, |
| |that treatment can last for up to six |
| |years; otherwise it can last |
| |indefinitely. |
| |When a dwelling that was no longer a |
| |taxpayer's main residence, but is |
| |still being treated as one, is |
| |destroyed or compulsorily acquired, |
| |the taxpayer ceases to have a main |
| |residence for CGT purposes. They have |
| |to live in a new dwelling to establish|
| |a new main residence. |
| |The amendments, which extend the rule |
| |about absences from a main residence, |
| |allow a taxpayer to transfer the main |
| |residence status in such cases to a |
| |replacement dwelling, even if the |
| |taxpayer never lives in it. [Schedule|
| |6, item 2, subsections 118-147(1) and |
| |(2)] |
| |The taxpayer can transfer the main |
| |residence status only if the |
| |replacement dwelling (or the land on |
| |which it is built) is acquired no |
| |later than one year after the income |
| |year in which the original dwelling |
| |was destroyed or compulsorily |
| |acquired. The Commissioner can allow |
| |more time if there are special |
| |circumstances. [Schedule 6, item 2, |
| |paragraph 118-147(1)(d)] |
| |The taxpayer can transfer the main |
| |residence status to a replacement |
| |dwelling they build only if it is |
| |built within four years after the |
| |original dwelling was destroyed or |
| |compulsorily acquired (or after the |
| |land for the replacement dwelling was |
| |acquired if that was later). |
| |[Schedule 6, item 2, subsection |
| |118-147(2)] |
| |If the taxpayer transfers the main |
| |residence status to a replacement |
| |dwelling, it is treated as being the |
| |main residence from when the |
| |replacement dwelling was acquired (or |
| |from a year before the original |
| |dwelling was destroyed or compulsorily|
| |acquired if that is later). [Schedule|
| |6, item 2, subsection 118-147(2)] |
| |It can continue to be treated as the |
| |taxpayer's main residence indefinitely|
| |if it is not used to produce |
| |assessable income. [Schedule 6, |
| |item 2, subsection 118-147(5)] |
| |If it is used to produce assessable |
| |income, it can be treated as the |
| |taxpayer's main residence for up to |
| |six years after the original dwelling |
| |was destroyed or compulsorily acquired|
| |(or after the replacement dwelling was|
| |acquired if that was later). If the |
| |original dwelling was also used to |
| |produce assessable income, the six |
| |years is instead the balance of the |
| |six-year period that was running on |
| |the original dwelling. [Schedule 6, |
| |item 1, subsections 118-147(3) and |
| |(4)] |
| |If the original dwelling is |
| |accidentally destroyed but the |
| |taxpayer does not transfer the main |
| |residence status to a replacement |
| |dwelling, existing section 118-160 |
| |allows the taxpayer to choose to treat|
| |the original land as if it remained |
| |the main residence. |
| |If the taxpayer's replacement dwelling|
| |(or land) is subject to the extended |
| |absence rule, they cannot treat |
| |another dwelling as their main |
| |residence during this period. |
| |However, where the taxpayer acquires a|
| |replacement dwelling (or land) before |
| |the involuntary event, the taxpayer |
| |may treat both the old dwelling and |
| |the replacement dwelling (or land) as |
| |their main residence but only up to a |
| |maximum period of one year before the |
| |involuntary event happened. [Schedule|
| |6, item 2, paragraph 118-147(6)(a) and|
| |subsections 118-147(2) and (7)] |
| |Sections 118-140 (about changing main |
| |residences), and 118-150 and 118-155 |
| |(about building, repairing or |
| |renovating a dwelling) do not apply if|
| |the taxpayer chooses to transfer their|
| |main residence status. [Schedule 6, |
| |item 2, paragraphs 118-147(6)(b) to |
| |(d)] |
| |There are a number of minor |
| |consequential amendments. [Schedule |
| |6, items 1 and 3 to 5, paragraphs |
| |118-150(3)(a) and 118-200(4)(b) and |
| |subsections 118-145(3) and |
| |118-190(3A)] |
| |The amendments apply to CGT events |
| |happening in relation to replacement |
| |dwellings on or after the day this |
| |Bill receives Royal Assent. [Schedule|
| |6, item 6] |
Part 2 - Small business retirement exemption
2. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|152-310(2)(a) |This amendment gives effect to a |
| |suggestion made through |
| |TIES 0045-2009. |
| |The amendment corrects an unintended |
| |effect on the operation of the small |
| |business CGT retirement exemption made|
| |by the Superannuation Legislation |
| |Amendment (Simplification) Act 2007. |
| |That Act inadvertently made any |
| |payment, or part of any payment, that |
| |a trust makes to a CGT concession |
| |stakeholder under the retirement |
| |exemption subject to CGT event E4 |
| |(contained in section 104-70 of the |
| |ITAA 1997). |
| |CGT event E4 has the effect of |
| |reducing the cost base and reduced |
| |cost base of the unit or interest in |
| |the trust by the amount of the |
| |non-assessable payment. If the cost |
| |base is reduced to zero, a capital |
| |gain arises to the beneficiary to the |
| |extent of the remainder of the |
| |payment. |
| |Prior to the superannuation amendments|
| |in 2007, any payment made under the |
| |retirement exemption to a CGT |
| |concession stakeholder was an eligible|
| |termination payment. Under the |
| |eligible termination payment rules, |
| |CGT exempt amounts were ignored in |
| |determining whether the CGT concession|
| |stakeholder made a capital gain. |
| |This amendment effectively restores |
| |that position by treating a payment |
| |representing an amount that was |
| |subject to the small business |
| |retirement exemption made by a company|
| |or trust to a CGT concession |
| |stakeholder as not assessable and not |
| |exempt income of the stakeholder. |
| |This means that the payments are |
| |disregarded for the purposes of CGT |
| |event E4 through the operation of |
| |paragraph 104-71(1)(a) of the |
| |ITAA 1997. [Schedule 6, item 7, |
| |paragraph 152-310(2)(a)] |
| |The amendment applies to payments made|
| |after 30 June 2007 to give it the same|
| |date of effect as the superannuation |
| |amendments mentioned above. The |
| |retrospective application of this |
| |amendment should benefit affected |
| |taxpayers or, at the very least, not |
| |have a negative effect on such |
| |taxpayers. [Schedule 6, item 8] |
| |A number of consequential amendments |
| |deal with the small business |
| |retirement exemption. [Schedule 6, |
| |items 9 to 11, item headed 'small |
| |business retirement exemption' in the |
| |table in section 11-15, section 11-55 |
| |and items headed 'capital gains tax' |
| |in the table in section 12-5] |
Part 3 - Waiver connected with proceeds of crime proceedings
3. : Amendments to the Taxation Administration Act 1953
|Provision being |What the amendment does |
|amended | |
|340 in Schedule 1 |These amendments address the |
|(heading) |interaction between actions brought by|
|342-1 in Schedule 1 |the Commonwealth Director of Public |
|342-5 in Schedule 1 |Prosecutions under the Proceeds of |
|342-10 in Schedule 1|Crime Act 2002 (POC Act) and the |
| |Commissioner's obligations to collect |
| |tax under the tax laws. |
| |The POC Act provides a comprehensive |
| |scheme to trace, restrain and |
| |confiscate the proceeds of crimes |
| |against Commonwealth law. |
| |Under current tax law, the |
| |Commissioner is required to follow an |
| |administrative process of assessing |
| |and collecting taxes without taking |
| |into consideration that action may |
| |also be taken under the POC Act. The |
| |Commissioner cannot waive, or refuse |
| |to collect, a tax liability, even |
| |where following the administrative |
| |process hinders the operation of the |
| |POC Act. |
| |The amendments enable the Commissioner|
| |to waive tax-related liabilities in |
| |appropriate cases to facilitate |
| |proceedings under the POC Act. |
| |[Schedule 6, item 13, Division 342 in |
| |Schedule 1] |
| |The Commissioner must be satisfied |
| |that the tax-related liability is |
| |connected with the circumstances |
| |associated with the proceedings under |
| |the POC Act and that waiving the |
| |liability facilitates proceedings |
| |under the POC Act. [Schedule 6, item |
| |13, subsection 342-10(1) in Schedule |
| |1] |
| |In deciding whether to waive the tax |
| |liability, the Commissioner must take |
| |into account the amount that the |
| |Commissioner believes the Commonwealth|
| |would forgo as a result of the waiver |
| |(taking into account things that might|
| |be saved, such as recovery costs that |
| |would not have been spent), the amount|
| |the Commonwealth is likely to collect |
| |from the proceedings and the times at |
| |which those amounts would be, or would|
| |have been, likely to be collected. |
| |The Commissioner may also consider |
| |other matters. [Schedule 6, item 13, |
| |subsections 342-10(2) and (3)] |
| |The Commissioner also has some |
| |existing powers that might be |
| |exercised for the purpose of |
| |facilitating proceedings under the POC|
| |Act. Those powers allow him to defer |
| |the time for payment of tax-related |
| |liabilities (under section 255-10 in |
| |Schedule 1) and to remit amounts of |
| |general interest charge (under section|
| |8AAG). |
| |As a consequential amendment, Division|
| |340 (which provides a power to release|
| |taxpayers from their liabilities in |
| |hardship cases) is renamed to reflect |
| |the fact that it is no longer the only|
| |power to wave tax-related liabilities.|
| |[Schedule 6, item 12, Division 340 |
| |(heading) in Schedule 1] |
| |This amendment only applies to |
| |proceeds of crime proceedings that |
| |start or are proposed to start on or |
| |after the amendments commence and to |
| |proceedings that had started but not |
| |ended before commencement. The |
| |amendments do not affect proceeds of |
| |crime actions that were settled before|
| |commencement. The amendment |
| |facilitates the resolution of |
| |outstanding proceedings under the POC |
| |Act, and will not have an adverse |
| |impact on taxpayers. [Schedule 6, |
| |item 14] |
| |Proceedings under the POC Act start |
| |when an application for a restraining |
| |order, or an application for a |
| |confiscation order, has been filed. |
| |They end when the time for applying |
| |for exclusion from forfeiture, |
| |recovery from forfeiture or |
| |compensation orders expires. They |
| |also end when any applications for |
| |exclusion, recovery, compensation or |
| |for enforcement of confiscation orders|
| |have been finally determined and all |
| |confiscation orders made in the |
| |proceedings have been satisfied. |
Part 4 - Amendments relating to higher education
4. : Amendments related to the Higher Education Support Act 2003
|Provision being |What the amendment does |
|amended | |
|Provisions in |The Higher Education Support Act 2003 |
|various acts |(HESA) has superseded the Higher |
| |Education Funding Act 1988 (HEFA). |
| |Various tax laws refer to concepts in |
| |the HEFA, such as: 'higher education |
| |institution', 'self education' and |
| |'higher education provider'. |
| |The amendments remove references to |
| |HEFA equivalent concepts and, where |
| |appropriate, replace them with |
| |references to equivalent concepts in |
| |the HESA. [Schedule 6, items 15 to |
| |43, section 195-1 of the A New Tax |
| |System (Goods and Services Tax) Act |
| |1999, section 135M of the Fringe |
| |Benefits Tax Assessment Act 1986, |
| |subsection 82A(2) (paragraphs (a), |
| |(ab), and (b) of the definition of |
| |'expenses of self-education') of the |
| |Income Tax Assessment Act 1936 (ITAA |
| |1936), paragraphs 26-20(1)(a) to (c), |
| |subsection 30-25(1) (cell at table |
| |item 2.1.3, column headed 'Fund, |
| |authority or institution'), subsection|
| |30-25(1) (cell at table item 2.1.6, |
| |column headed 'Fund, authority or |
| |institution'), subparagraphs |
| |52-132(a)(x) and 52-140(3)(a)(x) of |
| |the ITAA 1997, section 8AAZA, |
| |paragraph 8AAZLD(aa), paragraphs |
| |11-1(c), 15-50(1)(b) and 45-5(1)(c) in|
| |Schedule 1, section 45-340 in |
| |Schedule 1 (method statement, step 3) |
| |and section 45-375 in Schedule 1 |
| |(method statement, step 3) of the |
| |Taxation Administration Act 1953 |
| |(TAA 1953), subsection 3(1) |
| |(definition of 'HEC assessment debt'),|
| |item 40 in the table in section 3C, |
| |subparagraph 8A(1)(a)(ii), |
| |paragraph 8A(2)(b), |
| |subparagraphs 8E(1)(d)(iii) and |
| |(2)(d)(iii) and sub-subparagraph |
| |12A(1)(a)(iv)(B) and paragraph |
| |12A(2)(b) of the Taxation (Interest on|
| |Overpayments and Early Payments) Act |
| |1983] |
| |The amendments apply in relation to |
| |gifts made, or payments received, on |
| |or after the day this Bill receives |
| |Royal Assent. [Schedule 6, items 23 |
| |and 26] |
Part 5 - PAYG withholding from delayed payments for termination of
employment
5. : Amendments relating to PAYG withholding from delayed payments
because of termination of employment
|Provision being |What the amendment does |
|amended | |
|TAA 1953 |These amendments give effect to a |
|10-5(1) in Schedule |suggestion made through TIES |
|1 (table item 8) |0009-2008. |
|12-5(2) in Schedule |Under section 12-85 of Schedule 1 to |
|1 (table item 2) |the TAA 1953, an entity must withhold |
|12-C in Schedule 1 |an amount from an employment |
|(heading) |termination payment it makes to an |
|12-85 in Schedule 1 |individual. Broadly, employment |
|(heading) |termination payments are payments |
|12-85(b) in Schedule|received in consequence of the |
|1 |termination of a person's employment. |
|16-165 in Schedule 1|Before 1 July 2007, these payments |
|(heading) |were eligible termination payments and|
|16-165(2)(b) in |were subject to PAYG withholding under|
|Schedule 1 |section 12-85. |
|18-65(3)(d)(ii) in |Payments for termination of employment|
|Schedule 1 |received more than 12 months after |
|90-1 in Schedule 1 |termination will only be employment |
|(note) |termination payments where the |
|Child Support |Commissioner has determined that they |
|(Registration and |are employment termination payments. |
|Collection) Act 1988|This 12-month restriction exists to |
| |prevent abuse of the tax concession |
|4(1) (note at the |provided to employment termination |
|end of the |payments by structuring a series of |
|definition of 'work |payments over a number of income |
|and income support |years. This restriction did not apply|
|related withholding |to eligible termination payments and |
|payments') |its introduction has created an |
|ITAA 1936 |unintended gap in the coverage of the |
|6(1) (note at the |PAYG withholding provisions. |
|end of the |These amendments extend the |
|definition of 'work |application of the PAYG withholding |
|and income support |provisions to amounts that would be |
|related withholding |employment termination payments except|
|payments and |that they are received more than |
|benefits') |12 months after termination of |
| |employment. [Schedule 6, items 44 to |
| |52, item 8 in the table in |
| |subsection 10-5(1) in Schedule 1, item|
| |2 in the table in subsection 12-5(2) |
| |in Schedule 1, section 12-C (heading) |
| |in Schedule 1, section 12-85 (heading)|
| |in Schedule 1, subsection 12-85(b) in |
| |Schedule 1, section 16-165 (heading) |
| |in Schedule 1, paragraph 16-165(2)(b) |
| |in Schedule 1, |
| |subparagraph 18-65(3)(d)(ii) in |
| |Schedule 1, section 90-1 (note) in |
| |Schedule 1 to the TAA 1953] |
| |These amendments apply in relation to |
| |payments made on or after the later |
| |of, the day this Bill receives Royal |
| |Assent or 1 July 2010. [Schedule 6, |
| |item 53] |
| |Consequential amendments are made to |
| |ensure that the notes refer correctly |
| |to the types of payments covered by |
| |relevant definitions. [Schedule 6, |
| |items 54 and 55, subsection 4(1) |
| |(note at the end of the definition of |
| |'work and income support related |
| |withholding payments') in the Child |
| |Support (Registration and Collection) |
| |Act 1988, and subsection 6(1) (note at|
| |the end of the definition of 'work and|
| |income support related withholding |
| |payments and benefits') of the ITAA |
| |1936] |
| |Consequential amendments are made to |
| |ensure the provisions refer correctly |
| |to payments included in Subdivision |
| |12-C of Schedule 1 to the TAA 1953. |
| |[Schedule 6, items 56 and 57, |
| |subsection 28-185(3) (cell at table |
| |item 5, column headed 'Subject |
| |matter') and subsection 900-12(3) |
| |(cell at table item 5, column headed |
| |'Subject matter') of the ITAA 1997] |
Part 6 - Administrative penalties for false or misleading statements
633. Subdivision 284-B in Schedule 1 to the TAA 1953 provides an
administrative penalty for making a false or misleading statement
to the Commissioner (or to another entity exercising a power or
performing a function under a taxation law). That administrative
penalty regime provides a simpler and more cost effective approach
to penalties than prosecuting all offences.
634. The penalty is set to take account of the extent of the taxpayer's
culpability and any behaviour that helps or frustrates the
Commissioner's investigation after the statement is made.
635. The penalty is also based on the shortfall amount caused by the
statement being false or misleading. That ensures that the penalty
increases as the consequences become more serious. However, it
also means that a statement that does not produce any shortfall
amount is not penalised, even though it is false or misleading.
For such a statement, prosecuting an offence is generally the only
remedy currently available.
636. The amendments extend the existing administrative penalty regime to
cover false or misleading statements that do not directly produce a
shortfall amount.
637. They also extend the regime to cover some false or misleading
statements made to entities other than the Commissioner.
638. All references in this part are to provisions in Schedule 1 to the
TAA 1953 unless otherwise indicated.
Liability for the penalty (Division 284)
639. Section 284-75 creates a liability for a penalty for making a false
or misleading statement. It is amended to remove the need for the
statement to lead to a shortfall amount. It is also amended to
extend it to cover some statements that are made neither to the
Commissioner nor to another entity exercising a power or performing
a function under a taxation law. Those statements must be
statements that the tax law either requires be made or permits to
be made. So, for instance, they would include the statements the
tax law requires the trustee of a super fund to provide to the
fund's members and they would also include declarations that
employees may opt to give to their employers to reduce the amount
of tax withheld from their wages. [Schedule 6, items 60, 61, 66,
67, 70 and 72, paragraphs 274-75(1)(b) and (c) and (2)(c),
subsection 284-75(4) and items 1 to 4 in the table in subsection
284-90(1)]
640. The penalty applies if a taxpayer makes a false or misleading
statement or if the taxpayer's agent makes the statement for the
taxpayer. The amendments make it clear that outcome applies even
if a statement an agent makes is not made in an approved form.
[Schedule 6, items 58, 59 and 62 to 65, paragraphs 284-75(2)(a) and
(b), subsection 284-75(1) and section 284-25]
The amount of the penalty
641. Currently, the penalty starts with the 'base penalty amount', which
is calculated by reference to the shortfall amount and the
taxpayer's culpability - it is 25 per cent of the shortfall if the
taxpayer merely fails to take reasonable care, 50 per cent if the
shortfall is caused by recklessness, and 75 per cent if the
shortfall is caused by an intentional disregard of the law. The
amendments provide a base penalty amount for false or misleading
statements that do not cause any shortfall amount. The amount is
20, 40 or 60 penalty units depending on whether the taxpayer did
not take reasonable care, was reckless, or intentionally
disregarded the law. Under section 4AA of the Crimes Act 1914, a
penalty unit is currently $110. [Schedule 6, item 71, items 3A to
3C in the table in subsection 284-90(1)]
642. The amendments also ensure that there can be only one base penalty
amount for each false or misleading statement. [Schedule 6, item
74, subsection 284-90(2)]
643. Those base penalty amounts are set to provide a sufficient
incentive for taxpayers to take care in the taxation statements
they make. Where the statement merely involves a failure to take
reasonable care, the amount reflects the existing penalty imposed
by section 288-85 on trustees of self-managed super funds. The
increase in the amount for more serious cases follows the
proportions that apply under the existing base penalty amount
rules.
644. Section 284-220 provides for a base penalty amount to be increased
by 20 per cent if the taxpayer takes steps to prevent the
Commissioner learning that a statement was false or misleading or
if the taxpayer has been subject to a previous penalty for making a
false or misleading statement.
645. Section 284-225 provides for the penalty to be reduced by
20 per cent if the taxpayer informs the Commissioner about a false
or misleading statement after the Commissioner announces an audit.
If the taxpayer informs the Commissioner before an audit is
announced, and before any public request from the Commissioner to
disclose a relevant scheme or transaction, the reduction is
80 percent (or 100 per cent if the shortfall amount is $1,000 or
less).
646. The amendments ensure those provisions also apply to statements
that do not produce a shortfall amount.
647. Under the amendments, the increase in a base penalty amount under
section 284-220 applies if the taxpayer has a previous penalty of
the same sort. This is a minor change from the current law (which
increases the base penalty amount if there was a similar penalty
for a previous accounting period). The change is necessary because
false or misleading statements that do not lead to a shortfall
amount will not always be related to an accounting period.
[Schedule 6, items 83 to 87, paragraphs 284-220(1)(c) to (e)]
648. If there is no shortfall amount, the 100 per cent reduction for a
shortfall amount under $1,000 could not apply. Therefore, the
amendments reduce the penalty in those cases to nil if the taxpayer
informs the Commissioner before an audit is announced. [Schedule
6, item 91, subsection 284-225(4A)]
649. The Commissioner can also exercise his existing power under section
298-20 to remit some or all of the penalty.
650. Directors of a corporate trustee of a self-managed super fund that
becomes liable for the penalty are themselves jointly and severally
liable to pay that penalty. That preserves the existing outcome
provided for by section 288-85, which is repealed by the
amendments. [Schedule 6, item 75, section 284-95]
Exclusion from liability
651. Section 284-215 does two things. First, it reduces the penalty to
the extent that the shortfall amount is caused by the taxpayer
treating the law as applying in a way that was consistent with the
Commissioner's advice or general practice. Second, it reduces the
penalty to nil if the taxpayer takes reasonable care in making a
false or misleading statement.
652. The amendments split section 284-215 into two parts so that each
can be located in its proper place in Division 284. They also
ensure that the reduction in penalty for relying on the
Commissioner's advice or general practice also applies in cases
where there is no shortfall amount. For example, if a taxpayer
makes a statement that is false or misleading but is consistent
with the Commissioner's published view, the penalty is reduced
accordingly. [Schedule 6, items 67, 79 and 88, subsection 284-
225(5) and sections 284-215 and 284-224]
653. The provision that reproduces the effect of the existing subsection
284-215(2) is slightly changed to ensure that it extends to all
false or misleading statements rather than just to those that
produce a shortfall amount. It excludes taxpayers from liability
for any penalty if they take reasonable care in making the
statement. If their agent makes the statement, both the taxpayer
and the agent need to take reasonable care before the exclusion
from liability applies. [Schedule 6, item 67, subsection 284-
75(5)]
Consequential amendments
654. A number of consequential amendments deal with section 284-215's
change in location. [Schedule 6, items 68, 69, 73, 76 to 78 and 95
to 97, subsections 284-80(1) (note), 284-90(1), 284-150(2) (note)
and 361-5(1) (notes) and (3) and section 284-160]
655. A number of other minor amendments are also made as a consequence
of the main amendments. [Schedule 6, items 80 to 87, 89 to 93
and 98, subsections 284-220(1) and 284-225(1), (2), (4A) and (5)
and section 284-225 (heading) in Schedule 1 to the TAA 1953 and
paragraph 35(1)(b) of the Product Grants and Benefits
Administration Act 2000]
656. The amendments repeal section 288-85, which penalises trustees for
statements that do not directly produce a shortfall amount. This
is because the general extension of the penalty regime now covers
that case. [Schedule 6, item 94, section 288-85, Division 288]
657. Consequential amendments reflect the fact that section 288-85 is
replaced by the general penalty regime. [Schedule 6, items 99 and
100, subsection 39(1B) and section 38A (subparagraph (ab)(i) of the
definition of 'regulatory provision') of the Superannuation
Industry (Supervision) Act 1993]
658. The Tax Agent Services (Transitional Provisions and Consequential
Amendments) Act 2009 introduced a safe harbour for taxpayers who
use the services of a tax agent. As long as the taxpayer provides
the agent with all relevant information and the agent takes
reasonable care, the taxpayer will not incur a penalty for making a
false or misleading statement that produces a shortfall amount.
659. After the safe harbour commences on 1 March 2010, the amendments in
this Act extend the safe harbour to also cover cases where the
statement does not produce a shortfall amount. [Schedule 6, items
102 to 105, subsections 284-75(1A), (1B), (5) (heading), (6) and
(7), and item 3 in the table in clause 2]
Application
660. The amendments apply in relation to things done (such as statements
being made) after the amendments commence (which is the start of
the day following Royal Assent). [Schedule 6, item 101 and item 2
in the table in clause 2]
Part 7 - Offset against superannuation guarantee charge
1. : Amendments to the Tax Laws Amendment (2008 Measures No. 2) Act
2008
|Provision being |What the amendment does |
|amended | |
|Schedule 2 to the Tax |The amendments correct an anomaly in |
|Laws Amendment (2008 |the application of the superannuation|
|Measures No. 2) Act |guarantee late payment offset which |
|2008 |arose from amendments made to the |
| |offset by the Tax Laws Amendment |
| |(2008 Measures No. 2) Act 2008. The |
| |superannuation guarantee late payment|
| |offset is intended to allow employers|
| |to elect to offset late contributions|
| |against superannuation guarantee |
| |charge liabilities. However, this |
| |only applies to contributions made on|
| |or after 1 January 2006. The |
| |amendments ensure that late |
| |contributions made before |
| |1 January 2006 are eligible for the |
| |offset. [Schedule 6, items 106, 107 |
| |and section 7A and paragraphs 8(1)(a)|
| |and 9(a) of Schedule 2] |
| |The amendments commence immediately |
| |after the commencement of the Tax |
| |Laws Amendment (2008 Measures No. 2) |
| |Act 2008, on 24 June 2008. [Item 4 |
| |in the table in clause 2] |
| |Retrospective commencement delivers |
| |the policy intent of the original |
| |amendments and will validate any late|
| |payment offset elections that have |
| |already been processed by the ATO on |
| |the assumption that the offset |
| |applied to all late contributions. |
| |Except for no longer being confined |
| |to late contributions made on or |
| |after 1 January 2006, the late |
| |payment offset continues to operate |
| |without change. |
Part 8 - Status of certain superannuation funds
2. : Amendments to the Income Tax Assessment Act 1936
|Provision being |What the amendment does |
|amended | |
|267(1) |The amendment ensures that two South |
| |Australian public sector |
| |superannuation schemes are 'taxed |
| |superannuation entities' at all times,|
| |as was always intended. [Schedule 6, |
| |item 108, subsection 267(1)] |
| |For periods in the 2006-07 income |
| |year, these schemes became |
| |constitutionally protected funds as |
| |the unintended consequence of changes |
| |to South Australian legislation and |
| |therefore exempt from income tax for |
| |those periods. The amendment |
| |commences on 1 July 2006. [Item 5 in |
| |the table in clause 2] |
Part 9 - Technical corrections
3. : Amendments to the A New Tax System (Luxury Car Tax) Act 1999
|Provision being |What the amendment does |
|amended | |
|9-20 |Corrects a spelling error that was |
| |made in the original enactment, |
| |referring to 'the *approved from' |
| |instead of 'the *approved form'. |
| |[Schedule 6, item 109, section 9-20] |
4. : Amendments to the Taxation Administration Act 1953
|Provision being |What the amendment does |
|amended | |
|363-35 in Schedule 1|Corrects numbering errors. [Schedule |
| |6, items 110 and 111, section 363-35 |
|426-165(1)(b)(a) and|in Schedule 1 and |
|(b) in Schedule 1 |subparagraphs 426-165(1)(b)(a) and (b)|
| |in Schedule 1] |
5. : Amendments to the Tax Laws Amendment (2009 Measures No. 4) Act
2009
|Provision being |What the amendment does |
|amended | |
|Items 132 and 133 of|Corrects a misdescribed amendment. |
|Schedule 5 |[Schedule 6, items 112 and 113, items |
| |132 and 133 of Schedule 5] |
Part 10 - Repeal of redundant material
6. : Amendments to the Income Tax Assessment Act 1936
|Provision being |What the amendment does |
|amended | |
|6(1) (definition of |Repeals the definition of 'accrued |
|'accrued leave |leave transfer payment' as it is no |
|transfer payment') |longer used in the Act. [Schedule 6,|
| |item 114, subsection 6(1)] |
7. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|116-30(1) (note) |Repeals a note that merely refers to |
| |provisions that have been repealed. |
| |[Schedule 6, item 115, subsection |
| |116-30(1)] |
8. : Amendments to the Taxation Administration Act 1953
|Provision being |What the amendment does |
|amended | |
|16-150(1) in Schedule |Omits a subsection number from a |
|1 |section that is no longer divided |
| |into subsections. [Schedule 6, item |
| |116, subsection 16-150(1) in Schedule|
| |1] |
Part 11 - Other minor changes
9. : Amendments to A New Tax System (Goods and Services Tax) Act 1999
|Provision being |What the amendment does |
|amended | |
|195-1 (definition of |The amendment gives effect to the |
|'luxury car') |suggestion made through TIES |
| |0001-2008. |
| |The amendment inserts a definition of|
| |the term 'luxury car' that adopts the|
| |meaning provided by the A New Tax |
| |System (Goods and Services Tax) Act |
| |1999. This confirms the meaning the |
| |term was always intended to have. |
| |[Schedule 6, item 117, section 195-1]|
10. : Amendments to the Income Tax Assessment Act 1936
|Provision being |What the amendment does |
|amended | |
|6(1) |The amendments adopt the ITAA 1997 |
|45B(10) |meanings of the terms 'agent', |
| |'allowable deduction', 'friendly |
| |society dispensary', 'paid-up share |
| |capital', 'person' and 'scheme' for |
| |reasons of simplicity. The meanings |
| |in the two Acts are the same in all |
| |material respects. [Schedule 6, |
| |items 118 and 120, subsection 6(1), |
| |item 126, subsection 45B(10)] |
| |A transitional provision preserves |
| |the effect of any determinations that|
| |the Commissioner may have made about |
| |who is an agent for the purposes of |
| |the ITAA 1936. [Schedule 6, item |
| |119] |
|45B(9) |The amendment changes the reference |
| |at the end of subsection 45B(9) from |
| |'dividend' to 'assessable dividend', |
| |as in some cases the amount of tax |
| |payable on a dividend is nil. This |
| |clarifies that the hypothetical |
| |dividend a capital benefit is |
| |compared to, in working out whether |
| |there is a tax benefit, is an |
| |assessable dividend. [Schedule 6, |
| |item 124, subsection 45B(9)] |
| |This amendment applies to the |
| |provision of capital benefits on or |
| |after 30 November 2009 (the date the |
| |exposure draft of the amendment was |
| |released for public comment). This |
| |approach is consistent with the |
| |application provision for section 45B|
| |when it was originally introduced. |
| |It does not affect the interpretation|
| |of the provision before that time. |
| |[Schedule 6, item 125, subsection |
| |45B(9)] |
11. : Amendments to the Income Tax Assessment Act 1997
|Provision being |What the amendment does |
|amended | |
|12-5 |The amendments reflect the fact that |
|25-7 |Family Tax Benefit can no longer be |
| |claimed through the tax system after |
| |1 July 2009. [Schedule 6, items 127 |
| |and 128, item headed 'family tax |
| |benefit' in the table in section 12-5|
| |and section 25-7] |
|67-23 |The amendments reinstate the result |
|67-25(7) |that the tax offset available under |
| |the National Rental Affordability |
| |Scheme is a refundable tax offset. |
| |The provision enacted in 2008 to make|
| |it a refundable tax offset was |
| |inadvertently omitted early in 2009. |
| |[Schedule 6, item 131, item 23 in the|
| |table in section 67-23] |
| |This amendment applies to assessments|
| |for the 2008-09 and later income |
| |years to ensure that taxpayers are |
| |entitled to the refundable tax offset|
| |from when Parliament intended. |
| |[Schedule 6, item 132] |
| |The amendments also relocate |
| |subsection 67-25(7) (which makes the |
| |tax offset for education expenses a |
| |refundable tax offset) to a more |
| |appropriate place. There is no change|
| |in operation. [Schedule 6, items 129|
| |and 133, subsection 67-25(7) and item|
| |12 in the table in section 67-23] |
| |These amendments apply to the 2009-10|
| |and later income years. [Schedule 6,|
| |items 130 and 134] |
|112-97 |The amendment replaces references to |
| |general provisions with references to|
| |specific provisions. Item 21 in the |
| |table in section 112-97 should refer |
| |to subsection 320-200(2), rather than|
| |Division 320. Item 22 in the same |
| |table should refer to subsection |
| |320-255(2), rather than Division 320.|
| |[Schedule 6, items 137 and 138, |
| |section 112-97] |
|109-55(table item 8C) |These amendments give effect to a |
|109-55 |suggestion made through |
|115-32 |TIES 0042-2009. |
|115-34 |Section 115-30 provides for a |
|115-45(4) |different acquisition date for a CGT |
|115-45(6) |asset that its owner acquired because|
| |of a same asset, or replacement |
| |asset, roll-over. |
| |Sections 115-30 and 115-45 may |
| |operate in certain circumstances to |
| |deny taxpayers access to the CGT |
| |discount if they sell their |
| |replacement interests within |
| |12 months of receiving a roll-over |
| |because the acquirer entity will not |
| |have owned the interests in the |
| |original entity for at least 12 |
| |months. |
| |The amendment allows a taxpayer who |
| |sells their interest in the acquirer |
| |entity to 'look through' to the |
| |assets of the original entity to |
| |establish whether the interests in |
| |the original entity, which are now |
| |owned by the acquirer entity, can be |
| |considered to have been owned for at |
| |least 12 months. [Schedule 6, item |
| |136, section 115-32] |
| |This means that the requirements in |
| |subsections 115-45(4) and (5) need to|
| |be applied to the shares or trust |
| |interests now owned by the acquirer |
| |entity to determine whether they have|
| |been owned for at least 12 months. |
| |These requirements will be satisfied |
| |if the cost bases and the net capital|
| |gain of assets of the original entity|
| |that have been owned for less than 12|
| |months are not more than 50 per cent |
| |of the cost bases and net capital of |
| |all the original entity's assets. |
| |This result is then used to test |
| |whether the taxpayer is entitled to |
| |the discount under section 115-45 by |
| |applying subsections 115-45(4) and |
| |(5) to the acquirer entity's assets. |
| |The amendment does not apply to |
| |replacement assets acquired under the|
| |replacement asset roll-overs provided|
| |by Subdivisions 122-A, 122-B and |
| |124-N. [Schedule 6, items 135, 136, |
| |139 to 145, section 115-32, |
| |subsections 115-45(4) and (6)] |
| |Sections 115-30 and 115-45 may also |
| |deny taxpayers access to the CGT |
| |discount if they sell a company share|
| |received as a replacement asset under|
| |a Subdivision 122-A or 122-B |
| |replacement-asset roll-over (disposal|
| |of assets to a wholly-owned company) |
| |or a Subdivision 124-N |
| |replacement-asset roll-over (disposal|
| |of assets by a trust to a company) |
| |before they have owned the share for |
| |12 months. Also, as the company |
| |acquires its assets at the time of |
| |the roll-over, selling a share in the|
| |company before owning it for at least|
| |12 months will mean the conditions in|
| |subsections 115-45(4) and (5) may be |
| |met as the company has held its |
| |assets for less than 12 months. This|
| |results in denying the taxpayer the |
| |CGT discount. |
| |The amendment for these specific |
| |replacement-asset roll-overs treats |
| |the taxpayer's replacement asset |
| |(share) for the purpose of the CGT |
| |discount as being owned for a period |
| |of at least 12 months where the share|
| |is sold within 12 months of its |
| |actual acquisition. The taxpayer |
| |therefore does not need to establish |
| |an acquisition date for the |
| |replacement asset under item 2 in the|
| |table in subsection 115-30(1), which |
| |is turned off for the purpose of new |
| |section 115-34. [Schedule 6, item |
| |142, section 115-34] |
| |Also, the amendment allows for the |
| |assets owned by the acquiring company|
| |to be taken to be owned from the time|
| |when the taxpayer originally acquired|
| |them for the purposes of subsections |
| |115-45(4) and (6). |
| |The amendments result in the taxpayer|
| |being able to sell their share within|
| |12 months of acquisition and still |
| |receive the discount where not more |
| |than 50 per cent (by cost base and |
| |net capital gain) of the company's |
| |assets have been owned for less than |
| |12 months including the period they |
| |were owned by the taxpayer. |
| |[Schedule 6 items 142 to 145, section|
| |115-34, subsections 115-45(4) |
| |and (6)] |
| |The amendments apply to assessments |
| |for the income year including 21 |
| |September 1999 and for later income |
| |years, in relation to CGT events |
| |happening after 11.45 am (by legal |
| |time in the Australian Capital |
| |Territory) on that day. This makes |
| |the application of the amendments |
| |consistent with the general approach |
| |taken to the application of the CGT |
| |discount. However, standard |
| |amendment periods still apply. The |
| |retrospective application of these |
| |amendments does not have a negative |
| |affect on taxpayers. [Schedule 6, |
| |item 146] |
|152-320(1) |Adds a non-operative note to alert |
| |readers to the effect of a |
| |transitional provision in another |
| |Act. [Schedule 6, item 147, |
| |subsection 152-320(1) (note)] |
|974-110(1)(b) |Section 974-110 provides a mechanism |
| |for reclassifying debt and equity |
| |interests if there is a material |
| |change to the scheme that gave rise |
| |to those interests. It is not clear |
| |whether that mechanism could apply in|
| |a case where part of an interest |
| |ceases to exist. The amendment makes|
| |it clear that the remaining part of |
| |the interest can be reclassified in |
| |such a case. [Schedule 6, item 148, |
| |paragraph 974-110(1)(b)] |
| |An example is the case where a |
| |redeemable preference share and an |
| |ordinary share are stapled together |
| |and together constitute a debt |
| |interest for the purposes of the |
| |debt/equity rules. On redemption of |
| |the redeemable preference share, |
| |there is no clear mechanism available|
| |under those rules to re-characterise |
| |the remaining ordinary share as an |
| |equity interest, so it continues to |
| |be a debt interest. The amendment |
| |enables the remaining interest to be |
| |properly characterised as an equity |
| |interest. [Schedule 6, item 148, |
| |paragraph 974-110(1)(b)] |
| |This amendment applies to changes to |
| |schemes giving rise to a debt |
| |interest occurring on or after Royal |
| |Assent. [Schedule 6, item 149] |
|995-1(1) |The definitions of 'common stake', |
| |'common stakeholder', 'significant |
| |stake' and 'significant stakeholder',|
| |which appear in section 124-783, are |
| |added to the Act's dictionary. |
| |[Schedule 6, items 150, 151, 154 and |
| |155, subsection 995-1(1) (definitions|
| |of 'common stake', 'common |
| |stakeholder', 'significant stake' and|
| |'significant stakeholder' in |
| |subsection 995-1(1))] |
| |Multiple relational definitions of |
| |the terms 'quote' and 'quoted' are |
| |merged into a single definition. |
| |[Schedule 6, items 152 and 153] |
12. : Amendments to the Income Tax (Transitional Provisions) Act 1997
|Provision being |What the amendment does |
|amended | |
|1-10 |Ensures that Division 950 of the ITAA|
| |1997 applies to the Income Tax |
| |(Transitional Provisions) Act 1997 to|
| |clarify the status of notes, examples|
| |and headings in that Act. [Schedule |
| |6, item 156] |
|770-230(5) |The new foreign income tax offset |
| |rules introduced in 2009 were |
| |intended to recognise certain amounts|
| |of foreign income tax paid before the|
| |new offset commenced. Those |
| |'pre-commencement excess foreign |
| |income tax' amounts were to only |
| |apply once and then be extinguished |
| |upon application. However, the word |
| |'limit' was mistakenly included in |
| |the subsection that achieved that |
| |and, as a result, the subsection |
| |makes no sense, either literally or |
| |otherwise. [Schedule 6, item 157, |
| |subsection 770-230(5)] |
| |This amendment removes the word |
| |'limit' from the end of subsection |
| |770-230(5), so that the subsection |
| |makes sense and gives effect to the |
| |original intent of the policy. |
| |[Schedule 6, item 157, subsection |
| |770-230(5)] |
| |This amendment applies to income |
| |years, statutory accounting periods |
| |and notional accounting periods |
| |starting on or after 1 July 2008 - |
| |the start date for the new foreign |
| |income tax offset rules - to ensure |
| |those rules apply, as intended, from |
| |their first application. |
| |[Schedule 6, item 158] |
13. : Amendments to the Taxation Administration Act 1953
|Provision being |What the amendment does |
|amended | |
|45-288(a) in Schedule |The provision refers to 'a resident |
|1 |trust within the meaning of section |
| |102Q' but section 102Q actually |
| |defines a 'resident unit trust'. |
| |Therefore, the amendment replaces |
| |'resident trust' with 'resident unit |
| |trust'. [Schedule 6, item 159, |
| |paragraph 45-288(a) in Schedule 1] |
|Part 2-30 in Schedule |There is some doubt whether the ITAA |
|1 |1997 and Schedule 1 to the TAA 1953 |
| |apply, as intended, to the Medicare |
| |levy and the Medicare levy surcharge |
| |in the same way as they apply to |
| |normal income tax. That could mean, |
| |for example, that taxpayers |
| |calculating the limit on their |
| |foreign income tax offset for an |
| |income year would only include the |
| |amount of ordinary Australian income |
| |tax they would have paid on the |
| |income rather than also including the|
| |amount of Medicare levy or Medicare |
| |levy surcharge they would have paid. |
| |The amendment to Schedule 1 to the |
| |TAA 1953 ensures that the Schedule |
| |and the ITAA 1997 do apply to the |
| |Medicare levy (as defined in section |
| |251R of the ITAA 1936) and the |
| |Medicare levy surcharge in the same |
| |way as they apply to normal income |
| |tax. |
| |This part is taken to have always |
| |applied in the same way as it applies|
| |in relation to normal income tax. |
| |[Schedule 6, item 160] |
Index
Schedule 1: Approved superannuation clearing house
|Bill reference |Paragraph |
| |number |
|Items 1 and 6, subsection 183(2A) of the RSA|1.18 |
|Act 1997, subsection 64(2A) of the SIS Act | |
|1993 | |
|Items 2 and 5, subsections 6(1) and 79A(3) |1.13 |
|Item 3, section 23B |1.12 |
|Item 4, subsection 32C(2B) |1.15 |
|Item 5, section 79A |1.16 |
|Items 7 and 8, paragraph 16(4)(hbb) of the |1.19 |
|Income Tax Assessment Act 1936 (ITAA 1936), | |
|subsection 355-65(3) of the Tax | |
|Administration Act 1953 (TAA 1953) | |
|Item 9 |1.20 |
|Items 57 and 154 |5.482 |
Schedule 2: Forestry managed investment schemes
|Bill reference |Paragraph |
| |number |
|Clause 4 |2.34 |
|Items 1 and 2, subsections 82KZMG(1A) of the|2.22 |
|ITAA 1936 and 394-10(5A) of the ITAA 1997 | |
|Items 1 and 2, paragraphs 82KZMG(1A)(a) of |2.25 |
|the ITAA 1936 and 394-10(5A)(a) of the | |
|ITAA 1997 | |
|Items 1 and 2, paragraphs 82KZMG(1A)(b) of |2.27 |
|the ITAA 1936 and 394-10(5A)(b) of the | |
|ITAA 1997 | |
|Item 3, subsection 290-50(2A) of Schedule 1 |2.31 |
|to the TAA 1953 | |
|Item 4 |2.33 |
Schedule 3: Managed investment trusts
|Bill reference |Paragraph |
| |number |
|Item 4, subsections 275-5(1) to (5) of |3.16 |
|Division 275 of Part 3-25 | |
|Item 4, subparagraph 275-5(4)(a)(i) and |3.18 |
|paragraphs 275-5(4)(b) and (c) of Division | |
|275 of Part 3-25 | |
|Item 4, subparagraph 275-5(4)(a)(ii) and |3.19 |
|paragraph 275-5(4)(d) of Division 275 of | |
|Part 3-25 | |
|Item 4, subsections 275-5(6), 275-10(2), |3.22 |
|275-15(2) and section 275-20 of Division 275| |
|of Part 3-25 | |
|Item 4, subsection 275-10(1) of Division 275|3.20 |
|of Part 3-25 | |
|Item 4, subsection 275-15(1) of Division 275|3.15 |
|of Part 3-25 | |
|Item 4, section 275-20 of Division 275 of |3.13 |
|Part 3-25 | |
|Item 4, section 275-25 of Division 275 of |3.23 |
|Part 3-25 | |
|Item 4, section 275-30 of Division 275 of |3.24 |
|Part 3-25 | |
|Item 4, section 275-35 of Division 275 of |3.25 |
|Part 3-25 | |
|Item 4, section 275-100 of Division 275 of |3.36 |
|Part 3-25 | |
|Item 4, subsections 275-100(1) |3.26 |
|and 275-115(1) of Division 275 of Part 3-25 | |
|Item 4, subsection 275-100(1) of Division |3.31 |
|275 of Part 3-25 | |
|Item 4, subsections 275-100(3) and (4) of |3.37 |
|Division 275 of Part 3-25 | |
|Item 4, subsections 275-100(5) and (6) of |3.38 |
|Division 275 of Part 3-25 | |
|Item 4, subsection 275-105(1) of Division |3.27 |
|275 of Part 3-25 | |
|Item 4, subsection 275-105(2) of Division |3.28 |
|275 of Part 3-25 | |
|Item 4, subsections 275-110(1) and (2) of |3.30 |
|Division 275 of Part 3-25 | |
|Item 4, subsection 275-115(2) of Division |3.33 |
|275 of Part 3-25 | |
|Item 4, subsection 275-115(3) of Division |3.32 |
|275 of Part 3-25 | |
|Item 4, subsection 275-115(4) and section |3.41 |
|275-5 of Division 275 of Part 3-25 | |
|Item 4, subsection 275-115(4) of Division |3.35 |
|275 of Part 3-25 | |
|Item 4, subsection 275-115(5) of Division |3.34 |
|275 of Part 3-25 | |
|Item 4, paragraphs 275-120(1)(a), (c) and |3.39 |
|(d) and subsection 275-120(2) of Division | |
|275 of Part 3-25 | |
|Item 4, paragraph 275-120(1)(b) of Division |3.40 |
|275 of Part 3-25 | |
|Item 4, section 275-200 of Division 275 of |3.43, 3.46 |
|Part 3-25 | |
|Item 4, paragraph 275-200(1)(c) of Division |3.47 |
|275 of Part 3-25 | |
|Item 4, subsection 275-200(4) of Division |3.44 |
|275 of Part 3-25 | |
|Item 4, subsection 275-200(7) of Division |3.48 |
|275 of Part 3-25 | |
|Items 5 and 6, subsection 840-805(7) |3.58 |
|Item 7, definition of 'instalment income' in|3.57 |
|subsection 995-1(1) | |
|Item 8, section 275-10 of Division 275 of |3.49 |
|Part 3-25 of the Income Tax (Transitional | |
|Provisions) Act 1997 | |
|Item 8, subsection 275-10(4) of Division 275|3.50 |
|of Part 3-25 of the Income Tax (Transitional| |
|Provisions) Act 1997 | |
|Item 9, section 45-286 in Schedule 1 to the |3.55 |
|TAA 1953 | |
|Subitem 10(1) |3.51 |
|Subitem 10(2) |3.52 |
|Subitem 10(3) |3.53 |
|Subitem 10(4) |3.54 |
|Subitem 10(5) |3.56 |
Schedule 4: 25% entrepreneurs' tax offset
|Bill reference |Paragraph |
| |number |
|Item 8, definition of 'threshold amount' in |4.12 |
|section 61-523 | |
|Item 8, definitions of 'non-ETO small |4.13 |
|business income' and 'threshold amount' in | |
|section 61-523 | |
|Item 8, definition of 'non-ETO small |4.14, 4.17 |
|business income' in section 61-523 | |
|Item 8, definition of 'non-ETO small |4.15 |
|business income' in section 61-523 | |
|Item 8, section 61-523 |4.9, 4.18, |
| |4.20 |
Schedule 5: Consolidation
|Bill reference |Paragraph |
| |number |
|Item 1, section 12-5 |5.45 |
|Item 2, subsection 701-55(3) |5.49 |
|Item 3, subsection 701-55(5C) |5.32 |
|Item 3, subsection 701-55(6) |5.11, 5.12 |
|Item 3, note to subsection 701-55(6) |5.13 |
|Item 3, subsection 701-56(1) |5.16, 5.50 |
|Item 3, subsection 701-56(2) |5.17 |
|Item 3, subsection 701-56(3) |5.18 |
|Item 4, subsection 716-400(1) |5.23 |
|Item 4, subsection 716-400(2) |5.24 |
|Item 4, subsection 716-400(3) |5.25 |
|Item 4, subsection 716-405(1) |5.34 |
|Item 4, subsections 716-405(2) and (5) |5.37 |
|Item 4, paragraph 716-405(2)(a) |5.38 |
|Item 4, paragraph 716-405(2)(b) |5.39 |
|Item 4, subsection 716-405(3) |5.40 |
|Items 4 and 5, paragraph 716-405(4)(a) and |5.42 |
|the definition of 'unexpended tax cost | |
|setting amount' in subsection 995-1(1) | |
|Items 4 and 5, paragraph 716-405(4)(b) and |5.43 |
|the definition of 'unexpended tax cost | |
|setting amount' in subsection 995-1(1) | |
|Item 4, subsection 716-405(6) |5.44 |
|Item 4, section 716-410 |5.33, 5.273 |
|Item 6, subsection 715-370(1) |5.52 |
|Item 6, subsection 715-370(2) |5.53 |
|Item 7 |5.54, 5.56, |
| |5.57 |
|Items 7, 17, 55, 117, 119, 126, 131, 139, |5.472 |
|152, 193 and 202 | |
|Items 7, 35, 37, 126, 134 and 220 |5.486 |
|Item 8 |5.62, 5.63 |
|Items 9 and 10, paragraph 703-75(2)(d) |5.97 |
|Items 11, 12 and 16, subsection 719-25(3) |5.100 |
|and the definition of 'member' in | |
|subsection 995-1(1) | |
|Item 13, subparagraph 719-65(3)(d)(i) |5.104 |
|Item 14, paragraph 719-90(2)(ca) |5.99 |
|Item 15, subsections 719-120(2) and |5.81 |
|719-130(3) to (5) | |
|Item 15, subsection 719-120(2) and |5.88 |
|section 719-135 | |
|Item 15, subsection 719-120(1) |5.69 |
|Item 15, subsection 719-120(2) |5.78 |
|Item 15, subsection 719-125(1) |5.70 |
|Item 15, subsection 719-125(2) |5.71 |
|Item 15, subsection 719-125(3) |5.73 |
|Item 15, subsection 719-125(4) |5.75 |
|Item 15, subsections 719-130(1), (2) and (5)|5.77 |
|Item 15, section 719-140 |5.92 |
|Item 17 |5.105, 5.106, |
| |5.109, 5.477, |
| |5.478 |
|Items 18, 19 and 34, subsection 705-125(1) |5.113 |
|and the definition of 'pre-CGT proportion' | |
|in subsection 995-1(1) | |
|Item 20, subsection 705-125(2) |5.114 |
|Items 21 to 24, 27, 29 and 31 to 33, |5.139 |
|sections 705-125, 705-165,705-205, 705-245, | |
|711-65, 713-245, 713-270 and the definition | |
|of 'pre-CGT factor' in subsection 995-1(1) | |
|Items 25 and 26, subsection 711-65(1) |5.115 |
|Item 26, subsection 711-65(1A) |5.116 |
|Item 28, subsection 711-65(4) |5.118 |
|Item 30, subsection 711-70(1) |5.122 |
|Item 30, subsection 711-70(2) |5.123 |
|Item 30, subsection 711-70(3) |5.126 |
|Item 30, subsection 711-70(4) |5.127 |
|Item 30, subsection 711-70(5) |5.128 |
|Item 30, subsection 711-70(6) |5.129 |
|Item 30, subsection 711-75(1) |5.132 |
|Item 30, subsection 711-75(2) |5.134 |
|Item 30, subsection 711-75(3) |5.138 |
|Item 35 |5.140, 5.141 |
|Item 36, subsection 705-62(1) |5.148 |
|Item 36, subsection 705-62(2) |5.150 |
|Item 36, paragraph 705-62(3)(a) and |5.152 |
|subsections 705-62(4) and (5) | |
|Item 36, paragraph 705-62(3)(b) |5.153 |
|Item 36, subsection 705-62(6) |5.151 |
|Item 37 |5.154, 5.155 |
|Item 38 |5.157 |
|Items 39 and 54, paragraph 104-505(1)(b) of |5.175 |
|the ITAA 1997 and section 126-165 of the | |
|Income Tax (Transitional Provisions) | |
|Act 1997 | |
|Item 40, item 3A in the table in |5.164 |
|section 705-60 | |
|Items 41 to 45, paragraphs 705-93(1)(a) to |5.162 |
|(d) | |
|Item 46, subsection 705-93(2) |5.163 |
|Item 47, subsection 705-147(3) |5.173 |
|Item 48 |5.174 |
|Item 49, subsection 705-227(3) |5.177 |
|Item 50, the definition of 'deferred |5.166 |
|roll-over gain' in subsection 995-1(1) | |
|Item 50, paragraphs (a) and (b) of the |5.165 |
|definition of 'deferred roll-over gain' in | |
|subsection 995-1(1) | |
|Item 51, the definition of 'deferred |5.168 |
|roll-over loss' in subsection 995-1(1) | |
|Item 51, paragraph (b) of the definition of |5.170 |
|'stick entity' in subsection 995-1(1) | |
|Item 51, paragraphs (a) and (b) of the |5.167 |
|definition of 'deferred roll-over loss' in | |
|subsection 995-1(1) | |
|Item 52, the definition of 'spread entity' |5.171 |
|in subsection 995-1(1) | |
|Item 53, paragraph (a) of the definition of |5.169 |
|'stick entity' in subsection 995-1(1) | |
|Item 55 |5.178 |
|Item 56, paragraph 705-50(2)(b) |5.183 |
|Item 57 |5.185 |
|Items 58 to 77, sections 705-50, 705-55, |5.184 |
|705-57, 705-59, 705-190, 713-225, 713-230, | |
|715-900, 716-330, 716-340 and the | |
|definitions of 'over-depreciated' and | |
|'over-depreciation' in subsection 995-1(1) | |
|of the ITAA 1997 and sections 126-165, | |
|701-40 and 705-305 of the Income Tax | |
|(Transitional Provisions) Act 1997 | |
|Item 78 |5.187, 5.484 |
|Items 79 to 86, sections 711-20, 711-25, |5.194 |
|711-45 and 713-265 | |
|Item 87 |5.195, 5.196 |
|Items 87, 89, 113, and 117 |5.490 |
|Item 88, paragraph 711-45(8)(a) |5.202 |
|Item 88, paragraph 711-45(8)(b) |5.204 |
|Item 88, paragraph 711-45(8)(c) |5.205 |
|Item 88, paragraph 711-45(8)(d) |5.211, 5.212 |
|Item 88, subsection 711-45(9) |5.207 |
|Item 88, subsection 711-45(10) |5.214 |
|Item 89 |5.215 |
|Item 90, subsection 701-40(2) |5.237 |
|Items 91 to 93, 100 and 101, |5.231 |
|subsections 705-56(1), 705-58(1), 705-59(2),| |
|and 705-90(2) | |
|Items 94, 95, 98 and 99, |5.229 |
|subsections 705-70(1), 705-80(1) and | |
|705-85(3) | |
|Item 96, subsection 705-70(1A) |5.230 |
|Items 97 and 112, subsection 705-70(3) and |5.226 |
|the definition of 'accounting principles for| |
|tax cost setting' in subsection 995-1(1) | |
|Items 102 to 106, subsections 711-45(1), |5.236 |
|711-45(5) and 711-45(7) | |
|Items 104 and 112, subsection 711-45(1A) and|5.233 |
|the definition of 'accounting principles for| |
|tax cost setting' in subsection 995-1(1) | |
|Items 107 to 110, subsections 713-225(6) and|5.239 |
|713-265(4) | |
|Item 111, the definition of 'accounting |5.224 |
|principles' in subsection 995-1(1) | |
|Item 113 |5.240 |
|Item 114, subsection 705-115(3) |5.244 |
|Item 115, subsection 711-35(1) |5.246 |
|Item 116, subsection 711-35(3) |5.247 |
|Item 117 |5.248, 5.250 |
|Item 118, subsections 713-725(1) and (4) |5.255 |
|Item 118, subsection 713-725(2) |5.256 |
|Item 118, subsection 713-725(3) |5.257 |
|Item 119 |5.258 |
|Item 120, subsection 705-25(2) |5.264 |
|Item 121, paragraph 705-25(5)(ba) |5.263 |
|Item 122, the definition of 'cash management|5.265 |
|trust' in subsection 995-1(1) | |
|Item 123, subsection 705-25(4B) |5.275 |
|Items 124 and 125, paragraph 705-25(5)(d) |5.272 |
|Item 126 |5.266, 5.267, |
| |5.277 |
|Items 127, 129 and 130, sections 104-5 and |5.287 |
|110-10 of the ITAA 1997 and section 701-34 | |
|of the Income Tax (Transitional Provisions) | |
|Act 1997 | |
|Item 128 |5.286 |
|Item 131 |5.288, 5.290 |
|Item 132, subsection 705-27(1) |5.294, 5.295 |
|Item 132, subsection 705-27(2) |5.297, 5.298 |
|Item 132, paragraph 705-27(3)(a) |5.300 |
|Item 132, paragraphs 705-27(3)(b) and (c) |5.301 |
|Item 132, subsections 705-27(4) and (5) |5.302 |
|Item 133, paragraph 705-35(1)(b) |5.304 |
|Item 134 |5.305, 5.306 |
|Item 135, paragraph 110-35(10)(a) |5.312 |
|Item 136 |5.313, 5.475 |
|Items 137 and 138, subsection 701-30(1) of |5.317 |
|the Income Tax (Transitional Provisions) Act| |
|1997 | |
|Item 139 |5.319 |
|Item 140 |5.322, 5.323 |
|Item 141, subsections 165-115X(2A) and (2B) |5.334 |
|Item 141, subsection 165-115X(2C) |5.335 |
|Items 142 and 143, subsections 165-115X(3A) |5.336 |
|and (4) | |
|Item 144, subsections 165-115Y(3A) and (3B) |5.337 |
|Item 144, subsection 165-115Y(3C) |5.338 |
|Items 145 and 146, subsections 165-115Y(4A) |5.339 |
|and (5) | |
|Items 147 to 150, paragraph 715-255(1)(ba), |5.341 |
|subsections 715-255(1A), 715-270(5) and (5A)| |
|Item 151, subsections 719-740(1) and (3) |5.345 |
|Item 151, subsection 719-740(2) |5.346 |
|Item 152 |5.347 |
|Item 153, subsections 716-860(1) and (3) |5.354 |
|Item 153, subsections 716-860(2) and (3) |5.355 |
|Item 154 |5.357 |
|Item 155, subsection 703-50(1) |5.369 |
|Items 156 and 159, subsections 703-50(1) |5.372 |
|and 703-58(1) | |
|Item 157, subsection 703-50(3) |5.370 |
|Items 158, 189 to 191, subsections 703-50(5)|5.375 |
|and (6) of the ITAA 1997 and paragraphs | |
|701-5(2)(a) and 701D-15(3)(a) of the Income | |
|Tax (Transitional Provisions) Act 1997, | |
|paragraph 45-885(1)(e) of the TAA 1953 | |
|Item 159, subsection 703-58(2) |5.373 |
|Item 160, subsection 703-60(2) |5.378 |
|Items 161 and 162, subsections 703-60(2) |5.379 |
|and (2A) | |
|Items 163 and 164, subsection 703-60(3) |5.380 |
|Items 165 and 166, subsections 703-60(3) |5.381 |
|and (4) | |
|Item 167, paragraph 719-5(4)(c) |5.405 |
|Items 167 and 171, paragraph 719-5(4)(c) and|5.407 |
|subsections 719-5(6) and (6A) | |
|Item 168, paragraph 719-5(4)(d) |5.406 |
|Item 169, paragraph 719-5(4)(f) |5.408 |
|Items 170 and 183, section 719-40 and |5.411 |
|subsections 719-77(1) and (2) | |
|Item 172, subsection 719-50(1) |5.382 |
|Items 172 and 173, paragraph 719-40(1)(e) |5.398 |
|Items 172 and 176, paragraph 719-40(1)(e) |5.400 |
|and subsection 719-40(2) | |
|Item 174, paragraph 719-40(1)(f) |5.399 |
|Items 175 and 183, subsections 719-40(1), |5.402 |
|719-78(1) and (2) | |
|Items 177 and 183, subsections 719-50(1), |5.387 |
|719-76(1) and (2) | |
|Item 178, subsections 719-50(3) and (3A) |5.383 |
|Items 179, 180 and 192, |5.390 |
|paragraph 719-50(4)(b) and section 719-55 of| |
|the ITAA 1997, section 45-935 of the TAA | |
|1953 | |
|Item 180, section 719-55 |5.384 |
|Items 181 and 182, subsections 719-60(1) and|5.418 |
|(3) | |
|Item 183, subsection 719-76(3) |5.388 |
|Item 183, subsection 719-77(3) |5.412 |
|Item 183, subsection 719-78(3) |5.403 |
|Item 183, subsections 719-79(1) and (2) |5.421 |
|Item 183, subsection 719-79(3) |5.422 |
|Item 184, paragraph 719-80(2)(a) |5.393 |
|Items 185 and 188, paragraph 719-80(2)(a) |5.394 |
|and subsection 719-80(3) | |
|Item 186, paragraph 719-80(2)(b) |5.395 |
|Items 187 and 188, paragraph 719-80(2)(b) |5.396 |
|and subsection 719-80(3) | |
|Item 193 |5.424 |
|Items 194 and 198 to 201, |5.436 |
|subsections 713-510A(1) and (3) | |
|Item 194, subsection 713-510A(2) |5.437 |
|Items 195 and 196 |5.440 |
|Item 197 |5.441 |
|Items 198 to 201, subsection 713-510A(3) |5.439 |
|Item 202 |5.443 |
|Item 203, subsection 705-65(6) |5.455 |
|Items 204 and 206 to 212, |5.460 |
|subsections 705-85(3), 705-145(5), | |
|705-195(1) and (2), 705-200(1) and (3) and | |
|705-225(5) | |
|Item 205, paragraph 705-85(3)(a) |5.458 |
|Item 213, subsection 711-15(2) |5.463 |
|Item 215, subsection 711-45(6B) |5.466 |
|Items 216 to 218, subsections 715-50(6), |5.468 |
|715-255(6) and 715-270(6) | |
|Item 219, definition of 'non-membership |5.450, 5.451 |
|equity interest' in subsection 995-1(1) | |
|Item 220 |5.469, 5.470 |
|Section 4 |5.492 |
Schedule 6: Miscellaneous amendments
|Bill reference |Paragraph |
| |number |
|Item 1, subsections 118-147(3) and (4) |Table 6.1 |
|Items 1 and 3 to 5, paragraphs 118-150(3)(a)|Table 6.1 |
|and 118-200(4)(b) and subsections 118-145(3)| |
|and 118-190(3A) | |
|Item 2, subsections 118-147(1) and (2) |Table 6.1 |
|Item 2, paragraph 118-147(1)(d) |Table 6.1 |
|Item 2, subsection 118-147(2) |Table 6.1 |
|Item 2, subsection 118-147(5) |Table 6.1 |
|Item 2, paragraph 118-147(6)(a) and |Table 6.1 |
|subsections 118-147(2) and (7) | |
|Item 2, paragraphs 118-147(6)(b) to (d) |Table 6.1 |
|Item 6 |Table 6.1 |
|Item 7, paragraph 152-310(2)(a) |Table 6.2 |
|Item 8 |Table 6.2 |
|Items 9 to 11, item headed 'small business |Table 6.2 |
|retirement exemption' in the table in | |
|section 11-15, section 11-55 and items | |
|headed 'capital gains tax' in the table in | |
|section 12-5 | |
|Item 12, Division 340 (heading) in Schedule |Table 6.3 |
|1 | |
|Item 13, Division 342 in Schedule 1 |Table 6.3 |
|Item 13, subsection 342-10(1) in Schedule 1 |Table 6.3 |
|Item 13, subsections 342-10(2) and (3) |Table 6.3 |
|Item 14 |Table 6.3 |
|Items 15 to 43, section 195-1 of the A New |Table 6.4 |
|Tax System (Goods and Services Tax) Act | |
|1999, section 135M of the Fringe Benefits | |
|Tax Assessment Act 1986, subsection 82A(2) | |
|(paragraphs (a), (ab), and (b) of the | |
|definition of 'expenses of self-education') | |
|of the ITAA 1936, paragraphs 26-20(1)(a) to | |
|(c), subsection 30-25(1) (cell at table item| |
|2.1.3, column headed 'Fund, authority or | |
|institution'), subsection 30-25(1) (cell at | |
|table item 2.1.6, column headed 'Fund, | |
|authority or institution'), subparagraphs | |
|52-132(a)(x) and 52-140(3)(a)(x) of the ITAA| |
|1997, section 8AAZA, paragraph 8AAZLD(aa), | |
|paragraphs 11-1(c), 15-50(1)(b) | |
|and 45-5(1)(c) in Schedule 1, section 45-340| |
|in Schedule 1 (method statement, step 3) and| |
|section 45-375 in Schedule 1 (method | |
|statement, step 3) of the TAA 1953, | |
|subsection 3(1) (definition of 'HEC | |
|assessment debt'), item 40 in the table in | |
|section 3C, subparagraph 8A(1)(a)(ii), | |
|paragraph 8A(2)(b), | |
|subparagraphs 8E(1)(d)(iii) and (2)(d)(iii) | |
|and sub-subparagraph 12A(1)(a)(iv)(B) and | |
|paragraph 12A(2)(b) of the Taxation | |
|(Interest on Overpayments and Early | |
|Payments) Act 1983 | |
|Items 23 and 26 |Table 6.4 |
|Items 44 to 52, item 8 in the table in |Table 6.5 |
|subsection 10-5(1) in Schedule 1, item 2 in | |
|the table in subsection 12-5(2) in | |
|Schedule 1, section 12-C (heading) in | |
|Schedule 1, section 12-85 (heading) in | |
|Schedule 1, subsection 12-85(b) in Schedule | |
|1, section 16-165 (heading) in Schedule 1, | |
|paragraph 16-165(2)(b) in Schedule 1, | |
|subparagraph 18-65(3)(d)(ii) in Schedule 1, | |
|section 90-1 (note) in Schedule 1 to the TAA| |
|1953 | |
|Item 53 |Table 6.5 |
|Items 54 and 55, subsection 4(1) (note at |Table 6.5 |
|the end of the definition of 'work and | |
|income support related withholding | |
|payments') in the Child Support | |
|(Registration and Collection) Act 1988, and | |
|subsection 6(1) (note at the end of the | |
|definition of 'work and income support | |
|related withholding payments and benefits') | |
|of the ITAA 1936 | |
|Items 56 and 57, subsection 28-185(3) (cell |Table 6.5 |
|at table item 5, column headed 'Subject | |
|matter') and subsection 900-12(3) (cell at | |
|table item 5, column headed 'Subject | |
|matter') of the ITAA 1997 | |
|Items 58, 59 and 62 to 65, paragraphs |6.15 |
|284-75(2)(a) and (b), subsection 284-75(1) | |
|and section 284-25 | |
|Items 60, 61, 66, 67, 70 and 72, paragraphs |6.14 |
|274-75(1)(b) and (c) and (2)(c), subsection | |
|284-75(4) and items 1 to 4 in the table in | |
|subsection 284-90(1) | |
|Item 67, subsection 284-75(5) |6.28 |
|Items 67, 79 and 88, subsection 284-225(5) |6.27 |
|and sections 284-215 and 284-224 | |
|Items 68, 69, 73, 76 to 78 and 95 to 97, |6.29 |
|subsections 284-80(1) (note), 284-90(1), | |
|284-150(2) (note) and 361-5(1) (notes) and | |
|(3) and section 284-160 | |
|Item 71, items 3A to 3C in the table in |6.16 |
|subsection 284-90(1) | |
|Item 74, subsection 284-90(2) |6.17 |
|Item 75, section 284-95 |6.25 |
|Items 80 to 87, 89 to 93 and 98, subsections|6.30 |
|284-220(1) and 284-225(1), (2), (4A) and (5)| |
|and section 284-225 (heading) in Schedule 1 | |
|to the TAA 1953 and paragraph 35(1)(b) of | |
|the Product Grants and Benefits | |
|Administration Act 2000 | |
|Items 83 to 87, paragraphs 284-220(1)(c) |6.22 |
|to (e) | |
|Item 91, subsection 284-225(4A) |6.23 |
|Item 94, section 288-85, Division 288 |6.31 |
|Items 99 and 100, subsection 39(1B) and |6.32 |
|section 38A (subparagraph (ab)(i) of the | |
|definition of 'regulatory provision') of the| |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 101 and item 2 in the table in clause 2|6.35 |
|Items 102 to 105, subsections 284-75(1A), |6.34 |
|(1B), (5) (heading), (6) and (7), and item 3| |
|in the table in clause 2 | |
|Items 106, 107 and section 7A and paragraphs|Table 6.6 |
|8(1)(a) and 9(a) of Schedule 2 | |
|Item 108, subsection 267(1) |Table 6.7 |
|Item 109, section 9-20 |Table 6.8 |
|Items 110 and 111, section 363-35 in |Table 6.9 |
|Schedule 1 and | |
|subparagraphs 426-165(1)(b)(a) and (b) in | |
|Schedule 1 | |
|Items 112 and 113, items 132 and 133 of |Table 6.10 |
|Schedule 5 | |
|Item 114, subsection 6(1) |Table 6.11 |
|Item 115, subsection 116-30(1) |Table 6.12 |
|Item 116, subsection 16-150(1) in Schedule 1|Table 6.13 |
|Item 117, section 195-1 |Table 6.14 |
|Items 118 and 120, subsection 6(1), item |Table 6.15 |
|126, subsection 45B(10) | |
|Item 119 |Table 6.15 |
|Item 124, subsection 45B(9) |Table 6.15 |
|Item 125, subsection 45B(9) |Table 6.15 |
|Items 127 and 128, item headed 'family tax |Table 6.16 |
|benefit' in the table in section 12-5 and | |
|section 25-7 | |
|Items 129 and 133, subsection 67-25(7) and |Table 6.16 |
|item 12 in the table in section 67-23 | |
|Items 130 and 134 |Table 6.16 |
|Item 131, item 23 in the table in |Table 6.16 |
|section 67-23 | |
|Item 132 |Table 6.16 |
|Items 135, 136, 139 to 145, section 115-32, |Table 6.16 |
|subsections 115 45(4) and 115-45(6) | |
|Item 136, section 115-32 |Table 6.16 |
|Items 137 and 138, section 112-97 |Table 6.16 |
|Item 142, section 115-34 |Table 6.16 |
|Item 146 |Table 6.16 |
|Item 147, subsection 152-320(1) (note) |Table 6.16 |
|Item 148, paragraph 974-110(1)(b) |Table 6.16 |
|Item 149 |Table 6.16 |
|Items 150, 151, 154 and 155, subsection |Table 6.16 |
|995-1(1) (definitions of 'common stake', | |
|'common stakeholder', 'significant stake' | |
|and 'significant stakeholder') | |
|Items 152 and 153 |Table 6.16 |
|Item 156 |Table 6.17 |
|Item 157, subsection 770-230(5) |Table 6.17 |
|Item 158 |Table 6.17 |
|Item 159, paragraph 45-288(a) in Schedule 1 |Table 6.18 |
|Item 160 |Table 6.18 |
|Section 115-34, subsections 115-45(4) |Table 6.16 |
|and (6) | |