New Business Tax System (Integrity and Other Measures) Act 1999 (Cth)

New Business Tax System (Integrity and Other Measures) Act 1999

Act No. 169 of 1999 as amended

This compilation was prepared on 20 August 2001

[This Act was amended by Act No. 89 of 2000 and

Act No. 78 of 2001]

Amendments from Act No. 89 of 2000

[Schedule 8 (item 9) amended Schedule 7 (Division 2 of Part 1) (heading))

Schedule 8 (item 10) amended Schedule 7 (subitem 12(2))

For saving provisions see Schedule 8 (item 11)

Schedule 8 (items 9–11) commenced on 30 June 2000]

Amendment from Act No. 78 of 2001

[Schedule 3 (item 14) repealed and substituted Schedule 7 (item 9) (note)

For saving provision see Schedule 3 (item 15)

Schedule 3 (item 14) commences on 22 September 2002

Schedule 3 (item 15) commenced on 30 June 2001]

Prepared by the Office of Legislative Drafting,

Attorney-General’s Department, Canberra

Contents

An Act to implement the New Business Tax System by amending the law relating to taxation, and for related purposes

1Short title

This Act may be cited as the New Business Tax System (Integrity and Other Measures) Act 1999.

2Commencement

(1)
Subject to this section, this Act commences on the day on which it receives the Royal Assent.
(2)
Schedule 5 is taken to have commenced on 22 February 1999.
(3)
Schedule 7 (except Division 2 of Part 1) commences on the later of the following days (or on either of them if they are the same):
(a)
the day on which this Act receives the Royal Assent;
(b)
the day on which Subdivision 960‑Q of the Income Tax Assessment Act 1997 commences.
(4)
Division 2 of Part 1 of Schedule 7 commences on 22 September 2002.
(5)
The amendment of subsection 6AD(4) of the Income Tax Assessment Act 1936 made by Schedule 9 commences immediately after the start of the day on which the A New Tax System (Tax Administration) Act 1999 receives the Royal Assent if that day is on or after the day on which this Act receives the Royal Assent.

3Schedule(s)

Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

Schedule 1Disposal of leases and leased plant

Income Tax Assessment Act 1997

Section 9‑1 (after table item 2)

Insert:

A company that was a member of a wholly‑owned group if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment

section 45‑25

Subsection 9‑5(1) (before item 1A)

Insert:

1AA

A company that was a member of a wholly‑owned group is jointly and severally liable to pay an amount of income tax if a former subsidiary in the group is treated as having disposed of leased plant and does not pay all of the income tax resulting from that treatment.

section 45‑25

Section 10‑5 (table item headed “depreciation”)

Repeal the item, substitute:

depreciation
..... excess of termination value over written down value
generally....................................................................................	42‑190, 42‑192
for some cars............................................................................	42‑240
..... leased plant or lease, disposal of................................................	45‑5
..... leasing entity, disposal of............................................................	45‑15, 45‑20
..... partnership interest, disposal of..................................................	45‑10

4
Section 10‑5 (at the end of the table item headed “leases”)
Add:

see also depreciation

Section 12‑5 (table item headed “depreciation”)

Repeal the item, substitute:

depreciation
..... generally	Division 42
..... balancing adjustments on disposal
generally....................................................................................	Subdivision 42‑F
for some cars............................................................................	Subdivision 42‑G
..... calculation of..................................................................................	Subdivision 42‑E
..... cars, limit on cost..........................................................................	42‑80
..... deduction for..................................................................................	42‑15
..... IRUs.................................................................................................	Division 44
..... leasing entity, disposal of............................................................	45‑15, 45‑20
..... reducing deductions......................................................................	42‑170
..... roll‑over relief, unpooled property.............................................	Subdivision 41‑A
..... trading ships, special depreciation.............................................	57AM

6
Section 12‑5 (at the end of the table item headed “leases”)
Add:

see also depreciation

Subsection 41‑40(1)

Omit “2 ways”, substitute “3 ways”.

At the end of section 41‑40

Add:
Transferee taken to have inherited certain other characteristics for the purposes of Division 45
(4)
Third, for the purposes of Division 45:
(a)
if the transferor, or a partnership of which the transferor was a member, leased the property to another entity for most of the time that the transferor or partnership owned or was the *quasi‑owner of the property, the transferee is taken also to have done so; and
(b)
if the transferor, or a partnership of which the transferor was a member, leased the property to another entity for a period on or after 22 February 1999, the transferee is taken also to have done so; and
(c)
if the main *business of the transferor, or a partnership of which the transferor was a member, was to lease assets, the main business of the transferee is taken also to have been to lease assets.
(5)
However, subsection (4) does not apply to roll‑over relief under this Common rule because of section 41‑23 if the sum of the amounts specified in paragraph 45‑5(1)(e) or 45‑10(1)(f), or subsection 45‑5(4) or 45‑10(4), is at least equal to the market value of the *plant or interest concerned.
Note: There is an additional rule for disposals between 22 February 1999 and 21 September 1999: see Division 41 of the Income Tax (Transitional Provisions) Act 1997.

Subsection 42‑205(1) (after table item 12)

Insert:

12A

that you are taken to have disposed of under section 45‑15

the market value of the *plant

At the end of subsection 42‑285(1)

Add:
Note: Offsetting under this section is not available for a company when it is treated as if it had disposed of plant under Division 45.

At the end of subsection 42‑290(1)

Add:
Note: Offsetting under this section is not available for a company when it is treated as if it had disposed of plant under Division 45.

Before Division 46

Insert:

Division 45—Disposal of leases and leased plant

Guide to Division 45

45‑1

What this Division is about

This Division is designed to prevent tax being avoided through:
(a)
the disposal of leased plant, or an interest in leased plant; or
(b)
the disposal of a partnership interest in a partnership that leased plant; or
(c)
the disposal of shares in a 100% subsidiary that leased plant;
where amounts have been deducted for depreciation of the plant.
It includes amounts in assessable income. Any benefit received, and any reduction in a liability, is taken into account in calculating the amounts included.
Where the disposal of shares in a 100% subsidiary is involved, the companies in the former wholly‑owned group may be made jointly and severally liable for tax that the former subsidiary does not pay.

Table of sections

45‑5 Disposal of leased plant or lease
45‑10 Disposal of interest in partnership
45‑15 Disposal of shares in 100% subsidiary that leases plant
45‑20 Disposal of shares in 100% subsidiary that leases plant in partnership
45‑25 Group members liable to pay outstanding tax
45‑30 Reduction for certain plant acquired before 21.9.99
45‑35 Limit on amount included for plant for which there is a CGT exemption
[This is the end of the Guide.]

Operative provisions

45‑5

Disposal of leased plant or lease

(1)
An amount is included in your assessable income if:
(a)
you have deducted or can deduct an amount for depreciation of *plant; and
(b)
for most of the time when you owned or were the *quasi‑owner of the plant, you leased it to another entity; and
(c)
all or part of the lease period occurred on or after 22 February 1999; and
(d)
on or after that day, you dispose of the plant or an interest in the plant, and that disposal constitutes a *balancing adjustment event; and
(e)
the sum of the following amounts is more than the plant’s *written down value or of that part of it that is attributable to that interest:
(i)
the money you receive or are entitled to receive for the disposal;
(ii)
the amount of any reduction in a liability of yours as a result of the disposal;
(iii)
the market value of any other benefit you receive or are entitled to receive as a result of the disposal.
(2)
The amount included is the excess referred to in paragraph (1)(e). It is included for the income year in which the disposal occurred.
Example: Sean owns a leased asset. The asset has a written down value of $20,000. He has an outstanding loan for the asset of $60,000.
Sean sells a 50% interest in the asset to Leprechaun Pty Ltd for $40,000. Leprechaun agrees to take over 50% of Sean’s obligation to make debt service payments.
The excess referred to in paragraph 45‑5(1)(e) is:
That amount is included in Sean’s assessable income.
This amount would be reduced if part of it is included in Sean’s assessable income under another provision (see subsection 45‑5(5)).
Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45‑30.
Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45‑35.
(3)
An amount is also included in your assessable income if:
(a)
you have deducted or can deduct an amount for depreciation of *plant; and
(b)
for most of the time when you owned or were the *quasi‑owner of the plant, you leased it to another entity; and
(c)
all or part of the lease period occurred on or after 22 February 1999; and
(d)
on or after that day, you dispose of:
(i)
your interest in the plant, or part of it; or
(ii)
a right under, or an interest in, the lease;
and that disposal does not constitute a *balancing adjustment event.
(4)
The amount included is the sum of the following amounts:
(a)
the money you receive or are entitled to receive for the disposal;
(b)
the amount of any reduction in a liability of yours as a result of the disposal;
(c)
the market value of any other benefit you receive or are entitled to receive as a result of the disposal;
It is included for the income year in which the disposal occurred.
(5)
However, an amount is not included in your assessable income under this section to the extent that:
(a)
it is included in that assessable income under a provision of this Act outside this Division; or
(b)
you apply it under section 42‑285, 42‑290 or 42‑293 (about offsetting balancing charges); or
(c)
roll‑over relief is available for the disposal under section 41‑20.
Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.

45‑10

Disposal of interest in partnership

(1)
An amount is included in your assessable income if:
(a)
a partnership of which you are (or were) a member has deducted or can deduct an amount for depreciation of *plant; and
(b)
the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and
(c)
for most of the time when the partnership owned or was the *quasi‑owner of the plant, it leased it to another entity; and
(d)
all or part of the lease period occurred on or after 22 February 1999; and
(e)
on or after that day, you dispose of your interest in the plant, or part of it, and that disposal constitutes a *balancing adjustment event; and
(f)
the sum of the following amounts is more than that part of the plant’s *written down value that is attributable to that interest:
(i)
the money you receive or are entitled to receive for the disposal;
(ii)
the amount of any reduction in a liability of yours as a result of the disposal;
(iii)
the market value of any other benefit you receive or are entitled to receive as a result of the disposal.
(2)
The amount included is the excess referred to in paragraph (1)(f). It is included for the income year in which the disposal occurred.
Example: Chris has a 50% share in a partnership formed to lease an asset. The asset has a written down value of $124,000 (of which Chris’ share is $62,000).
Chris assigns his partnership share to another entity for $34,000 plus the other entity agreeing to take over Chris’ obligations to service his share of the partnership debt (which is $165,000). The total consideration is:
The amount assessable under section 45‑10 is the excess referred to in paragraph 45‑10(1)(f), which is:
This amount would be reduced if part of it is included in Chris’ assessable income under another provision (see subsection 45‑10(5)).
Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45‑30.
Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45‑35.
(3)
An amount is also included in your assessable income if:
(a)
a partnership of which you are (or were) a member has deducted or can deduct an amount for depreciation of *plant; and
(b)
the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and
(c)
for most of the time when the partnership owned or was the *quasi‑owner of the plant, it leased it to another entity; and
(d)
all or part of the lease period occurred on or after 22 February 1999; and
(e)
on or after that day, you dispose of:
(i)
your interest in the plant, or part of it; or
(ii)
a right under, or an interest in, the lease;
and that disposal does not constitute a *balancing adjustment event.
(4)
The amount included is the sum of the following amounts:
(a)
the money you receive or are entitled to receive for the disposal;
(b)
the amount of any reduction in a liability of yours as a result of the disposal;
(c)
the market value of any other benefit you receive or are entitled to receive as a result of the disposal.
It is included for the income year in which the disposal occurred.
(5)
However, an amount is not included in your assessable income under this section to the extent that:
(a)
it is included in that assessable income under a provision of this Act outside this Division; or
(b)
you apply it under section 42‑285, 42‑290 or 42‑293 (about offsetting balancing charges).
Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.
45‑15
Disposal of shares in 100% subsidiary that leases plant
(1)
A company (the former subsidiary) is treated as if it had disposed of *plant, received its market value for that disposal and immediately reacquired it for the same amount if:
(a)
the former subsidiary has deducted or can deduct an amount for depreciation of the plant; and
(b)
the former subsidiary was a *100% subsidiary of another company in a *wholly‑owned group at a time when it owned or was the *quasi‑owner of the plant; and
(c)
for most of the time when the former subsidiary owned or was the quasi‑owner of the plant, the plant was leased to another entity; and
(d)
the main *business of the former subsidiary was to lease assets; and
(e)
all or part of the lease period occurred on or after 22 February 1999; and
(f)
on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly‑owned group; and
(g)
the plant’s *written down value at the time of that acquisition is less than its market value at that time.
(2)
However, the former subsidiary is not treated as if it had disposed of *plant and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly‑owned group of which the former subsidiary was a member.
(3)
The disposal and reacquisition of the *plant:
(a)
is taken to have occurred when that direct or indirect beneficial ownership was acquired; and
(b)
is taken not to have affected any lease of the plant.
(4)
Despite sections 42‑285 and 42‑290, offsetting is not available under those sections for the disposal referred to in this section.
45‑20
Disposal of shares in 100% subsidiary that leases plant in partnership
(1)
A company (also the former subsidiary) is treated as if it had disposed of its interest in *plant, received its market value for that disposal and immediately reacquired it for the same amount if:
(a)
a partnership of which the former subsidiary is (or was) a member has deducted or can deduct an amount for depreciation of the plant; and
(b)
the former subsidiary was a *100% subsidiary of another company in a *wholly‑owned group at a time when:
(i)
it was a member of that partnership; and
(ii)
the partnership owned or was the *quasi‑owner of the plant; and
(c)
for most of the time when the partnership owned or was the quasi‑owner of the plant, the plant was leased to another entity; and
(d)
the main *business of the partnership was to lease assets; and
(e)
all or part of the lease period occurred on or after 22 February 1999; and
(f)
on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly‑owned group; and
(g)
the plant’s *written down value at the time of that acquisition is less than its market value at that time.
(2)
However, the former subsidiary is not treated as if it had disposed of the interest and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly‑owned group of which the former subsidiary was a member.
(3)
The disposal and reacquisition of the interest:
(a)
is taken to have occurred when that direct or indirect beneficial ownership was acquired; and
(b)
is taken not to have affected any lease of the plant.
(4)
Despite sections 42‑285 and 42‑290, offsetting is not available under those sections for the disposal referred to in this section.

45‑25

Group members liable to pay outstanding tax

(1)
The consequences specified in subsection (2) apply if:
(a)
an amount is included in the former subsidiary’s assessable income for an income year because of section 45‑15 or 45‑20; and
(b)
the former subsidiary is liable to pay an amount of income tax for that income year; and
(c)
the former subsidiary does not pay all of that income tax within 6 months after it became payable.
(2)
The consequences are that:
(a)
the former subsidiary remains liable to pay the outstanding amount of income tax (reduced by any payments of tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999); and
(b)
each company that was, just before the time when the direct or indirect beneficial ownership referred to in paragraph 45‑15(1)(f) or 45‑20(1)(f) was acquired, a member of the former subsidiary’s former *wholly‑owned group, is jointly and severally liable to pay tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999.
45‑30
Reduction for certain plant acquired before 21.9.99
(1)
The amount included in your assessable income under subsection 45‑5(2) or 45‑10(2) is reduced if:
(a)
you acquired the *plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and you disposed of the plant or an interest in it after that time; and
(b)
the sum of the amounts (your proceeds) referred to in paragraph 45‑5(1)(e) or 45‑10(1)(f) is more than the plant’s *cost, or that part of it that is attributable to the interest you disposed of.

(2)
The amount included is reduced by the lesser of:
(a)
the amount (if any) by which the *plant’s *cost base exceeds its *cost, or that part of the excess that is attributable to the interest you disposed of; and
(b)
the difference between your proceeds and the plant’s cost, or that part of its cost that is attributable to the interest you disposed of.
(3)
However, the amount is not reduced under this section if:
(a)
the *plant was a *pre‑CGT asset at the time of the *balancing adjustment event; or
(b)
a *capital gain or *capital loss from the plant or interest would be disregarded because of a provision listed in the table in this subsection if:
(i)
you had made the gain or loss from *CGT event A1; and
(ii)
that CGT event had happened at the time of the balancing adjustment event.

Plant for which a reduction is not made under this section
Item	Provision	Subject matter
1	section 118‑5	cars, motor cycles and valour decorations
2	section 118‑10	collectables and personal use assets
3	section 118‑12	plant used to produce exempt income

45‑35
Limit on amount included for plant for which there is a CGT exemption
(1)
For *plant to which subsection 45‑30(3) applies there is a limit on the amount that can be included in your assessable income under subsection 45‑5(2) or 45‑10(2).
(2)
The limit for subsection 45‑5(2) is the lesser of:
(a)
the excess referred to in paragraph 45‑5(1)(e); and
(b)
the amounts you have deducted or can deduct for depreciation of the *plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest.
(3)
The limit for subsection 45‑10(2) is the lesser of:
(a)
the excess referred to in paragraph 45‑10(1)(f); and
(b)
that part of the amounts the partnership has deducted or can deduct for depreciation of the *plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest.

Subsection 58‑85(6)

Omit “section 42‑200”, substitute “sections 42‑200, 45‑5 and 45‑10”.

Income Tax (Transitional Provisions) Act 1997

Before Division 42 (link note)

Omit “42”, substitute “41”.

Before Division 42

Insert:

Division 41—Common rules for capital allowances

Subdivision 41‑A—Common rule 1 (Roll‑over relief for related entities)

Table of sections

41‑40 Application of section 41‑40 to disposals between February 1999 and September 1999
41‑40
Application of section 41‑40 to disposals between February 1999 and September 1999
In applying Division 45 of the Income Tax Assessment Act 1997 to disposals of plant or interests in plant on or after 22 February 1999 and before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, section 41‑40 of that Act applies as if this provision were added at the end of subsection 41‑40(4):
and (d)
if the transferor was a member of a partnership that has deducted or could deduct an amount for depreciation of the property, the amount representing the extent to which the deductions have been or would be reflected in the transferor’s interest in the partnership net income or partnership loss is taken to be an amount deducted by the transferee for depreciation of the property.

Section 43‑110 (link note)

Repeal the link note.

After Division 43

Insert:

Division 45—Disposal of leases and leased plant

Table of sections

45‑1 Application of Division 45 of the Income Tax Assessment Act 1997
45‑3 Application of Division 45 to disposals between February 1999 and September 1999
45‑40 Application of Division to plant formerly owned by exempt entities
45‑1
Application of Division 45 of the Income Tax Assessment Act 1997
Division 45 of the Income Tax Assessment Act 1997 applies to assessments for the income year in which 22 February 1999 occurs and later income years.
45‑3
Application of Division 45 to disposals between February 1999 and September 1999
(1)
For disposals of plant or interests in plant on or after 22 February 1999 and before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, Division 45 of the Income Tax Assessment Act 1997 applies with the modifications specified in this section.
(2)
That Division applies as if subsection 45‑5(2) were replaced by this provision:
(2)
The amount included is the lesser of:
(a)
the excess referred to in paragraph (1)(e); and
(b)
the amounts you have deducted or can deduct for depreciation of the plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest.
It is included for the income year in which the disposal occurred.
(3)
That Division applies as if paragraph 45‑5(5)(a) were replaced by this provision:
(a)
it is included in that assessable income under a provision of this Act outside this Division and Parts 3‑1 and 3‑3 (about capital gains and losses); or
(4)
That Division applies as if subsection 45‑10(2) were replaced by this provision:
(2)
The amount included is the lesser of:
(a)
the excess referred to in paragraph (1)(f); and
(b)
that part of the amounts the partnership has deducted or can deduct for depreciation of the plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest.
It is included for the income year in which the disposal occurred.
(5)
That Division applies as if paragraph 45‑10(5)(a) were replaced by this provision:
(a)
it is included in that assessable income under a provision of this Act outside this Division and Parts 3‑1 and 3‑3 (about capital gains and losses); or
(6)
That Division applies as if this section were added at the end of that Division:
45‑40
Application of Division to plant formerly owned by exempt entities
(1)
There are the consequences set out in this table for a transition entity that disposes of the plant, interest in plant or interest (or part) in a partnership to an entity specified in subsection (3).

Consequences for transition entities
Item	In this situation:	There are these consequences:
1	The entity chooses, under section 58‑20, that depreciation deductions and balancing adjustments are to be calculated by reference to the notional written down value of plant	(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑85(8)(a); and (b) section 45‑10 has effect as if paragraph 45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑85(8)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.
2	The entity chooses, under section 58‑20, that depreciation deductions and balancing adjustments are to be calculated by reference to the undeducted pre‑existing audited book value of plant	(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑145(8)(a); and (b) section 45‑10 has effect as if paragraph 45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑145(8)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.

(2)
There are the consequences set out in this table for an entity that:
(a)
acquired the plant from a tax exempt vendor in connection with the acquisition of a business; and
(b)
disposes of the plant, interest in plant or interest (or part) in a partnership to an entity specified in subsection (3).

Consequences for transition entities
Item	In this situation:	There are these consequences:
1	The entity chooses, under section 58‑155, that depreciation deductions and balancing adjustments are to be calculated by reference to the notional written down value of plant	(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑215(3)(a); and (b) section 45‑10 has effect as if paragraph 45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑215(3)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.
2	The entity chooses, under section 58‑155, that depreciation deductions and balancing adjustments are to be calculated by reference to the undeducted pre‑existing audited book value of plant	(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑270(3)(a); and (b) section 45‑10 has effect as if paragraph 45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑270(3)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.

(3)
The entities are:
(a)
an exempt entity; or
(b)
the trustee of a complying superannuation fund; or
(c)
the trustee of a complying approved deposit fund; or
(d)
the trustee of a pooled superannuation trust; or
(e)
an entity that is not an Australian resident; or
(f)
an entity that is a State/Territory body for the purposes of Division 1AB of Part III of the Income Tax Assessment Act 1936 and whose income is exempt under that Division.
Apportionment
(4)
If the entity concerned disposed of an interest in the plant rather than the plant (for a paragraph 45‑5(2)(b) case), instead of the amount worked out under the table in subsection (1) or (2), the entity uses so much of that amount as is attributable to that interest.
(5)
If the entity concerned disposed of part of its interest in the plant rather than all of it (for a paragraph 45‑10(2)(b) case), instead of the amount worked out under the table in subsection (1) or (2), the entity uses so much of that amount as is attributable to that part of that interest.
[The next Part is Part 2‑15.]

Application of amendments

The amendments made by this Schedule apply to assessments for the income year in which 22 February 1999 occurs and later income years.

Schedule 2Value shifting through debt forgiveness

Income Tax Assessment Act 1997

Subsection 116‑30(1) (note)

Omit “section 138‑30”, substitute “sections 138‑30 and 139‑20”.

At the end of section 138‑15

Add:
Note: Division 139 (about value shifting through debt forgiveness) also provides for cost base adjustments to interests in companies under common ownership.

After Division 138

Insert:
Division 139—Value shifting through debt forgiveness

Guide to Division 139

139‑5

What this Division is about

Companies under common ownership can shift value between themselves by forgiving, or substantially and permanently reducing the value of, debts.
This Division requires adjustments to the cost base of direct and indirect interests in those companies where value has been shifted in that way.
Table of sections
Operative provisions
139‑10 When this Division may affect you
139‑15 Timing of adjustments
139‑20 Market value substitution rule not to apply
139‑25 Reduction in cost base of shares
139‑30 Different calculation in some circumstances
139‑35 Reduction in cost base of loans
139‑40 Different calculation in some circumstances
139‑45 Reduction of cost base of indirect interests in creditor company
139‑50 Compensatory increases in interests in debtor company
[This is the end of the Guide.]

Operative provisions

139‑10

When this Division may affect you

(1)
You may have to make an adjustment under this Division if:
(a)
a company (the debtor company) has an obligation to pay a debt to another company (the creditor company); and
(b)
you have a *share in, a loan to or an indirect interest in the creditor company or a share in or an indirect interest in a share in the debtor company; and
(c)
the conditions in subsection (3) or (4) are satisfied.
Exception
(2)
No adjustment is required if the debtor company is a *100% subsidiary of the creditor company.
Conditions
(3)
The conditions are that:
(a)
*CGT event C2 (the trigger event) happens to the debt or part of it (the surrendered amount) at a time (the forgiveness time) on or after 22 February 1999; and
(b)
the creditor company and debtor company are *under common ownership at the forgiveness time; and
(c)
there is a shift in value from the creditor company to the debtor company as a result of the trigger event because the *capital proceeds the creditor company receives or is entitled to receive from the trigger event are less than the market value of the surrendered amount (at the forgiveness time).
(4)
The conditions are that:
(a)
there is a substantial and permanent reduction in the value of the debt because of something done (also the trigger event) by the creditor company or by both companies at a time (also the forgiveness time) on or after 22 February 1999; and
(b)
the creditor company and debtor company are *under common ownership at the forgiveness time; and
(c)
there is a shift in value from the creditor company to the debtor company as a result of the trigger event because the money, and market value of other property (if any), that the creditor company receives or is entitled to receive for that reduction is less than the amount of the reduction.

139‑15

Timing of adjustments

(1)
All reductions to *cost bases and *reduced cost bases of direct interests in the creditor company are to be made as at the forgiveness time.
(2)
The adjustments to *cost bases and *reduced cost bases of indirect interests in the creditor company, and direct and indirect interests in the debtor company, are to be made as at the time of the *CGT event referred to in section 139‑45 or 139‑50.
139‑20
Market value substitution rule not to apply
In working out the *capital proceeds from a *CGT event (for this Division), disregard section 116‑30 (the market value substitution rule).

139‑25

Reduction in cost base of shares

(1)
If you owned a *share in the creditor company at the forgiveness time, and you *acquired it on or after 20 September 1985, you must reduce its *cost base and *reduced cost base in accordance with this section.
Note: A different calculation may apply in some circumstances: see section 139‑30.
(2)
You must work out the factor (the share reduction factor) obtained by dividing the market value of the *share just before the forgiveness time by the sum of the market values of all the shares in the creditor company (that were acquired on or after 20 September 1985) just before that time.
(3)
Reduce the *cost base and *reduced cost base of the *share in this way:
Method statement
Step 1. Reduce the market value of the surrendered amount (just before the forgiveness time) or the amount of the substantial and permanent reduction in the value of the debt by:
(a)
the *capital proceeds the creditor company receives or is entitled to receive from the trigger event; or
(b)
the money, and market value of other property (if any), that the creditor company receives or is entitled to receive for the substantial and permanent reduction.
Step 2. Multiply the result by the share reduction factor.
Step 3. The result is the maximum reduction amount.
Step 4. Reduce the *cost base and *reduced cost base of the *share to the extent possible by the maximum reduction amount.
139‑30
Different calculation in some circumstances
(1)
However, you do not make a reduction for a *share under section 139‑25 if:
(a)
at the forgiveness time:
(i)
there were 2 or more classes of shares owned in the creditor company; or
(ii)
you or another entity owned a share in the creditor company that you or the other entity *acquired before 20 September 1985; and
(b)
it would be unreasonable to reduce the *cost base and *reduced cost base of the share by as much as would be the case under that section.
(2)
Instead, you reduce the *cost base and *reduced cost base of the *share by a reasonable amount having regard to:
(a)
the circumstances in which you *acquired the share; and
(b)
the extent by which its market value was reduced by the trigger event.

139‑35

Reduction in cost base of loans

(1)
If you owned a loan to the creditor company at the forgiveness time, and:
(a)
you *acquired it on or after 20 September 1985; and
(b)
either:
(i)
the value of the loan was reduced by the trigger event; or
(ii)
you did not deal at arm’s length with the creditor company in connection with the loan;
you must work out any reduction in its *cost base and *reduced cost base in accordance with this section if:
(c)
the cost base or reduced cost base of one or more *shares in the creditor company is reduced to nil under section 139‑25; or
(d)
no shares in the creditor company were acquired on or after 20 September 1985 and before the forgiveness time; or
(e)
the market value of all shares in the creditor company that were acquired on or after that day is nil just before the forgiveness time.
Note: A different calculation may apply in some circumstances: see section 139‑40.
(2)
You must work out the factor (the loan reduction factor) obtained by dividing the market value of the loan just before the forgiveness time by the sum of the market values of all the loans to the creditor company (that were acquired on or after 20 September 1985) just before that time.
(3)
If:
(a)
there were no *shares in the creditor company on which section 139‑25 could operate; or
(b)
the market value of all shares in the creditor company that were acquired on or after 20 September 1985 is nil just before the forgiveness time;
you reduce the *cost base and *reduced cost base of the loan in the same way as for section 139‑25, except that you use the loan reduction factor rather than the share reduction factor.
(4)
If section 139‑25 has operated to reduce the *cost base of one or more *shares in the creditor company to nil, and the maximum reduction amount exceeded the cost base, multiply the excess by the loan reduction factor. This is done for each share whose cost base is reduced to nil.
(5)
The sum of the amounts is the reduction in the *cost base of the loan.
(6)
If section 139‑25 has operated to reduce the *reduced cost base of one or more *shares in the creditor company to nil, and the maximum reduction amount exceeded the reduced cost base, multiply the excess by the loan reduction factor. This is done for each share whose reduced cost base is reduced to nil.
(7)
The sum of the amounts is the reduction in the *reduced cost base of the loan.
139‑40
Different calculation in some circumstances
(1)
However, you do not reduce the *cost base or *reduced cost base of a loan under section 139‑35 if:
(a)
at the forgiveness time:
(i)
you or another entity owned a *share in the creditor company that you or the entity *acquired before 20 September 1985; or
(ii)
you owned another loan to the creditor company; or
(iii)
another loan to the creditor company was owned by a company that was a member of the same *wholly‑owned group at that time or by an individual referred to in paragraph 138‑15(2)(b) (about the ultimate owners); and
(b)
it would be unreasonable to reduce it by as much as would be the case under that section.
(2)
Instead, you reduce it by a reasonable amount having regard to:
(a)
the circumstances in which you *acquired the loan; and
(b)
the extent by which its market value was reduced by the trigger event.
139‑45
Reduction of cost base of indirect interests in creditor company
(1)
You reduce the *cost base and *reduced cost base of a *CGT asset you own if:
(a)
because of owning the asset, you have an indirect interest (through one or more interposed companies or trusts) in a *share in or a loan to the creditor company; and
(b)
you owned the asset at the forgiveness time; and
(c)
a *CGT event happens in relation to the asset; and
(d)
you *acquired the CGT asset on or after 20 September 1985; and
(e)
an earlier provision of this Division has operated to reduce the cost base or reduced cost base of one or more shares in, or loans to, the creditor company.
(2)
The amount of the reduction is such amount as is reasonable having regard to:
(a)
the reduction in the value of the *CGT asset as a result of the trigger event; and

(b)
for the *cost base—inflation measured by reference to the All Groups Consumer Price Index Number (up to the end of 30 September 1999).
139‑50
Compensatory increases in interests in debtor company
(1)
You increase the *cost base and *reduced cost base of a *CGT asset under this section if:
(a)
the asset is a *share in the debtor company or an asset that gives you an indirect interest in a share in that company (through one or more interposed companies or trusts); and
(b)
you owned the asset at the forgiveness time; and
(c)
an earlier provision of this Division has operated to reduce the cost base or reduced cost base of one or more shares in, or loans to, the creditor company; and
(d)
a *CGT event happens in relation to the asset; and
(e)
you *acquired the CGT asset on or after 20 September 1985.
(2)
The amount of the increase is such amount as is reasonable having regard to:
(a)
the increase in the value of the *CGT asset as a result of the trigger event; and
(b)
the amount of any relevant reductions made under this Division; and
(c)
for the *cost base—inflation measured by reference to the All Groups Consumer Price Index Number (up to the end of 30 September 1999).

Income Tax Assessment Act 1936

Paragraph 245‑85(1)(c) of Schedule 2C

Repeal the paragraph, substitute:
(c)
any amount by which the cost base to the debtor of any asset for CGT purposes has been, or will be, reduced as a result of the forgiveness of the debt under Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997 (except a reduction under Division 139 of that Act).

Application of amendments

The amendments made by this Schedule apply to trigger events that happen on or after 22 February 1999.

Schedule 3Excess deductions

Income Tax Assessment Act 1997

Paragraph 26‑55(2)(b)

Repeal the paragraph.

Paragraph 165‑55(2)(b)

Omit “, if the company has elected that the deductions not be limited by the *available assessable income”.

Paragraphs 165‑55(5)(g) and (h)

Repeal the paragraphs.

After section 330‑330

Insert:

330‑335

Subdivision to stop applying

Sections 330‑300 and 330‑305 do not apply to limit your deductions under Subdivision 300‑A or 300‑C for the 1999‑2000 income year.

330‑340

Treatment of excess deductions

(1)
If you have an amount of excess deductions available for the 1999‑2000 income year because of the operation of sections 330‑300, 330‑305 and 330‑310 for the 1998‑99 income year or an earlier one, that amount becomes, after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, an amount you can deduct unless an event has occurred before that time that has already converted that amount into an amount you can deduct.
(2)
If:
(a)
you have an amount of excess deductions available for the 1999‑2000 income year because of the operation of sections 330‑300, 330‑305 and 330‑310 for the 1998‑99 income year or an earlier one; and
(b)
you have adopted an accounting period under section 18 of the Income Tax Assessment Act 1936 that ends after 21 September in a financial year;
that amount becomes, on and after the first day of your 1999‑2000 income year, an amount you can deduct.

Income Tax Assessment Act 1936

Paragraph 268‑35(2)(b) of Schedule 2F

Omit “, if the trust has elected that the deductions not be limited by the available assessable income”.

Paragraphs 268‑35(5)(g) and (h) of Schedule 2F

Repeal the paragraphs.

Application of amendments

The amendments made by this Schedule apply to assessments for the 1999‑2000 income year and later income years.

Schedule 4Transfers of assets within company groups

Income Tax Assessment Act 1997

Before section 41‑15

Insert:

41‑14

Application of Subdivision

This Subdivision does not apply in respect of a *CGT event or disposal in respect of which Subdivision 170‑D applies.

At the end of section 110‑55

Add:
(9)
The reduced cost base is to be reduced by any amount that you have deducted or can deduct, or could have deducted except for Subdivision 170‑D, as a result of a *CGT event that happens in relation to a *CGT asset. However, do not make a reduction for an amount that relates to a cost that could never have formed part of the reduced cost base or is excluded from the reduced cost base as a result of another provision of this section.

At the end of section 110‑60

Add:
(7)
The reduced cost base of an entity’s interest in a *CGT asset of a partnership is to be reduced by the entity’s share of any amount that the partnership has deducted or can deduct, or could have deducted except for Subdivision 170‑D, as a result of a *CGT event that happens in relation to the asset. However, a reduction is not to be made for an amount that relates to a cost that could never have formed part of the reduced cost base or is excluded from the reduced cost base as a result of another provision of this section.

Paragraph 126‑55(1)(a)

Repeal the paragraph, substitute:
(a)
either:
(i)
the trigger event would have resulted in the originating company making a *capital gain, or making no *capital loss and not being entitled to a deduction; or
(ii)
the originating company *acquired the roll‑over asset before 20 September 1985; and

Subsection 126‑55(2)

Repeal the subsection.

Subsection 126‑60(1)

Omit “or *capital loss”.

Subsection 126‑60(4) (note)

Repeal the note.

Sections 126‑65 and 126‑70

Repeal the sections.

Section 126‑80

Repeal the section.

Subsection 126‑85(1)

Omit “or *capital loss”.

Subsection 126‑85(3)

Omit “or *capital loss” (first occurring).
12
Subsection 126‑85(3) (method statement, steps 2 and 3)
Repeal the steps, substitute:
Step 2. Work out (disregarding this Subdivision):
(a)
the sum of the *capital gains the subsidiary would make on the *disposal of its CGT roll‑over assets to the holding company; and
(b)
the sum of the *capital losses it would make except for Subdivision 170‑D on the disposal of its *CGT assets to the holding company;
in the course of the liquidation assuming the *capital proceeds were the assets’ market values at the time of the disposal.
Step 3. If, after subtracting the sum of the *capital losses from the sum of the *capital gains, there is an overall capital gain from step 1 and an overall capital gain from step 2, then continue. Otherwise there is no adjustment.
13
Subsection 126‑85(3) (method statement, steps 5 and 6)
Omit “or *capital loss” (wherever occurring).

Section 170‑225 (link note)

Repeal the link note.

At the end of Division 170

Add:
Subdivision 170‑D—Transactions by a company that is a member of a linked group

Guide to Subdivision 170‑D

170‑250

What this Subdivision is about

This Subdivision provides that there is a deferral of a *capital loss or deduction if a company (the originating company) that is a member of a *linked group disposes of a *CGT asset to, or creates a CGT asset in, another entity that:
(a)
is a company that is also a member of the linked group; or
(b)
is a connected entity of the originating company or an *associate of such a connected entity;
and the disposal or creation of the asset would have resulted in the originating company making a capital loss or becoming entitled to a deduction.

Table of sections

Operative provisions
170‑255 Application of Subdivision
170‑260 Linked group
170‑265 Connected entity
170‑270 Immediate consequences for originating company
170‑275 Subsequent consequences for originating company
170‑280 What happens if the asset is acquired by an entity of a particular kind within 4 years
[This is the end of the Guide.]

Operative provisions

170‑255

Application of Subdivision

(1)
This Subdivision applies if:
(a)
an event (the deferral event) happens involving a company (the originating company) and another entity; and
(b)
one or more of the following apply:
(i)
the deferral event is a *CGT event that would have resulted in the originating company making a *capital loss (except a capital loss that would be disregarded under a provision of this Act other than this Subdivision);
(ii)
the deferral event would have resulted in the originating company becoming entitled to a deduction in respect of the disposal of a CGT asset;
(iii)
if the originating company is a partner in a partnership—the deferral event would have resulted in the partnership becoming entitled to a deduction in respect of the disposal of a CGT asset; and
(c)
if subparagraph (b)(i) applies—the CGT event is one of the following:
(i)
CGT events A1 and B1 (a disposal case);
(ii)
CGT events D1, D2, D3 and F1 (a creation case); and
Note: The full list of CGT events is in section 104‑5.
(d)
one of the following applies:
(i)
the originating company is a resident at the time of the deferral event;
(ii)
if the deferral event is a CGT event D1—one of the items in the table in subsection 136‑15(1) is satisfied;
(iii)
if the deferral event is a CGT event A1, B1 or F1—the asset or the subject of the lease, as the case may be, had the *necessary connection with Australia immediately before the deferral event;
(iv)
if the deferral event is a CGT event D2—the option had the *necessary connection with Australia immediately after the deferral event; and
(e)
at the time of the deferral event, the originating company is a member of a *linked group and one of the following applies:
(i)
the other entity is a company that is not a connected entity of the originating company and is a member of that linked group;
(ii)
the other entity is a connected entity of the originating company;
(iii)
the other entity is an *associate of such a connected entity.
(2)
However, this Subdivision does not apply because of *CGT event B1 if title in the *CGT asset does not pass to the other entity when the agreement ends.

170‑260

Linked group

(1)
Companies that are linked to one another are a linked group.
(2)
Two companies are linked to each other if:
(a)
one of them has a controlling stake in the other; or
(b)
the same entity has a controlling stake in each of them.
(3)
For the purposes of this section, an entity has a controlling stake in a company at a particular time if the entity, or the entity and the entity’s *associates between them:
(a)
are able at that time to exercise, or control the exercise of, more than 50% of the voting power in the company (either directly, or indirectly through one or more interposed entities); or
(b)
have at that time the right to receive for their own benefit (either directly, or indirectly through one or more interposed entities) more than 50% of any dividends that the company may pay; or
(c)
have at that time the right to receive for their own benefit (either directly, or indirectly through one or more interposed entities) more than 50% of any distribution of capital of the company.
(4)
If:
(a)
apart from this subsection, an interest that gives an entity:
(i)
the ability to exercise, or control the exercise of, any of the voting power in a company; or
(ii)
the right to receive dividends that a company may pay; or
(iii)
the right to receive a distribution of capital of a company;
would, in the application of paragraph (3)(a), (b) or (c), be counted more than once; and
(b)
the interest is both direct and indirect;
only the direct interest is to be counted.

170‑265

Connected entity

(1)
An entity is a connected entity of the originating company at a particular time if, at that time:
(a)
the entity is a trustee of a trust and either:
(i)
if the trust is a *fixed trust—one or more companies that are members of the *linked group of which the originating company is a member, or one or more of those companies and their *associates, between them have the right to receive for their own benefit (either directly, or indirectly through one or more interposed entities) more than 50% of any distribution to beneficiaries of the trust of income or corpus of the trust; or
(ii)
if the trust is not a fixed trust—any company that is a member of the linked group of which the originating company is a member or any associate of such a company benefits or is capable of benefiting under the trust; or
(b)
the entity is an individual who has a controlling stake in the company.
(2)
For the purposes of paragraph (1)(b), an individual has a controlling stake in a company at a particular time if the individual, or the individual and his or her *associates between them:
(a)
are able at that time to exercise, or control the exercise of, more than 50% of the voting power in the company (either directly, or indirectly through one or more interposed entities); or
(b)
have at that time the right to receive for their own benefit (either directly, or indirectly through one or more interposed entities) more than 50% of any dividends that the company may pay; or
(c)
have at that time the right to receive for their own benefit (either directly, or indirectly through one or more interposed entities) more than 50% of any distribution of capital of the company.
(3)
If:
(a)
apart from this subsection, an interest that gives an entity:
(i)
the ability to exercise, or control the exercise of, any of the voting power in a company; or
(ii)
the right to receive dividends that a company may pay; or
(iii)
the right to receive a distribution of capital of a company;
would, in the application of paragraph (2)(a), (b) or (c), be counted more than once; and
(b)
the interest is both direct and indirect;
only the direct interest is to be counted.
170‑270
Immediate consequences for originating company
If, apart from this Subdivision:
(a)
the originating company would have made a *capital loss (except a capital loss that would be disregarded under a provision of this Act other than this Subdivision) as a result of the deferral event; or
(b)
the originating company would have become entitled to a deduction in respect of the deferral event; or
(c)
where the originating company is a partner in a partnership—the partnership would have become entitled to a deduction in respect of the deferral event;
the capital loss, the deduction or the partner’s share of the deduction, as the case may be, is disregarded.
170‑275
Subsequent consequences for originating company
(1)
If, at a time after the deferral event, any one or more of the following events (the new events) happens:
(a)
the *CGT asset involved ceases to exist;
(b)
the CGT asset or a greater than 50% interest in it is *acquired by an entity that is none of the following:
(i)
a member of the *linked group of which the originating company is a member;
(ii)
a connected entity of the originating company;
(iii)
an associate of such a connected entity;
(c)
if the asset is owned by a company that is a member of that linked group—that company ceases to be a member of the linked group;
(d)
the originating company ceases to be a member of that linked group;
(e)
if the CGT asset is owned by an entity that is a connected entity of the originating company or an associate of such a connected entity—the entity that owns the asset ceases to be such a connected entity or ceases to be an associate of the connected entity, as the case may be;
the originating company is taken, immediately before the time of the happening of the new event or the earliest of the new events, as the case may be, to have made a *capital loss equal to the amount of the capital loss referred to in section 170‑270 or to have become entitled to a deduction equal to the deduction, or the share of the deduction, referred to in that section, as the case may be.
(2)
If the *capital loss referred to in section 170‑270 would have been made from a *personal use asset or from a *collectable, any corresponding capital loss that the originating company is taken by subsection (1) of this section to have made is taken to have been made from a personal use asset or from a collectable, as the case may be.
170‑280
What happens if the asset is acquired by an entity of a particular kind within 4 years
(1)
This section applies if:
(a)
as a result of the occurrence of a new event in respect of a *CGT asset, the originating company is taken by subsection 170‑275(1) to have made a *capital loss or to be entitled to a deduction; and
(b)
within 4 years after the occurrence of the new event, the asset or a greater than 50% interest in it is *acquired by the originating company or by an entity that, at the time of the acquisition, is:
(i)
a company that is a member of the *linked group of which the originating company is a member; or
(ii)
a connected entity of the originating company; or
(iii)
an associate of such a connected entity.
(2)
The company is taken not to have made the *capital loss or not to have been entitled to the deduction, as the case may be.
(3)
If, at a time after the new event, any one or more of the following events (the realisation events) happens:
(a)
the *CGT asset involved ceases to exist;
(b)
the CGT asset or a greater than 50% interest in it is *acquired by an entity that is none of the following:
(i)
a member of the *linked group of which the originating company is a member;
(ii)
a connected entity of the originating company;
(iii)
an associate of such a connected entity;
(c)
if the asset is owned by a company that is a member of that linked group—that company ceases to be a member of the linked group;
(d)
the originating company ceases to be a member of that linked group;
(e)
if the CGT asset is owned by an entity that is a connected entity of the originating company or an associate of such a connected entity—the entity that owns the asset ceases to be such a connected entity or ceases to be an associate of the connected entity, as the case may be;
the originating company is taken, immediately before the time of the happening of the realisation event or the earliest of the realisation events, as the case may be, to have made a *capital loss equal to the amount of the capital loss referred to in subsection (2) or to have become entitled to a deduction equal to the deduction referred to in that subsection, as the case may be.
(4)
If the *capital loss referred to in subsection (2) would have been made from a *personal use asset or from a *collectable, any corresponding capital loss that the originating company is taken by subsection (3) to have made is taken to have been made from a personal use asset or from a collectable, as the case may be.
[The next Division is Division 175]

Income Tax Assessment Act 1936

Before subsection 73E(1)

Insert:
(1A)
This section does not apply in respect of a disposal in respect of which Subdivision 170‑D of the Income Tax Assessment Act 1997 applies.

Section 121AS (table 1, item 2)

After “1997”, insert “as in force immediately before 21 October 1999”.

Before subsection 124PA(1)

Insert:
(1A)
This section does not apply in respect of a disposal in respect of which Subdivision 170‑D of the Income Tax Assessment Act 1997 applies.

Application

(1) The amendments made by this Schedule apply to CGT events happening on or after 21 October 1999.
(2) The amendment made by item 2 is to be disregarded for the purposes of any application of section 110‑55 of the Income Tax Assessment Act 1997 as previously in force, or any application of subsection 160ZK(1) of the Income Tax Assessment Act 1936, as a result of a CGT event or disposal that occurred before 21 October 1999.
(3) The amendment made by item 3 is to be disregarded for the purposes of any application of section 110‑60 of the Income Tax Assessment Act 1997 as previously in force, or any application of subsection 160ZK(3) of the Income Tax Assessment Act 1936, as a result of a CGT event or disposal that occurred before 21 October 1999.

Schedule 5Transfers of losses within wholly‑owned company groups

Income Tax Assessment Act 1997

Section 112‑95

Repeal the section, substitute:
112‑95
Transfer of tax losses and net capital losses within wholly‑owned groups of companies

Transfer of tax losses and net capital losses within wholly‑owned groups of companies
Item	In this situation:	Element affected:	See section:
1	An amount of a tax loss is transferred and a company has a direct or indirect equity interest in the loss company	The total cost base and reduced cost base	170‑210
2	An amount of a tax loss is transferred and a company has a direct or indirect debt interest in the loss company	The reduced cost base	170‑210
3	An amount of a tax loss is transferred and a company has a direct or indirect equity or debt interest in the income company

The rules also give the beneficiary a deduction if necessary to prevent it from being taxed twice on the same parts of the trust’s net income.

Table of sections

Operative provisions
115‑210 When this Subdivision applies
115‑215 Assessing presently entitled beneficiaries
115‑220 Special rule for assessing trustee under subsection 98(3) of the Income Tax Assessment Act 1936
115‑225 Special rule for assessing trustee under section 99A of the Income Tax Assessment Act 1936
[This is the end of the Guide. The next section is section 115‑210.]

Operative provisions

115‑210

When this Subdivision applies

(1)
This Subdivision applies if a trust estate has a *net capital gain for an income year that is taken into account in working out the trust estate’s net income (as defined in section 95 of the Income Tax Assessment Act 1936) for the income year.
(2)
If the trust estate has a beneficiary that is a *complying superannuation entity that is a trust, this Subdivision applies in relation to the complying superannuation entity as a beneficiary but not as a trust estate. This Subdivision does not apply otherwise to a *complying superannuation entity that is a trust.
115‑215
Assessing presently entitled beneficiaries
Purpose
(1)
The purpose of this section is to ensure that appropriate amounts of the trust estate’s net income attributable to the trust estate’s *capital gains are treated as a beneficiary’s *capital gains when assessing the beneficiary, so:
(a)
the *discount percentage (if any) appropriate to the beneficiary can be applied; and
(b)
the beneficiary can apply *capital losses against those amounts.
Application
(2)
This section treats you as having certain extra capital gains, and gives you a deduction, if:
(a)
you are the beneficiary of the trust estate; and
(b)
your assessable income for the income year includes an amount (the trust amount):
(i)
under paragraph 97(1)(a) of the Income Tax Assessment Act 1936; or
(ii)
under subsection 98A(1) of that Act because you are a beneficiary described in subsection 98(4) of that Act; or
(iii)
under subsection 100(1) of that Act.
Extra capital gains
(3)
Division 102 applies to you as if:
(a)
you had (in addition to any other *capital gains you have for the income year):
(i)
a *capital gain equal to the part (if any) of the trust amount that is attributable to the trust estate’s non‑discounted capital gain mentioned in subsection 102‑5(1) (as it applies to the trust estate); and
(ii)
another *capital gain equal to twice the part (if any) of the trust amount that is attributable to the trust estate’s discounted capital gain mentioned in subsection 102‑5(1) (as it applies to the trust estate); and
(b)
the capital gain mentioned in subparagraph (a)(ii) were a *discount capital gain, if you can have a *discount capital gain.
Note: This ensures that your share of the trust estate’s net capital gain is taxed as if it were a capital gain you made (assuming you made the same choices about cost bases including indexation as the trustee).
Section 118‑20 does not reduce extra capital gains
(4)
To avoid doubt, section 118‑20 does not reduce a *capital gain that subsection (3) treats you as having for the purpose of applying Division 102.
Deduction
(5)
You can deduct for the income year the sum of:
(a)
the part (if any) of the trust amount that is attributable to the trust estate’s non‑discounted capital gain mentioned in subsection 102‑5(1); and
(b)
the part (if any) of the trust amount that is attributable to the trust estate’s discounted capital gain mentioned in subsection 102‑5(1).
Note: This deduction ensures you are not taxed twice on the part of the trust amount that is attributable to the trust estate’s net capital gain.
115‑220
Special rule for assessing trustee under subsection 98(3) of the Income Tax Assessment Act 1936
Purpose
(1)
The purpose of this section is to ensure a trustee assessed under subsection 98(3) of the Income Tax Assessment Act 1936 (in respect of the share of the net income to which a beneficiary that is a company is entitled) does not get the benefit in that assessment of the *discount percentage that the company would not have got if it had been assessed in respect of the share.
Modification of subsection 98(3)
(2)
The trustee is to be assessed (and pay tax) under subsection 98(3) of the Income Tax Assessment Act 1936 as if the part of the share that is attributable to the trust estate’s discounted capital gain mentioned in subsection 102‑5(1) were double the amount that it actually is.
115‑225
Special rule for assessing trustee under section 99A of the Income Tax Assessment Act 1936
Purpose
(1)
The purpose of this section is to reverse the benefit of applying the *discount percentage in working out the trust estate’s net income when the trustee is assessed under section 99A of the Income Tax Assessment Act 1936 on an amount of the net income.
Modification of section 99A
(2)
The trustee is to be assessed (and pay tax) under section 99A of the Income Tax Assessment Act 1936 as if the part of the amount that is attributable to the trust estate’s discounted capital gain mentioned in subsection 102‑5(1) were double the amount that it actually is.

Application and transitional provisions

(1) The amendments of Divisions 100, 102, 104 and 109 of the Income Tax Assessment Act 1997 made by this Part, and Division 115 of that Act, apply to assessments for the income year including 21 September 1999 and for later income years.
(2) The amendments of sections 110‑25 and 114‑5 of the Income Tax Assessment Act 1997 made by this Part apply to the calculation of a cost base of a CGT asset for a CGT event happening after 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999.

Part 2—Consequential amendments

Division 1—Amendment of the Income Tax Assessment Act 1936

Paragraph 6AD(4)(e)

Repeal the paragraph, substitute:
(e)
the taxpayer had a capital gain or capital loss for the year of income and had to use the method statement in subsection 102‑5(1) or 102‑10(1) of the Income Tax Assessment Act 1997 to work out the taxpayer’s net capital gain (if any) or net capital loss (if any) for the year of income;

At the end of subsection 97(1)

Add:
Note: If the trust estate’s net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.

At the end of subsection 98(3)

Add:
Note: If the trust estate’s net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.

At the end of subsection 98A(1)

Add:
Note: If the trust estate’s net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.
19
At the end of subsections 99A(4), (4A), (4B) and (4C)
Add:
Note: If the trust estate’s net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.

At the end of subsection 100(1)

Add:
Note: If the net income of one or more of the trust estates includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.

At the end of section 177C

Add:
(4)
To avoid doubt, paragraph (1)(a) applies to a scheme if:
(a)
an amount of income is not included in the assessable income of the taxpayer of a year of income; and
(b)
an amount would have been included, or might reasonably be expected to have been included, in the assessable income if the scheme had not been entered into or carried out; and
(c)
instead, the taxpayer or any other taxpayer makes a discount capital gain (within the meaning of the Income Tax Assessment Act 1997) for that or any other year of income.
(5)
Subsection (4) does not limit the generality of any other provision of this Part.

Application

(1) The amendment of section 6AD of the Income Tax Assessment Act 1936 made by this Division applies in relation to years of income commencing on or after 1 July 2000.
(2) The other amendments made by this Division apply to assessments for the year of income including 21 September 1999 and later years of income.
Division 2—Amendments consequential on defining complying superannuation entity

Income Tax Assessment Act 1997

Paragraphs 104‑215(1)(b), (c) and (d)

Repeal the paragraphs, substitute:
(b)
is the trustee of a *complying superannuation entity; or

Section 112‑55 (table item 3)

Repeal the item, substitute:

CGT asset passes to a trustee of a complying superannuation entity

First element of cost base and reduced cost base

128‑25

Section 112‑97 (table item 13)

Repeal the item, substitute:

CGT event happens to 30 June 1988 asset of a complying superannuation entity

First element of cost base and reduced cost base

section 308

Subsection 118‑300(1) (table item 5)

Repeal the item, substitute:

A *life insurance policy or an *annuity instrument

the trustee of a *complying superannuation entity for the income year in which the *CGT event happened

Paragraph 118‑350(2)(a)

Omit “*complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust”, substitute “*complying superannuation entity”.

Section 128‑10 (note 1)

Repeal the note, substitute:
Note 1: Section 104‑215 sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is:
•
an exempt entity; or
•
the trustee of a complying superannuation entity; or
•
not an Australian resident.

Subsection 128‑15(1) (note)

Repeal the note, substitute:
Note: Section 128‑25 has different rules if the asset passes to a beneficiary in your estate who is:
•
an exempt entity; or
•
the trustee of a complying superannuation entity; or
•
not an Australian resident.

Subsection 128‑25(1)

Repeal the subsection, substitute:
(1)
This section has rules about *cost base and *reduced cost base that are relevant if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes) is the trustee of a *complying superannuation entity.
Note: A capital gain or loss is also made: see section 104‑215.

Application

The amendments of the Income Tax Assessment Act 1997 made by this Division apply to assessments for the income year including 21 September 1999 and later income years.

Division 3—Signpost to beneficiary’s deduction

Income Tax Assessment Act 1997

32
Section 12‑5 (table item headed “capital gains”)
Repeal the item, substitute:

capital gains
................ beneficiary whose assessable income includes share of net ................... income of trust with net capital gain...................................	115‑215
................ no deduction for an amount that would otherwise be ................... deductible only because a net capital gain is included in ................... assessable income..................................................................	51AAA

Application

The amendment of the Income Tax Assessment Act 1997 made by this Division applies to assessments for the income year including 21 September 1999 and later income years.

Schedule 10—Consequential amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997

Income Tax Assessment Act 1997

Subsection 995‑1(1)

Insert:
complying superannuation entity means:
(a)
a *complying superannuation fund; or
(b)
a *complying approved deposit fund; or
(c)
a *pooled superannuation trust.

Subsection 995‑1(1)

Insert:
discount capital gain has the meaning given by Subdivision 115‑A.

Subsection 995‑1(1)

Insert:
discount percentage has the meaning given by Subdivision 115‑B.

Subsection 995‑1(1)

Insert:
fixed trust: a trust is a fixed trust if persons have fixed entitlements to all of the income and corpus of the trust.

Subsection 995‑1(1)

Insert:
linked group has the meaning given by section 170‑260.
6
Subsection 995‑1(1) (definition of written down value)

Omit “section 42‑200”, substitute “sections 42‑200 and 58‑85”.