Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 707.325

Basic rule

  (1)   The modified market value of an entity that becomes a * member of a * consolidated group at a particular time is the amount that would be the * market value of the entity at that time if:

  (a)   the entity had no loss of any * sort for any income year, and the balance of its * franking account at that time were nil; and

  (b)   the * subsidiary members of the group at that time were separate entities and not just parts of the * head company of the group; and

  (c)   the entity's market value did not include an amount attributable (directly or indirectly) to a * membership interest in a member of the group (other than the entity):

  (i)   that is a * corporate tax entity; or

  (ii)   that transferred a loss under Subdivision   707 - A to the head company of the group at or before that time; and

  (d)   the contribution to the entity's market value made by a trust (other than one that is a member described in paragraph   (c)) were limited to the amount attributable to the entity's * fixed entitlements (if any) at that time to income or capital of the trust that is not attributable (directly or indirectly) to a membership interest in such a member.

Note 1:   Section   707 - 330 affects the modified market value of an entity that becomes a subsidiary member of the consolidated group, if the entity was the head company of another consolidated group just beforehand.

Note 2:   Section   707 - 325 of the Income Tax (Transitional Provisions) Act 1997 provides for an entity's modified market value to be increased in certain circumstances for the purposes of working out the available fraction for a bundle of losses transferred from the entity.

Rule to prevent inflation of modified market value

  (2)   However, if:

  (a)   one or more of the events described in subsection   (4) occurred in the 4 years before the time; and

  (b)   the amount worked out under subsection   (1) exceeds what it would have been if none of those events had occurred;

the modified market value of the entity at the time is the amount worked out under subsection   (1), reduced by the amount worked out under subsection   (3).

  (3)   The amount of the reduction is the lesser of:

  (a)   the excess described in paragraph   (2)(b); and

  (b)   the total increase in the * market value of the entity that occurred immediately after each event mentioned in paragraph   (2)(a) because of the event.

  (4)   These are the events:

  (a)   an injection of capital into the entity or an entity that was an * associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the injection;

  (b)   a transaction that:

  (i)   did not take place at * arm's length; and

  (ii)   involved the entity or an entity that was an associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the transaction.

  (5)   For the purposes of paragraph   (2)(a), disregard an injection of capital if, and only if, it is made:

  (a)   into a * listed public company through a * dividend reinvestment * scheme involving the issue of a * share in the company to an entity that held a share in the company before the injection; or

  (b)   in association with the acquisition of a * share in a company in relation to which the conditions in subsection   703 - 35(5) are met; or

  (c)   in association with the acquisition of a * share, in a body corporate, in relation to which the conditions in subsection   703 - 37(4) are met.

Note 1:   Section   703 - 35 of this Act deals with shares acquired under arrangements for employee shareholdings.

Note 2:   Section   703 - 37 of this Act deals with certain preference shares following an ADI restructure.