Commonwealth Consolidated Acts Commonwealth Consolidated ActsPart 1 -- New Subdivision 705 - E
Income Tax Assessment Act 1997
1 Section 705 - 245 (link note)
Repeal the link note.
2 After Subdivision 705 - D
Insert:
Subdivision 705 - E -- Adjustments for errors etc.
705 - 300 What this Subdivision is about
Errors in making tax cost setting amount calculations are reversed by means of an immediate capital gain or loss if it would be unreasonable to require the calculations to be re - done.
Table of sections
Operative provisions
705 - 305 Object of this Subdivision
705 - 310 Operation of Part IVA of the Income Tax Assessment Act 1936
705 - 315 Errors that attract special adjustment action
705 - 320 Tax cost setting amounts taken to be correct
[This is the end of the Guide.]
705 - 305 Object of this Subdivision
The object of this Subdivision is to avoid the time and expense involved in correcting errors affecting * tax cost setting amount calculations. This is done by providing for * capital gains or * capital losses to reverse the errors.
705 - 310 Operation of Part IVA of the Income Tax Assessment Act 1936
To avoid doubt, this Subdivision does not limit the operation of Part IVA of the Income Tax Assessment Act 1936 .
705 - 315 Errors that attract special adjustment action
(1) Section 705 - 320 (about later adjustments to correct * tax cost setting amount calculation errors) applies if the conditions in this section are satisfied.
Tax cost setting amount taken into account
(2) The first condition is that the * head company of a * consolidated group worked out a * tax cost setting amount, in purported compliance with this Division, for an asset of an entity that becomes a * subsidiary member of the group that is an asset of a kind referred to in section 705 - 35 as a reset cost base asset.
Error in calculation
(3) The second condition is that:
(a) the * head company made one or more errors in working out the * tax cost setting amount; and
(b) those errors caused the tax cost setting amount to differ from its correct amount.
If the errors caused the tax cost setting amount to be more, the difference is an overstated amount . If the errors caused the tax cost setting amount to be less, the difference is an understated amount .
Unreasonable to require recalculation
(4) The third condition is that, having regard to the following factors:
(a) the net size of the errors compared to the size of the * allocable cost amount for the joining entity;
(b) the number of * tax cost setting amounts that would have to be recalculated, and the difficulty of making the recalculations;
(c) the number of adjustments, in assessments that could be amended and in future * income tax returns, that would be necessary to correct the errors;
(d) the difficulty in obtaining any necessary information;
it is not reasonable to require a recalculation of the amounts involved.
Exception where error due to fraud or evasion
(5) However, the conditions in this section are not satisfied if the errors were to any extent due to fraud or evasion.
Requirement to notify
(6) The * head company of the * consolidated group must, as soon as practicable after becoming aware that it made one or more errors in working out the * tax cost setting amount, notify the Commissioner in the * approved form:
(a) that it had made the errors; and
(b) of the amount of the overstated amount or understated amount.
705 - 320 Tax cost setting amounts taken to be correct
(1) For the purposes of this Act (other than this Subdivision) and for the purposes of the Taxation Administration Act 1953 , any * tax cost setting amounts that were worked out by the * head company, so far as they were due to the errors, are taken to have been correct if the conditions in section 705 - 315 are satisfied.
Note 1: If the conditions in section 705 - 315 are satisfied, CGT event L6 happens (see section 104 - 525).
Note 2: Subsection ( 1) means that the Commissioner cannot amend any assessments necessary to correct the errors, and that (except as mentioned in subsection ( 2)) no offences or administrative penalties arise in respect of the errors.
(2) Subsection ( 1) does not apply for the purposes of determining whether there is an offence against section 8N of the Taxation Administration Act 1953 , or an administrative penalty under section 284 - 75 or 284 - 145 in Schedule 1 to that Act, in relation to statements made before the Commissioner became aware of the errors.
Note 1: Section 8N of the Taxation Administration Act 1953 deals with false or misleading statements. Sections 284 - 75 and 284 - 145 in Schedule 1 to that Act set out the circumstances in which an entity is liable for an administrative penalty.
Note 2: The offence and administrative penalty provisions however apply on a modified basis--see subsection 8W(1C) of the Taxation Administration Act 1953 , and subsections 284 - 80(2) and 284 - 150(2) in Schedule 1 to that Act.
[The next Division is Division 707.]
Part 2 -- Consequential amendments
Income Tax Assessment Act 1997
3 Section 104 - 5 (at the end of the table)
Add:
L6 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 [See section 104 - 525] | start of the income year when the Commissioner becomes aware of the errors | the net overstated amount resulting from the errors, or a portion of that amount | the net understated amount resulting from the errors, or a portion of that amount |
L7 Discharged amount of liability differs from amount for allocable cost amount purposes: CGT event L7 [See section 104 - 530] | start of the income year in which the liability is realised | your allocable cost amount less what it would have been had you used the correct amount for the liability | what your allocable cost amount would have been had you used the correct amount for the liability less your allocable cost amount |
4 At the end of Division 104
Add:
104 - 525 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6
(1) CGT event L6 happens if:
(a) you are the * head company of a * consolidated group; and
(b) the conditions in section 705 - 315 (about errors in tax cost setting amounts) are satisfied for a * subsidiary member of the group; and
(c) you have a * net overstated amount or a * net understated amount for the subsidiary member.
(2) The time of the event is the start of the income year in which the Commissioner becomes aware of the errors.
(3) You work out whether you have a net overstated amount or net understated amount using this table:
Meaning of net overstated amount and net understated amount | ||
Item | In this situation: | There is this result: |
1 | There are one or more overstated amounts under section 705 - 315 for the * subsidiary member but no understated amount under that section for the subsidiary member | There is a net overstated amount . It is the overstated amount, or the sum of the overstated amounts. |
2 | There are one or more understated amounts under section 705 - 315 for the * subsidiary member but no overstated amount under that section for the subsidiary member | There is a net understated amount . It is the understated amount, or the sum of the understated amounts. |
3 | There are both one or more overstated amounts and one or more understated amounts under section 705 - 315 for the * subsidiary member and the sum of the overstated amounts exceeds the sum of the understated amounts | There is a net overstated amount . It is the difference between those sums |
4 | There are both one or more overstated amounts and one or more understated amounts under section 705 - 315 for the * subsidiary member and the sum of the overstated amounts is less than the sum of the understated amounts | There is a net understated amount . It is the difference between those sums |
(4) If the time when the Commissioner becomes aware of the errors is within the period within which the Commissioner may amend all of the assessments necessary to correct the errors, then, for the head company core purposes mentioned in subsection 701 - 1(2):
(a) if you have a * net overstated amount--you make a capital gain equal to that amount; or
(b) if you have a * net understated amount--you make a capital loss equal to that amount.
(5) If the time when the Commissioner becomes aware of the errors is not within that period, then, for the head company core purposes mentioned in subsection 701 - 1(2):
(a) if you have a * net overstated amount--you make a capital gain of the amount worked out under subsection ( 6); or
(b) if you have a * net understated amount--you make a capital loss of the amount worked out under subsection ( 6).
(6) The amount of the * capital gain or * capital loss is worked out as follows:
where:
"current asset setting amount" means the * tax cost setting amount for all assets referred to in subsection 705 - 315(2) as reset cost base assets that the * head company of the * consolidated group held continuously from the time when the * subsidiary member joined the group until the start of the head company's income year that is the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors.
"original asset setting amount" means the * tax cost setting amount for all assets referred to in subsection 705 - 315(2) as reset cost base assets that the * subsidiary member held at the time it joined the group.
"stated amount" means the * net overstated amount or the * net understated amount, as the case requires.
(1) CGT event L7 happens if you are the * head company of a * consolidated group and the conditions relating to a liability in subsection ( 3) are satisfied.
(2) The time of the event is the start of your income year in which the liability is discharged.
(3) The conditions are that:
(a) a liability of an entity that became a * subsidiary member of the group was taken into account in working out your * allocable cost amount for the subsidiary member in accordance with Division 705 (your ACA ); and
(b) the liability was later discharged (whether by the making of a payment or by the release, waiver or other extinguishment of the liability) and the sum (the realised amount ) of:
(i) the amount of any payment made to discharge the liability; and
(ii) the market value of any other consideration given to discharge the liability;
differs from the amount for the liability that was taken into account in working out your ACA; and
(c) that ACA is different to what it would have been (your true ACA ) if you had taken the realised amount into account in working out your ACA.
(4) You make a capital gain for the head company core purposes mentioned in subsection 701 - 1(2) if your ACA would have been smaller had you used the realised amount in working out your ACA. The amount of the gain is the difference between the amount you worked out and your true ACA.
(5) You make a capital loss for the head company core purposes mentioned in subsection 701 - 1(2) if your ACA would have been greater had you used the realised amount in working out your ACA. The amount of the loss is the difference between the amount you worked out and your true ACA.
5 Section 110 - 10 (at the end of the table)
Add:
L6 | Errors in tax cost setting amounts for entity joining consolidated group | 104 - 525 |
L7 | Discharged amount of liability differs from amount for allocable cost amount purposes | 104 - 530 |
6 Subsection 995 - 1(1)
Insert:
"net overstated amount" has the meaning given by subsection 104 - 525(3).
7 Subsection 995 - 1(1)
Insert:
"net understated amount" has the meaning given by subsection 104 - 525(3).
Taxation Administration Act 1953
8 After subsection 8W(1B)
Insert:
(1C) If the conditions in section 705 - 315 of the Income Tax Assessment Act 1997 are satisfied, then for the purposes of any application of subsection ( 1) of this section in relation to the errors mentioned in that section, so far as they were made in a statement made as mentioned in subsection 705 - 230(2) of that Act, the references in paragraphs ( 1)(c) and (d) of this section to the excess are taken instead to be references to the amount worked out using the formula:
where:
"adjusted reset cost base asset setting amount" means:
(a) the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all assets of a kind referred to in section 705 - 35 of that Act as reset cost base assets that the * head company of the relevant group held continuously from the time when the * subsidiary member referred to in subsection 705 - 315(2) of that Act joined the group until the start of the head company's income year in which the Commissioner became aware of the errors mentioned in section 705 - 315 of that Act;
less:
(b) the head company's deductions under Division 40 (except under Subdivision 40 - F, 40 - G, 40 - H or 40 - I) or Subdivision 328 - D of the Income Tax Assessment Act 1997 for those assets for all income years before the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors.
"capital gain" means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104 - 525 of the Income Tax Assessment Act 1997 .
"original reset cost base asset setting amount" means the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all reset cost base assets that the * subsidiary member held at the time it joined the group, other than assets that the * head company no longer held at the start of the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors.
9 At the end of section 284 - 80 in Schedule 1
Add:
(2) However, if:
(a) your shortfall amount arises in the situation covered by both item 1 in the table and item 1, 2 or 3 in the table in subsection 284 - 90(1); and
(b) the statement is false or misleading because of errors mentioned in section 705 - 315 of the Income Tax Assessment Act 1997 that were made in the income tax return mentioned in subsection 705 - 230(2) of that Act, your shortfall amount is instead the amount worked out using the formula:
where:
"adjusted reset cost base asset setting amount" means:
(a) the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all assets of a kind referred to in section 705 - 35 of that Act as reset cost base assets that the * head company of the relevant group held continuously from the time when the * subsidiary member referred to in subsection 705 - 315(2) of that Act joined the group until the start of the head company's income year in which the Commissioner became aware of the errors mentioned in section 705 - 315 of that Act;
less:
(b) the head company's deductions under Division 40 (except under Subdivision 40 - F, 40 - G, 40 - H or 40 - I) or Subdivision 328 - D of the Income Tax Assessment Act 1997 for those assets for all income years before the income year in which the Commissioner became aware of the errors.
"capital gain" means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104 - 525 of the Income Tax Assessment Act 1997 .
"original reset cost base asset setting amount" means the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all reset cost base assets that the * subsidiary member held at the time it joined the group, other than assets that the * head company no longer held at the start of the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors.
10 At the end of section 284 - 150 in Schedule 1
Add:
(3) However, to the extent that your scheme shortfall amount is due to errors in an income tax return as mentioned in subsection 705 - 230(2) of the Income Tax Assessment Act 1997 , your scheme shortfall amount is instead the amount worked out using the formula:
where:
"adjusted reset cost base asset setting amount" means:
(a) the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all assets of a kind referred to in section 705 - 35 of that Act as reset cost base assets that the * head company of the relevant group held continuously from the time when the * subsidiary member referred to in subsection 705 - 315(2) of that Act joined the group until the start of the head company's income year in which the Commissioner became aware of the errors mentioned in section 705 - 315 of that Act;
less:
(b) the head company's deductions under Division 40 (except under Subdivision 40 - F, 40 - G, 40 - H or 40 - I) or Subdivision 328 - D of the Income Tax Assessment Act 1997 for those assets for all income years before the income year in which the Commissioner became aware of the errors.
"capital gain" means the capital gain that the head company makes as a result of CGT event L6 happening as mentioned in section 104 - 525 of the Income Tax Assessment Act 1997 .
"original reset cost base asset setting amount" means the * tax cost setting amount, worked out under Division 705 of the Income Tax Assessment Act 1997 , for all reset cost base assets that the * subsidiary member held at the joining time, other than assets that the * head company no longer held at the start of the earliest income year for which the Commissioner could amend the head company's assessment to correct any of the errors.