An Act making provision relating to the transfer of assets and liabilities from and to certain financial corporations
Part 1—Preliminary
1 Short title
This Act may be cited as the Financial Corporations (Transfer of Assets and Liabilities) Act 1993.
2 Commencement
This Act commences on the day on which it receives the Royal Assent.
Part 2—General provisions
3 Interpretation
In this Part, unless the contrary intention appears:
ADI (authorised deposit‑taking institution) means a body corporate that is an ADI for the purposes of the Banking Act 1959.
ADI authority means an authority under subsection 9(3) of the Banking Act 1959.
asset means property, or a right, of any kind, and includes:
(a) any legal or equitable estate or interest (whether present or future, vested or contingent, tangible or intangible, in real or personal property) of any kind; and
(b) any chose in action; and
(c) any right, interest or claim of any kind including rights, interests or claims in or in relation to property (whether arising under an instrument or otherwise, and whether liquidated or unliquidated, certain or contingent, accrued or accruing); and
(e) a CGT asset within the meaning of the Income Tax Assessment Act 1997.
eligible foreign ADI means an ADI:
(a) that is a foreign ADI for the purposes of the Banking Act 1959; and
(b) that:
(i) was granted its ADI authority before this Act commenced; or
(ii) is or was granted its ADI authority after this Act commenced pursuant to an application made before this Act commenced, or made after this Act commenced but before 1 July 2003.
eligible local ADI means a local ADI that was granted its ADI authority on or before 18 June 1993.
eligible money market corporation has the meaning given by section 4.
eligible subsidiary, in relation to an eligible local ADI or eligible money market corporation, means a body that:
(a) is incorporated under a law of the Commonwealth, of a State or a Territory relating to companies; and
(b) is a financial corporation that is a registered entity under the Financial Sector (Collection of Data) Act 2001; and
(c) is a subsidiary of the eligible local ADI or money market corporation.
financial corporation means a financial corporation within the meaning of paragraph 51(xx) of the Constitution.
foreign corporation means a foreign corporation within the meaning of paragraph 51(xx) of the Constitution.
interest, in relation to land, includes:
(a) a legal or equitable estate or interest in the land; or
(b) a right, power or privilege over, or in relation to, the land.
liability includes a duty or obligation of any kind (whether arising under an instrument or otherwise, and whether actual, contingent or prospective).
local ADI means an ADI that is incorporated under a law of the Commonwealth, a State or a Territory relating to companies.
newly established local ADI means a local ADI that:
(a) was granted its ADI authority before this Act commenced but after 18 June 1993; or
(b) is or was granted its ADI authority after this Act commenced pursuant to an application made before this Act commenced, or made after this Act commenced but before 1 July 2003.
receiving corporation has the meaning given by section 5.
subsidiary has the same meaning as in the Corporations Act 2001.
transfer, in relation to an asset or liability, means an act as a result of which the asset or liability:
(a) ceases to be vested in a person; and
(b) becomes vested in another person.
transferring corporation has the meaning given by section 5.
4 Eligible money market corporation
For the purposes of this Act, a body corporate is an eligible money market corporation if it:
(a) is incorporated under a law of the Commonwealth, of a State or a Territory relating to companies; and
(b) is, under the Financial Sector (Collection of Data) Act 2001, a registered entity included in the category for money market corporations.
5 Transferring and receiving corporations
If a financial corporation is proposing to transfer, or transfers, an asset or liability to another financial corporation, then, for the purposes of this Act;
(a) the first‑mentioned corporation is the transferring corporation; and
(b) the other corporation is the receiving corporation;
in relation to the transfer.
6 Object of Act
The object of this Act is to facilitate, in accordance with Commonwealth Government policy, the transfer of assets and liabilities from certain subsidiaries of a foreign corporation that is:
(a) an eligible foreign ADI; or
(b) the holding company (within the meaning of the Corporations Act 2001) of an eligible foreign ADI or of a newly established local ADI;
to the foreign corporation or one of the subsidiaries referred to in paragraph (b) (as the case may be) if the assets and liabilities are reasonably required to be so transferred for the proper organisation of the activities in Australia of the transferring corporation and the receiving corporation, following the grant of an ADI authority to the receiving corporation.
7 Application of Act
(1) This Act applies only as provided in this section.
(2) Subject to subsection (6), if:
(a) an eligible local ADI is a subsidiary of a foreign corporation; and
(b) the foreign corporation is an eligible foreign ADI; and
(c) the eligible local ADI or one of its eligible subsidiaries (if any) is proposing to transfer, or transfers, an asset or liability to the foreign corporation;
this Act applies in relation to the transfer.
(3) Subject to subsection (6), if:
(a) an eligible local ADI is a subsidiary of a foreign corporation (parent corporation); and
(b) the eligible local ADI or one of its eligible subsidiaries (if any) is proposing to transfer, or transfers, an asset or liability to an eligible foreign ADI that is a subsidiary of the parent corporation;
this Act applies in relation to the transfer.
(4) Subject to subsection (6), if:
(a) an eligible money market corporation is a subsidiary of a foreign corporation; and
(b) the foreign corporation is an eligible foreign ADI; and
(c) the eligible money market corporation or one of its eligible subsidiaries (if any) is proposing to transfer, or transfers, an asset or liability to the foreign corporation;
this Act applies in relation to the transfer.
(5) Subject to subsection (6), if:
(a) an eligible money market corporation is a subsidiary of a foreign corporation; and
(b) the eligible money market corporation or one of its eligible subsidiaries (if any) is proposing to transfer, or transfers, an asset or liability to a newly established local ADI that is a wholly‑owned subsidiary (within the meaning of the Corporations Act 2001) of the foreign corporation;
this Act applies in relation to the transfer.
(6) This Act applies in relation to the transfer of an asset or liability only if:
(a) the Treasurer determines in writing that the transfer is reasonably required for the proper organisation of the activities in Australia of the transferring corporation and of the receiving corporation, following the grant of an ADI authority to the receiving corporation; and
(b) within the prescribed period (see subsection (7)) in relation to the transfer, the transferring corporation gives notice in writing of the proposed transfer, identifying the asset or liability to be transferred, to:
(i) the Treasurer; and
(ii) if the law of a State or Territory requires that the transfer be registered—the person authorised under that law to register the transfer; and
(c) the transfer is effected before 1 July 2006.
(7) For the purposes of paragraph (6)(b), the prescribed period in relation to the transfer of an asset or liability is:
(a) if the receiving corporation was in possession of an ADI authority on the day on which this Act commences—the period of 6 months from that day; or
(b) if paragraph (a) does not apply—the period of 6 months from the day on which the receiving corporation is granted an ADI authority.
8 Extension of Act to external Territories
This Act extends to every external Territory.
9 Transfer of asset etc. not to require consent etc. of third party
If:
(a) a financial corporation is proposing to transfer an asset or liability to another financial corporation; and
(b) apart from this Act, the transferring corporation or receiving corporation would be required (whether under an instrument or otherwise):
(i) to obtain the consent or approval of a third person in a particular respect; or
(ii) to give particular information to a third person;
before effecting the transfer of the asset or liability;
the transfer may be validly effected without the consent or approval being obtained, or the information given, as the case requires.
10 Exemption from taxes etc.
If, apart from this section, a transferring corporation or a receiving corporation would be liable to pay a tax or fee under:
(a) a law of the Commonwealth (other than the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997); or
(b) a law of a State or Territory;
in respect, or as a result, of the transfer of an asset or liability or in respect of the registration of such a transfer, that corporation is exempted from paying the tax or fee.
11 Compensation for acquisition of property
(1) If, apart from this section, the transfer of an asset or liability from a financial corporation to another financial corporation would result in an acquisition of property from a person by one of those corporations otherwise than on just terms, there is payable to the person by that corporation such reasonable amount of compensation as is agreed on between the person and that corporation or, failing agreement, as is determined by a court of competent jurisdiction.
(2) Any damages or compensation recovered or other remedy given in a proceeding that is commenced otherwise than under this section is to be taken into account in assessing compensation payable in a proceeding that is commenced under this section and arises out of the same event or transaction.
(3) In this section:
acquisition of property and just terms have the same respective meanings as in paragraph 51(xxxi) of the Constitution.
12 Delegation
The Treasurer may by signed instrument delegate his or her powers under paragraph 7(6)(a) to:
(a) APRA (the Australian Prudential Regulation Authority); or
(aa) an APRA member, within the meaning of the Australian Prudential Regulation Authority Act 1998; or
(b) an APRA staff member, within the meaning of the Australian Prudential Regulation Authority Act 1998.
Part 3—Income tax relief for transfers
Division 1—Preliminary
13 Object of Part
The object of this Part is to provide income tax relief for transfers by modifying the effect of certain provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.
14 Part to be treated as if it were a provision of the income tax law
(1) An expression used in this Part and in the Income Tax Assessment Act 1936 has the same meaning in this Part as it has in that Act.
(2) For the purposes of the application of the Income Tax Assessment Act 1936 to a taxpayer, the provisions of this Part are to be treated as if they were provisions of that Act.
14A Modified operation of this Part in relation to transfers from subsidiary members of consolidated groups etc.
Object
(1) The object of this section is to modify the operation of other provisions of this Part in relation to a transfer of an asset or liability from a subsidiary member of a consolidated group or MEC group to a receiving corporation so that, where appropriate:
(a) relevant provisions affect the income tax position of the head company of the group in relation to the transfer; and
(b) the effect of the relevant provisions on the income tax position of the receiving corporation is worked out by reference to income tax attributes of the head company, including ones it has because of the following provisions of the Income Tax Assessment Act 1997:
(i) section 701‑1 (the single entity rule);
(ii) section 701‑5 (the entry history rule);
(iii) section 701‑10 (the head company tax cost setting rule).
Note 1: The single entity rule has the effect that a subsidiary member of a consolidated group or MEC group is taken to be part of the head company.
Note 2: The entry history rule treats things that happened in relation to an entity before it became a subsidiary member of a consolidated group or MEC group as having happened in relation to the head company.
Note 3: The head company tax cost setting rule sets the amount taken to be the cost to the head company of assets that became assets of the head company because of the single entity rule when an entity became a subsidiary member of the consolidated group or MEC group.
Circumstances in which this section has effect
(2) This section modifies the way in which a provision of this Part (except this Division) operates in relation to a transfer of an asset or liability from a financial corporation that (ignoring the single entity rule) is a subsidiary member of a consolidated group or MEC group to the receiving corporation.
Modified operation of the provision
(3) If the head company of the group is not a financial corporation, the provision operates in relation to the head company in the way in which it would operate in relation to the transferring corporation apart from this subsection.
Note: This ensures that, even though the head company is not the transferring corporation (because it is not a financial corporation), the provision operates as though it were. On this basis, the provision may affect the head company and/or the receiving corporation.
(4) So far as the provision affects the receiving corporation, it does so on the basis that the single entity rule, the entry history rule and the head company tax cost setting rule affect the head company of the group.
Note 1: This subsection ensures that, where the effect of the provision on the receiving corporation depends on the transferring corporation, the results of those rules in relation to the head company are taken into account in determining the effect of the provision on the receiving corporation. Some examples of this are as follows:
(a) the head company tax cost setting rule affects subsection 15(3) and section 18 by setting the head company’s cost base for assets an entity brought into the group when the entity became a subsidiary member of the group;
(b) the entry history rule affects paragraph 16(3)(d) by treating the head company as having been paid, for assuming a liability that was brought into the group by an entity becoming a subsidiary member, the amount paid to the entity for assuming the liability;
(c) the entry history rule affects subsections 17(1) and 22(4) and table item 1 in subsection 22(1) by treating the head company as having included in its assessable income amounts included in the assessable income of an entity that later became a subsidiary member of the group;
(d) the entry history rule affects subsections 17(1) and (2) and 22(4) by treating deductions allowable to an entity before becoming a subsidiary member of the group as having been allowable to the head company.
Note 2: This subsection also ensures that, if the head company is a financial corporation, the receiving corporation is affected by the provision operating in relation to the head company of the group as the transferring corporation (because the single entity rule operates to treat the subsidiary member of the group as part of the head company, so the transfer is treated as being from that company).
Provisions whose operation is not modified
(5) To avoid doubt, this section does not affect the operation of the following provisions:
(b) section 23;
(c) Division 8.
Division 2—General relief
15 Asset transfers—general
Tax treatment of transferring corporation
(1) In determining:
(a) whether an amount is included in the assessable income of the transferring corporation under section 25A, 26BB or 159GS of the Income Tax Assessment Act 1936 or section 6‑5, 15‑15 or 775‑15 of the Income Tax Assessment Act 1997; or
(b) whether an amount is allowable as a deduction to the transferring corporation under section 52, 70B or 159GS of the Income Tax Assessment Act 1936 or section 8‑1 or 775‑30 of the Income Tax Assessment Act 1997;
in respect of a transfer of an asset, the transferring corporation is to be treated as if the transfer had not occurred.
Receiving corporation not entitled to a deduction for expenditure incurred in acquiring asset
(2) A deduction is not allowable to the receiving corporation under section 8‑1 of the Income Tax Assessment Act 1997 in respect of expenditure incurred in the acquisition of an asset as the result of a transfer. However, this subsection does not apply to the acquisition of trading stock.
Receiving corporation to inherit transferring corporation’s cost base
(3) If an asset is transferred, then, in determining:
(a) whether an amount is included in the assessable income of the receiving corporation under section 25A or 26BB or Division 16E of Part III of the Income Tax Assessment Act 1936 or section 6‑5, 15‑15 or 775‑15 of the Income Tax Assessment Act 1997; or
(b) whether an amount is allowable as a deduction to the receiving corporation under section 52, 70B or Division 16E of Part III of the Income Tax Assessment Act 1936 or section 8‑1 or 775‑30 of the Income Tax Assessment Act 1997;
in respect of the holding, or any subsequent disposal, of the asset, the receiving corporation is to be treated as if it had acquired the asset for an amount equal to what would have been the asset’s cost base to the transferring corporation for the purposes of working out under the Income Tax Assessment Act 1997 whether the transferring corporation made a capital gain from the transfer.
Note: For transitional provisions about former sections 82Y and 82Z of the Income Tax Assessment Act 1936, see Part 2 of Schedule 4 to the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003.
16 Liability transfers—general
Tax treatment of transferring corporation
(1) In determining:
(a) whether an amount is included in the assessable income of the transferring corporation under section 6‑5 or 775‑15 of the Income Tax Assessment Act 1997; or
(b) whether an amount is allowable as a deduction to the transferring corporation under section 8‑1 or 775‑30 of the Income Tax Assessment Act 1997;
in respect of a transfer of a liability, the transferring corporation is to be treated as if the transfer had not occurred.
Receiving corporation not assessable in respect of assumption of liability
(2) An amount is not to be included in the assessable income of the receiving corporation under section 6‑5 or 775‑15 of the Income Tax Assessment Act 1997 in respect of the assumption of the liability as a result of the transfer.
Assumption of liability by receiving corporation
(3) If a liability is transferred, then, in determining:
(a) whether an amount is included in the assessable income of the receiving corporation under Division 16E of Part III of the Income Tax Assessment Act 1936 or section 6‑5 or 775‑15 of the Income Tax Assessment Act 1997; or
(b) whether an amount is allowable as a deduction to the receiving corporation under Division 16E of Part III of the Income Tax Assessment Act 1936 or section 8‑1 or 775‑30 of the Income Tax Assessment Act 1997;
in respect of the subsistence, or any subsequent transfer, of the liability, the receiving corporation is to be treated as if:
(c) it had been paid or given consideration for the original transfer; and
(d) the amount of the consideration were equal to the amount (if any) of the consideration paid or given to the transferring corporation in respect of the assumption by the transferring corporation of the liability.
Note: For transitional provisions about former sections 82Y and 82Z of the Income Tax Assessment Act 1936, see Part 2 of Schedule 4 to the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003.
Division 3—Securities
17 Securities—adjustment of cost base
Adjustment where security is transferred
(1) If:
(a) a security is transferred; and
(b) either:
(i) one or more amounts (other than periodic interest) are or were included in the transferring corporation’s assessable income under former section 25, or under Division 16E of Part III, of the Income Tax Assessment Act 1936 or under section 6‑5 of the Income Tax Assessment Act 1997 in respect of the security; or
(ii) one or more amounts (other than periodic interest) are or were allowable as deductions to the transferring corporation under former section 51, or under Division 16E of Part III, of the Income Tax Assessment Act 1936 or under section 8‑1 of the Income Tax Assessment Act 1997 in respect of the security;
those Acts have effect as if the amount that, apart from this subsection, would have been the consideration paid or given by the receiving corporation in respect of the acquisition of the security as the result of the transfer were:
(c) increased by the amount, or the sum of the amounts, covered by subparagraph (b)(i); and
(d) reduced by the amount, or the sum of the amounts, covered by subparagraph (b)(ii).
Adjustment where liability under security is transferred
(2) If:
(a) a liability under a security is transferred; and
(b) one or more amounts (other than periodic interest) are or were allowable as deductions to the transferring corporation under former section 51, or under Division 16E of Part III, of the Income Tax Assessment Act 1936 or under section 8‑1 of the Income Tax Assessment Act 1997 in respect of the security;
those Acts have effect as if the amount that, apart from this subsection, would have been the consideration paid or given to the receiving corporation in respect of the assumption of the liability as the result of the transfer were increased by the amount, or the sum of the amounts, covered by paragraph (b).
Definitions
(3) In this section:
periodic interest has the same meaning as in Division 16E of Part III of the Income Tax Assessment Act 1936.
security has the same meaning as in Division 16E of Part III of the Income Tax Assessment Act 1936.
Division 4—Capital gains and capital losses
18 Additional roll‑over relief
There is a roll‑over under Subdivision 126‑B of the Income Tax Assessment Act 1997 (which normally applies only to certain transfers between companies in the same wholly‑owned group) if:
(a) the trigger event is a transfer to which this Act applies; and
(b) the requirements of that Subdivision are met, disregarding:
(i) subsections 126‑50(1), (5), (6), (7), (8) and (9) of that Act; and
(ii) section 126‑55 of that Act.
This is in addition to that Subdivision’s effect apart from this section.
19 For the receiving corporation, asset is taxable Australian property
Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 apply to an asset acquired by the receiving corporation as a result of a transfer as if the asset is, while it is an asset of the receiving corporation, taxable Australian property.
Division 5—Trading stock
21 Transfers of trading stock
Trading stock on hand at beginning of year of income
(1) If:
(a) a transfer of trading stock occurred during a year of income of the transferring corporation; and
(b) the trading stock was on hand at the beginning of that year of income;
then:
(c) section 70‑35 of the Income Tax Assessment Act 1997 has effect as if the trading stock were not on hand at the beginning of the year of income; and
(d) section 8‑1 of the Income Tax Assessment Act 1997 has effect as if:
(i) the receiving corporation had incurred expenditure in the acquisition of the trading stock; and
(ii) the amount of that expenditure were equal to the value of the trading stock as at the end of the immediately preceding year of income of the transferring corporation (being the value that applies for the purposes of section 70‑45 of the Income Tax Assessment Act 1997); and
(iii) that expenditure had been so incurred immediately after the transfer; and
(e) sections 70‑90 and 70‑95 of the Income Tax Assessment Act 1997 do not apply in relation to the transfer of the trading stock.
Trading stock not on hand at beginning of year of income
(2) If:
(a) a transfer of trading stock occurred during a year of income of the transferring corporation; and
(b) the trading stock was not on hand at the beginning of that year of income;
then:
(c) a deduction is not allowable under the Income Tax Assessment Act 1997 to the transferring corporation in respect of expenditure incurred in the acquisition of the trading stock; and
(d) section 8‑1 of the Income Tax Assessment Act 1997 has effect as if:
(i) the receiving corporation had incurred expenditure in the acquisition of the trading stock; and
(ii) the amount of that expenditure were equal to the amount of the expenditure mentioned in paragraph (c); and
(iii) that expenditure had been so incurred immediately after the transfer; and
(e) sections 70‑90 and 70‑95 of the Income Tax Assessment Act 1997 do not apply in relation to the transfer of the trading stock.
Division 6—Bad debts
22 Deductions for bad debts
General
(1) In relation to a transfer of a debt, these rules about deductions for bad debts have effect as shown in the table:
(a) section 25‑35 of the Income Tax Assessment Act 1997;
(b) subsection 63(1A) of the Income Tax Assessment Act 1936.
<table cellspacing="0" cellpadding="0" style="border-collapse:collapse"><tbody><tr><td colspan="3" style="width:343.6pt; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="TableHeading"><span>Effect of rules about deductions for bad debts</span></p></td></tr><tr><td style="width:24.65pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span style="font-weight:bold">Case</span></p></td><td style="width:144.25pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span style="font-weight:bold">If:</span></p></td><td style="width:153.1pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span style="font-weight:bold">then those rules have effect as if:</span></p></td></tr><tr><td style="width:24.65pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>1</span></p></td><td style="width:144.25pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the debt was included in the transferring corporation’s assessable income of a year of income</span></p></td><td style="width:153.1pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the debt had been included in the receiving corporation’s assessable income of that year of income</span></p></td></tr><tr><td style="width:24.65pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>2</span></p></td><td style="width:144.25pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the debt is in respect of money lent by the transferring corporation in the ordinary course of its business of lending money</span></p></td><td style="width:153.1pt; border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the debt were in respect of money lent by the receiving corporation in the ordinary course of a business of lending money</span></p></td></tr><tr><td style="width:24.65pt; border-top:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>3</span></p></td><td style="width:144.25pt; border-top:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the transferring corporation bought the debt in the ordinary course of its business of lending money</span></p></td><td style="width:153.1pt; border-top:0.75pt solid #000000; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"><p class="Tabletext"><span>the receiving corporation had bought the debt in the ordinary course of a business of lending money</span></p></td></tr></tbody></table>
Modification of tests for receiving corporation to deduct bad debt
(2) In relation to a transfer of a debt, Subdivisions 165‑C, 166‑C, 175‑C, 709‑D and 719‑I of the Income Tax Assessment Act 1997 have effect as if the debt had been incurred at the time of the transfer.
Note: Those Subdivisions are about companies deducting bad debts.
Easing of restrictions on transferring corporation
(3) If:
(a) this Act applies to one or more transfers of assets by the transferring corporation to the receiving corporation; and
(b) an entity incurs a debt to the transferring corporation in a year of income (the debt year); and
(c) the debt year is the income year in which this section (as originally enacted) commenced or an earlier income year; and
(d) any one or more of Subdivisions 165‑C, 175‑C, 709‑D and 719‑I of the Income Tax Assessment Act 1997 prevent the transferring corporation from deducting an amount for the debt for an income year (the deduction year); and
(e) the transferring corporation did not, at any time in the deduction year, derive income from:
(i) a business of a kind that it did not carry on; or
(ii) a transaction of a kind that it had not entered into in the course of its business operations;
before the transfer, or the earliest of the transfers, occurred;
none of those Subdivisions prevents the transferring corporation from deducting that amount.
Note: Subdivision 165‑C of the Income Tax Assessment Act 1997 is about the conditions that a company needs to satisfy before it can deduct a bad debt.
Note: Subdivision 175‑C of that Act is about the Commissioner preventing a company from getting certain tax benefits through its unused bad debts.
Note: Subdivision 709‑D of that Act is about the conditions that must be met for an entity to deduct a bad debt that has for a period been owed to a member of a consolidated group and has for another period been owed to an entity that was not a member of that group for the period.
Note: Subdivision 719‑I of that Act is about the conditions that must be met for an entity to deduct a bad debt that has for a period been owed to a member of a MEC group.
Limit on deductions for partly written‑off debt
(4) If this Act applies to the transfer of a debt that has been partly written off, the maximum that the receiving corporation can deduct for the debt for one or more years of income under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997 is worked out using the formula:
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where:
unrecouped deductions means the total of the amounts that the transferring corporation has deducted or can deduct for any year of income under:
(a) section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997; or
(b) section 63 or former section 51 of the Income Tax Assessment Act 1936;
reduced by the total of any amounts included in its assessable income in respect of the debt under:
(c) Subdivision 20‑A of the Income Tax Assessment Act 1997; or
(d) former subsection 63(3) of the Income Tax Assessment Act 1936.
Division 7—Interest withholding tax
23 Exemption from interest withholding tax
(1) In addition to its effect apart from this section, section 128F of the Income Tax Assessment Act 1936 also has the effect it would have if the change set out in subsection (2) of this section were made.
(2) The change is that paragraphs (1)(a) and (b) of section 128F of the Income Tax Assessment Act 1936 (being that section in the form that applies under item 16 of Schedule 5 to the Taxation Laws Amendment Act (No. 2) 1997) are to be replaced by the following paragraphs:
“(a) the liability to pay the interest was transferred to the company by another company (the transferor);
(b) the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 applies to the transfer;
(c) before the transfer, this section applied to interest paid by the transferor in discharge of the liability;
(ca) the transferor issued the debentures or debt interests;”.
Division 8—Tax losses
Subdivision B—Tax losses and the Income Tax Assessment Act 1997
26A Application of this Subdivision
This Subdivision applies to assessments for the 1997‑98 income year or a later income year.
26C Deduction for tax loss—easing of restrictions on transferring corporation
(1) If:
(a) this Act applies to one or more transfers by the transferring corporation to the receiving corporation; and
(b) the transferring corporation is taken (otherwise than because of a transfer of a tax loss under former section 80G of the Income Tax Assessment Act 1936 or under Subdivision 170‑A of the Income Tax Assessment Act 1997) to have incurred a tax loss for a year of income (the loss year); and
(c) the loss year is the income year in which former section 26 of this Act commenced or an earlier income year; and
(d) Subdivision 165‑A or 175‑A, or both, of the Income Tax Assessment Act 1997 prevent the transferring corporation from deducting an amount of that tax loss for an income year (the deduction year); and
(e) the transferring corporation did not, at any time in the deduction year, derive income from:
(i) a business of a kind that it did not carry on; or
(ii) a transaction of a kind that it had not entered into in the course of its business operations;
before the transfer, or the earliest of the transfers, occurred;
neither Subdivision 165‑A nor 175‑A of that Act prevents the transferring corporation from deducting that amount.
Note: Subdivision 165‑A of the Income Tax Assessment Act 1997 is about the conditions that a company needs to satisfy before it can deduct a tax loss from an earlier income year.
Note: Subdivision 175‑A of the Income Tax Assessment Act 1997 is about the Commissioner preventing a company from getting certain tax benefits through its unused tax losses.
(2) Subsection (1) operates on the basis described in subsection (3) if:
(a) the head company of a consolidated group or MEC group incurred a tax loss because of Subdivision 707‑A of the Income Tax Assessment Act 1997; and
(b) the company (the real loss‑maker) that incurred the tax loss apart from that Subdivision is a member of the group in the deduction year; and
(c) disregarding section 701‑1 (the single entity rule) of that Act, this Act applies to one or more transfers by the real loss‑maker to the receiving corporation.
Note: In certain cases, Subdivision 707‑A of the Income Tax Assessment Act 1997 treats the head company of a consolidated group or MEC as incurring a tax loss actually incurred by an entity that becomes a member of the group.
(3) Subsection (1) operates as if:
(a) the head company were the transferring corporation in relation to each transfer described in paragraph (1)(a) and this Act applied to each of those transfers; and
(b) the head company incurred the tax loss for the income year for which the real loss‑maker incurred it (apart from Subdivision 707‑A of the Income Tax Assessment Act 1997); and
(c) each reference in that subsection to Subdivision 165‑A of that Act were a reference to that Subdivision as its operation is affected by Subdivision 707‑B of that Act, and by Subdivision 719‑F of that Act (if relevant).
Note 1: Subdivision 707‑B of the Income Tax Assessment Act 1997 affects the operation of Subdivision 165‑A of that Act in relation to the deduction of a tax loss incurred by the head company of a consolidated group or MEC group because of Subdivision 707‑A of that Act.
Note 2: Subdivision 719‑F of the Income Tax Assessment Act 1997 affects the operation of Subdivision 165‑A of that Act in relation to the deduction of a tax loss incurred by the head company of a MEC group because of Subdivision 707‑A of that Act.
(4) An expression used in this section and in the Income Tax Assessment Act 1997 has the same meaning in this section as it has in that Act. This subsection does not apply to the expressions deduction year, loss year, this Act and transfer.
Division 9—Continuity of partnerships
27 Transfer of an interest in a partnership does not affect continuity of partnership
(1) This section applies if an interest in a partnership is transferred.
(2) For the purposes of the Income Tax Assessment Act 1936, the transfer does not affect the continuity of the partnership.