Issue 2 : Consolidation regime

Issue 2

2008-09 Budget and CGT CGT 30 June planning Consolidation regime 2008-09 improvement threshold What is income? Amendment of assessments for CGT Trust cloning CGT market value substitution rule Amounts misappropriated by employee or agent Default by borrower on unsecured note – no CGT event McNeil’s case amendments Wash sales Deferred purchase agreement warrants CGT STATUS REPORT

The Government announced in the 2008-09 Budget that it will proceed with a range of modifications to the income tax consolidation regime which will clarify the operation of the consolidation regime and improve interactions with other parts of the law.  Among the modifications that affect CGT are the following:

• change the pre‑CGT factor rules so that, subject to certain integrity rules, the proportion of pre‑CGT membership interests in an entity that joins a consolidated group is preserved when the entity leaves the group;

• clarify the adjustment to the allocable cost amount for a joining entity where there has been a pre‑joining time CGT roll-over;

• ensure that, if an entity joins a consolidated group with a nil available fraction and transfers losses to the group, the capital gain that arises under CGT event L5 when the entity leaves the group is reduced in certain circumstances;

• for the period between 1 July 2002 and 8 May 2007, ensure that CGT event L7 will not apply to amounts that are recognised under another provision of the income tax law and, with effect from 8 May 2007, repeal CGT event L7;

• allow the head company of a consolidated group to reduce a capital gain arising under CGT event L3 by the value of doubtful debts held by a joining entity at the joining time – this change will apply from 8 May 2007;

• ensure that, if an entity enters into a contract that causes a CGT event to arise and, before the contract is settled, the entity joins or leaves a consolidated group, the entity that receives the capital proceeds will include the capital gain or loss in its taxable income – this change will apply from 8 May 2007;

• extend the single entity rule to shareholders who dispose of shares in the head company of a consolidated group, for the purposes of the CGT discount rules and CGT event K6 – this change will apply from 8 May 2007;  and

• clarify that the CGT provisions relating to blackhole expenditure that apply to consolidated groups also apply to MEC groups – this change will apply from 1 July 2005.

Unless otherwise specified, the amendments are to apply from 1 July 2002 (ie from the commencement of the consolidation regime). However, the application dates and the need for appropriate transitional rules will be reviewed as part on the ongoing consultation process with business and professional groups during the development of legislation to implement these changes. Some of these measures may also be reviewed as part of that consultation process.

Disclaimer
The material contained in this publication is of a general nature and is not advice. No representation or warranty is made as to its correctness. Readers must obtain their own professional advice before making any decisions as to their own or their clients’ affairs.

© 1996-2010 Taxation Institute of Australia (ABN 45 008 392 372) All rights reserved.