Application of Division 58 of the Income Tax Assessment Act 1997 - tracing back to a PABV in the accounts of a predecessor exempt entity

TE commenced trading in the year ended 30 June 1997 as a wholly owned subsidiary of HoldCL. At this time TE and HoldCL were both State/Territory bodies exempt from income tax under Division 1AB of the Income Tax Assessment Act 1936 . 2. The commencing assets of TE, including its plant ("the transitional units"), were acquired by TE from HoldCL immediately before the time when TE commenced trading. 3. HoldCL's balance sheet as at 30 June 1996 specified values for the transitional units. A qualified independent auditor undertook an audit of HoldCL's annual accounts for the year ended 30 June 1996. The final audit report on those accounts was issued before 4 August 1997 and did not state that the auditor was not satisfied that the specified values for the transitional units fairly represented the values of the transitional units. 4. The final audit report on TE's first annual accounts for the year ended 30 June 1997 was signed after 4 August 1997. 5. Some time later, TE ceased to be a State/Territory body and became liable for income tax.