Balancing Adjustment Roll-Over Relief for pre-CGT 'loss' assets

Is rollover relief available under Subdivision 41-A of the Income Tax Assessment Act 1997 ('ITAA 1997') where Company A disposes of a unit of plant, acquired before 20 September 1985, to Company B, which is part of the same wholly owned group and the disposal gives rise to a balancing adjustment deduction under section 42-195 of the ITAA 1997?

No. The roll-over relief available under Subdivision 41-A of the ITAA 1997 is not available for plant that was acquired before 20 September 1985 in respect of disposals within the same wholly owned group because of the application of Subdivision 170-D of the ITAA 1997.

Company A is a member of a wholly-owned group of Australian resident companies that also includes Company B. Company A has a unit of plant that it acquired before 20 September 1985. It disposes of that unit of plant to company B during the income year ended 30 June 2001. The market value of the unit of plant at the time of disposal is $30,000. The undeducted cost of the unit at the time of sale was $50,000. As a result of the disposal, Company A becomes entitled, under section 42-195 of the ITAA 1997, to a deduction of $20,000.

Subdivision 41-A of the ITAA 1997 provides roll-over relief for a disposal of plant between Australian resident companies within the same wholly-owned group where : • same asset roll-over is available under Subdivision 126-B of the ITAA 1997 and • both companies choose to obtain it.

For plant acquired before 20 September 1985 same asset roll-over is available under subparagraph 126-55(1)(a)(ii) of the ITAA 1997

However, section 41-14 of the ITAA 1997 provides that roll-over relief under Subdivision 41-A of the ITAA 1997 does not apply in respect of a disposal where Subdivision 170-D of the ITAA 1997 applies.

Section 170-255 of the ITAA 1997 contains the conditions for the application of that Subdivision. The conditions relevant to the facts provided are: • There is an event (the deferral event) involving a company (the originating company), and another entity (ie. Company B) as per paragraph 170-255(1)(a) of the ITAA 1997. • The deferral event would have resulted in the originating company (Company A) becoming entitled to a deduction in respect of the disposal of a CGT asset as per subparagraph 170-255(1)(b)(ii) of the ITAA 1997. • The originating company is a resident at the time of the deferral event. • At the time of the deferral event, the originating company is a member of a linked group and the other entity is also a member of that linked group as per subparagraph 170-255(1)(e)(i) of the ITAA 1997.

Applying these conditions to the facts:- (a) the disposal of the item of plant is a deferral event involving Company A (the originating company) and Company B (another entity) ; (b) this deferral event has resulted in the Company A becoming entitled to a deduction (a balancing adjustment deduction of $20,000) in respect of the disposal of a CGT asset (the item of plant); (c) Company A is a resident at the time of the deferral event; and (d) at the time of the deferral event, Company A and Company B are members of the same wholly owned group of companies. Two members of a wholly-owned company group would fall within the definition of "linked group" under section 170-260 of the ITAA 1997.

Accordingly, the conditions for application of Subdivision 170-D of the ITAA 1997 have been met in these circumstances. Therefore roll-over relief for a disposal of plant under Subdivision 41-A of the ITAA 1997 is not available, notwithstanding that same asset rollover is available under Subdivision 126-B of the ITAA 1997.