Issue
Does section 701A-10 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) apply to a head company in respect of an internally created asset that is held as a depreciating asset in the hands of a joining entity, though it was not a depreciating asset in the hands of the entity that created the asset?
Decision
No. This section only applies to internally created assets which were depreciating assets at the time of creation.
Facts
Head Company X forms a consolidated group with its wholly owned subsidiaries, Company B and Company C.
Company B created an internally generated asset and did not hold it as a depreciating asset.
The asset was transferred to Company C before the group consolidated.
Company C holds it as a depreciating asset.
Reasons for Decision
Subsection 701A-10(1) of the IT(TP)A 1997 only applies to assets that were depreciating assets in the hands of the creator. This is because paragraph 701A-10(1)(a) of the IT(TP)A 1997 refers to 'a depreciating asset'. Subsequent references within the section to 'the asset' obtain their meaning from the first occurring use of the term 'asset' in paragraph 701A-10(1)(a) of the IT(TP)A 1997 being a 'depreciating asset'.
Paragraph 701A-10(1)(d) of the IT(TP)A 1997 only refers to expenditure incurred in constructing or creating a depreciating asset. In this instance, Company B's internally created asset was not a depreciating asset at the time of creation. Accordingly, the conditions in paragraph 701A-10(1)(d) of the IT(TP)A 1997 are not met. Therefore, section 701A-10 will not apply to the head company.