Income tax: consolidation: capital gains: is the period of ownership of an asset by a subsidiary member who brings it into the consolidated group taken into account in determining whether the head company has continuously owned the asset for the purposes of the small business 15 year exemption in Subdivision 152-B of the Income Tax Assessment Act 1997 ?

Yes. The period of ownership of an asset by the subsidiary member who brings it into the consolidated group is taken into account in determining whether the head company has owned it for the 15 year period referred to in paragraph 152-110(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997).

Under the small business 15 year exemption in Subdivision 152-B of the ITAA 1997, a company can disregard a capital gain from a CGT event if, among other things, it continually owned the asset that was the subject of the event for the 15 years ending just before the CGT event happened to the asset (paragraph 152-110(1)(b)).

The effect of the entry history rule in section 701-5 of the ITAA 1997 is that the head company is taken to have owned an asset for income tax purposes for any period that it was owned by the subsidiary member who brings it into the group. After the member joins, the single entity rule in section 701-1 of the ITAA 1997 treats the asset as an asset of the head company. Note: This Taxation Determination does not apply to intra-group assets.

HeadCo and SubCo form a consolidated group with effect from 1 July 2003. At that time SubCo owns an asset that it acquired in January 1987.

In December 2003, SubCo sold the asset to an entity outside the consolidated group.

The effect of the entry history rule and single entity rule is that HeadCo is taken to have owned the asset since January 1987. Accordingly, HeadCo is able to satisfy the 15 year ownership requirement.

When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

We invite you to comment on this draft Taxation Determination. Please forward your comments to the contact officer by the due date. Due date: 30 July 2004 Contact officer: Neale Bolton E-mail address: neale.bolton@ato.gov.au Telephone: (07) 3213 5349 Facsimile: (07) 3213 5971 Address: GPO Box 9990 Brisbane Qld 4000