Income tax: consolidation: capital gains: does the single entity rule in section 701-1 of the Income Tax Assessment Act 1997 mean that section 124-784 does not apply to the consolidated group in relation to shares issued by a subsidiary member to the head company under a scrip for scrip arrangement?

Yes. Section 124-784 of the Income Tax Assessment Act 1997 (ITAA 1997) sets a cost base for intra-group assets or debt as a result of an intra-group dealing and is inconsistent with the operation of the single entity rule in section 701-1 of the ITAA 1997.

Section 124-784 of the ITAA 1997 ordinarily allocates cost base to equity issued or new debt owed by an acquiring company to the ultimate head company of the group as part of an arrangement involving a downstream acquisition of another company if there is a common or significant stakeholder for the arrangement.

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 details have been removed following publication of the final ruling.