Income tax: consolidation: cost setting: do the assets of a transitional foreign-held subsidiary retain their existing tax values on formation of a consolidated or a multiple entry consolidated group?

Yes. The assets of a transitional foreign-held subsidiary (TFHS) (as defined in section 701C-20 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997)) retain their existing tax values on formation of a consolidated or multiple entry consolidated (MEC) group.

When a consolidated or MEC group is formed, TFHSs are treated, for the purposes of the tax cost setting provisions in section 701-10, and Subdivisions 705-A and 705-B, of the Income Tax Assessment Act 1997 (ITAA 1997), as part of the head company of the group, rather than as separate entities (section 701C-30 of the IT(TP)A 1997).

The tax costs of a head company's assets are not set on formation of a consolidated or MEC group (subsection 701-10(4) of the ITAA 1997). The assets of a TFHS therefore retain their existing tax values.

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: 10 June 2005 Contact officer details have been removed following publication of the final ruling.