Preamble
No. As a result of the operation of the single entity rule in section 701-1 of the Income Tax Assessment Act 1997 (ITAA 1997), the transfer of an asset between members of a consolidated group will not affect the continued ownership of the asset by the head company as relevant for paragraph 152-110(1)(b) of the ITAA 1997.
Subsection 152-110(1) of the ITAA 1997 provides that a company can disregard a capital gain from an asset if, among other things, it continuously owned the asset for the 15 year period ending just before the CGT event that gave rise to the capital gain.
As a result of the single entity rule in section 701-1 of the ITAA 1997, the head company of a consolidated group is the only entity recognised for the group's income tax purposes and it will make any capital gain from the asset. Thus, the head company must establish that it continuously owned the asset for the relevant 15 year period.
Where an asset is brought into the group by a subsidiary member, the entry history rule in section 701-5 of the ITAA 1997 and the single entity rule apply such that the head company is taken to have owned the asset for the period that it was owned by the subsidiary member who brought it to the group upon formation or joining, and for the period of any subsequent ownership by that or another subsidiary member. If the asset was acquired during the period of consolidation, the single entity rule applies.
Accordingly, the transfer of an asset between subsidiary members has no effect on the continuous ownership of the asset by the head company for the purposes of paragraph 152-110(1)(b) of the ITAA 1997. Under the single entity rule, the head company is taken, for income tax purposes, to have always been the owner of the asset. Note: This Determination does not apply to intra-group assets including membership interests.
HeadCo, SubCo1 and SubCo2 are members of a consolidated group that formed with effect from 1 July 2002. At that time, SubCo1 owned an asset that it acquired in August 1988 .
In November 2002, SubCo1 transferred the asset to SubCo2 .
In December 2003, SubCo2 sold the asset to an entity outside the consolidated group .
The effect of the entry history and single entity rules is that HeadCo is taken to have owned the asset since August 1988. Because the single entity rule ignores transactions between members of a consolidated group and treats assets of subsidiary members as those of the head company for income tax purposes, the transfer of the asset from SubCo1 to SubCo2 does not affect the continuous ownership of the asset by HeadCo. Accordingly, HeadCo is able to satisfy the 15 year ownership requirement. HeadCo must also satisfy the other conditions of the 15 year exemption for it to apply .
This Determination applies to years commencing both before and after its date of issue. However, it does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).