Preamble
No. When the transferee [1] applies the formula in subsection 707-325(3) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) more than once, to add modified market value to different real loss-makers from the same value donor, the donation of modified market value are taken to occur simultaneously.
Subdivision 707-C of the IT(TP)A 1997 contains the value donor rules. These rules allow the available fraction [2] for a bundle of losses [3] transferred from an entity (the real loss-maker), under Subdivision 707-A of the Income Tax Assessment Act 1997 (ITAA 1997), to be worked out as if an amount of the modified market value [4] of another entity (the value donor) were added to the modified market value of the real loss-maker.
Subsection 707-325(3) of the IT(TP)A 1997 states: Work out the available fraction for the bundle of losses as if there were added to the modified market value of the real loss-maker at the initial transfer time the amount worked out using the formula: Value donor's modified market value at initial transfer time x Percentage chosen by transferee x (Total of real loss-maker's Division 170 losses in bundle / Total of real loss-maker's non-foreign losses in bundle) Note: The amount worked out using the formula will be nil if the value donor's modified market value at the initial transfer time is nil. Even if the amount is nil, section 707-327 may treat losses transferred by the value donor to the transferee as if they were included in the bundle of losses transferred by the real loss-maker to the transferee.
The transferee can apply the formula in subsection 707-325(3) of the IT(TP)A 1997 to different real loss-makers in relation to the same value donor. That is, the transferee can choose to donate modified market value to more than one real loss-maker from the same value donor. For each such application, the first element of the formula, that is, the 'value donor's modified market value at the initial transfer time', remains unchanged.
Further, subsection 707-325(3) of the IT(TP)A 1997 provides that the addition that is taken to be made to the modified market value of the real loss-maker is at the initial transfer time (the time that the group became a consolidated group), [5] which means that each donation of modified market value is taken to be made at the same time.
Subsection 707-325(7) of the IT(TP)A 1997 provides that if subsection 707-325(3) of the IT(TP)A 1997 applies more than once in relation to the same value donor but in respect of different real loss-makers, the sum of the amounts of modified market value taken to be donated (as a result of the separate applications of the formula) cannot exceed the modified market value of the value donor at the initial transfer time. The reference in subsection 707-325(7) to the value donor's modified market value at the initial transfer time confirms that, under multiple applications of the formula in subsection 707-325(3), those donations of modified market value are made at the same time.
Where the transferee chooses to apply the formula in subsection 707-325(3) of the IT(TP)A 1997 to different real loss-makers in relation to the same value donor, Subdivision 707-C of the IT(TP)A 1997 makes no reference to whether the donations occur in a particular order. The absence of an ordering rule and the operation of the rules as discussed in paragraphs 4 to 6, leads to the conclusion that donations of modified market value are considered to be made simultaneously.
The question of whether an ordering rule exists is relevant from the perspective of how subsection 707-325(7) of the IT(TP)A 1997 operates where there is an over-donation of modified market value. An over-donation occurs where the total of the amounts taken to be donated under subsection 707-325(3) of the IT(TP)A 1997 in relation to a single value donor exceeds that value donor's modified market value at the initial transfer time. This over-donation can arise because of a change in circumstances [6] in respect of a period before the initial transfer time or as a result of an error in calculation.
The purpose of subsection 707-325(7) of the IT(TP)A 1997 is to cap the donations of the modified market value to 100% of the value donor's modified market value at the initial transfer time. Subsection 707-325(7) limits the effects of the choices of the transferee under the second element of the formula in subsection 707-325(3) of the IT(TP)A 1997. Those choices made cannot 'result in the total of the amounts worked out under those applications' exceeding the value donor's modified market value at the initial transfer time. Eligible consolidated groups are not denied access to the value donor concession where an over-donation of modified market value is identified but they are prohibited from exceeding the statutory cap.
Where a over-donation of modified market value is identified and the time for revoking a choice made under subsection 707-325(5) of the IT(TP)A 1997 has passed, each amount worked out under an application of the formula in subsection 707-325(3) of the IT(TP)A 1997 is required to be proportionally scaled-back to cap the donations to 100% of the value donor's modified market value at the initial transfer time. A proportional scale-back is achieved by multiplying each donation by the following factor: Value donor's modified market value at the initial transfer time / Total over-donation amount Where: Total over-donation amount means the total of the amounts worked out under subsection 707-325(3) in relation to the value donor.
This does not imply the percentages chosen can be amended by the transferee where an over-donation is identified after the revocation date; it merely scales back each donation so that the applications of the formula have effect.