Income tax: consolidation: subsidiary in liquidation - for the purposes of subsection 711-45(1) of the Income Tax Assessment Act 1997, is the amount of an unsatisfied liability owed to another member of the consolidated group ('intra-group liability') by a subsidiary member at the time it is deregistered equal to the market value of the corresponding asset of that other member?
Yes. Subsection 711-45(4) of the Income Tax Assessment Act 1997 [1] provides that the amount of an intra-group liability for the purpose of applying subsection 711-45(1) is the market value of the corresponding asset of the member of the group at the time of deregistration.
This Determination applies 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 75 and 76 of Taxation Ruling TR 2006/10).
Appendix 1 - Explanation
Taxation Determination TD 2006/59 [2] explains that the unsatisfied debts of a subsidiary at the time of deregistration are recognised as accounting liabilities in accordance with accounting standards. Therefore they are accounting liabilities of the subsidiary just before the leaving time for the purposes of subsection 711-45(1) in accordance with the leaving entity's accounting principles for tax cost setting.
Subsection 711-45(4) modifies the operation of subsection 711-45(1) in respect of intra-group liabilities: If an accounting liability of the leaving entity is owed to a *member of the old group, the amount to be added for the liability is the *market value of the corresponding asset of the member.
Where a liquidated subsidiary has an outstanding liability to another member of the consolidated group at the time of its deregistration, it is likely that the corresponding asset of the other member will have little or no value. [3] If the market value of the corresponding asset is nil then, in accordance with section 711-45, there will be no amount subtracted for that intra-group liability under step 4 in the table in subsection 711-20(1). If the liquidated subsidiary has no other unsatisfied liabilities, the amount remaining after step 4 will not be negative and the head company will not be taken to have made a capital gain under CGT event L5.