When amalgamating companies are a party to a financial arrangement

This 2010 remedial amendment to the Income Tax Act covers situations where amalgamating companies are a party to a financial arrangement.

Section 66 of the Taxation (GST and Remedial Matters) Act 2010

The Rewrite Advisory Panel concluded that section FO 18 of the 2007 Act contains an unintended change in outcome. The unintended change is that an insolvent amalgamating company is treated as providing the market value of the financial arrangement when it is deemed to discharge its financial arrangements on any amalgamation.

Under the 2004 Act, in the same circumstances, the amalgamating company was treated as having provided the accrued value as consideration for a financial arrangement deemed to be discharged under the amalgamation.

Key features

The amendment ensures that, if an insolvent amalgamating company is likely able to meet its financial obligations (for example, because property of the company fully secures the debt), the accrued value of a financial arrangement deemed to be discharged under the amalgamation is treated as being the amount of consideration given by the amalgamating company immediately prior to the amalgamation.

Application date

The amendment applies from the beginning of the 2008-09 income year.