Page 20 of a paper referred to at the bottom of this post reads:
"When a loss-making subsidiary member of a consolidated group is sold to an entity outside the consolidated group, then: (i) in relation to the realised losses referable to the loss-making subsidiary: the realised losses remain behind with the vendor head company and, as such, they cannot be recognised again anywhere else in the tax system"
This means that GFG Alliance cannot recognise the losses of OneSteel companies once the subsidiaries leave the Arrium holding company; which means the losses remain with Arrium Limited now called ACN 123456789 Limited. The document is from 2006. Does any tax Accountant in the forum know if the paper claims are valid today?
On page 17 it reads:
"Now, in a post-consolidation environment, a critical issue is how Subdivision 165-CD applies to a consolidated group when the group sells a subsidiary member for which the tax cost of membership interests exceeds the price received for the sale ... The purpose of Subdivision 165-CD is to prevent the multiple recognition of a company's losses when equity and/or debt interests held by other corporate entities in the company are realised and, at the time of realisation, there has been a change in ownership and/or control of the company. ... In a tax consolidated environment, it is intended that Subdivision 165-CD will operate subject to specific modifications. These are set out in Division 715 of the 1997 Tax Act."
If the loans are sitting at the holding company level (not subsidiary) then the loss on disposal of the OneSteel companies will be huge (proceeds from sale minus net asset value). The alleged price paid by GFG Alliance will be way inferior to the book value of the assets as at the date of the sale (probably 1 September 2017). What happens to these huge tax losses?
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Link to document below. Click on "download the paper" at bottom of page.
https://www.allens.com.au/mobile/page.aspx?page=/pubs/tax/papfeb06.htm
(20min delay)