Section 440 — Income Tax Assessment Act 1936: Asset disposals—revaluations and arm’s length amounts

In determining, for the purposes of this Part, whether a company passes the active income test, the following provisions apply in relation to an asset of the company (other than trading stock): (a) the effect of an asset revaluation is to be disregarded; (b) subject to section 438, if: (i) any consideration paid or payable by the company in respect of the acquisition of the asset; or (ii) any consideration paid or payable to the company in respect of the disposal of the asset; or (iii) any expenditure incurred by the company in making capital improvements to the asset; or (iv) any other amount payable to or by the company that is relevant to determining the revenue, gains or losses concerned; is not equal to the amount (in this paragraph called the arm’s length amount) that the parties to the transaction concerned could have been reasonably expected to have paid if the parties had been acting at arm’s length in relation to the transaction—the amount of the consideration or expenditure is to be taken to be equal to the arm’s length amount.