Consolidation minutes, February 2009

Meeting details

Venue:	Stamford Plaza, 111 Little Collins Street, Melbourne
Date:	Thursday 26 February 2009
Start:	10am	Finish:	2pm
Chair:	John Evans
Contact and Secretariat:	Karin Collinson	Contact phone:	08 9268 5083

Attendees

Lynda Brumm

Susan Cantamessa

Michael Charles

Julian Cheng

Richard Czerwick

Frank Drenth

Matthew Hayes

Alexis Kokkinos

Peter Murray

Mel Nash

Ken Spence

Tony Stolarek

Sue Stroud

Gordon Thring

Daryl Brigham

Joseph Camenzuli

Lillian Howes

Andy Milton

Karin Collinson

John Gleeson

Mark Kelly

Lindsay Hanham

Mike Slattery

Fiona Petterson

Sandra Peacock

Tony Regan

Elena Saarbrucken

Taxation Institute of Australia

Institute of Chartered Accountants in Australia

KPMG

CPA Australia

Ernst & Young

Corporate Tax Association

Taxation Institute of Australia

Institute of Chartered Accountants in Australia

Taxation Institute of Australia

Deloitte

Taxation Institute of Australia

Institute of Chartered Accountants in Australia

Corporate Tax Association

CPA Australia

ATO

Treasury

AVO

Apologies

Stuart Brown	Australian Petroleum Production and Exploration Association
Ray Conwell	Law Council of Australia

NTLG Consolidation Subgroup agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

1. Introduction

The Chair noted the apologies.

Minutes of the last Sub-group meeting held on 12 June 2008 were received.

The Chair noted that the decision of Kenny J in Handbury Holdings Pty Ltd v Commissioner of Taxation [2008] FCA 1787 (28 November 2008) is on appeal to the Full Federal Court.

2. Update on action items discussed at 12 June 2008 meeting

Action item	1/28Jun07 (Tax Sharing Agreements and the clear exit provisions)
Description	The revised ATO Receivables Policy was published in PS LA 2008/13 on 28 August 2008.
Responsibility	John Evans
Due date	Finalised

Action item	2/28Jun07 (Intra-group assets and the exit history rule - NTLG sub-group issue 17.10)
Description	The Chair provided an update on this item. Members were asked to forward any additional intra-group asset and single entity rule issues for consideration. Current Tax Office thoughts in relation to the single entity rule will be presented by Deputy Chief Tax Counsel at the upcoming TIA Consolidation Symposiums.
Responsibility	John Evans
Due date	Next meeting

Action item	Agenda item 5/28Jun07 (Subdivision 705-C for non-consolidated groups - NTLG Consolidation Sub-group issue 17.08)
Description	Lindsay Hanham provided an update on this item. This Ruling topic was withdrawn from the Public Rulings program, subsequent to the 12 June 2008 meeting. It will be considered as a part of ongoing discussions with the Treasury. Examples received 23 February 2009. These will be examined by the Tax Office and discussed at the next Sub-group meeting.
Responsibility	Lindsay Hanham
Due date	Next meeting

Action item	5/28Jun07 (Trusts joining and leaving a consolidated group during an income year)
Description	Karin Collinson provided an update on this item. While a legislative modification for 2007-08 onwards has been announced, an appropriate administrative solution for the prior period is under discussion. Draft Consolidation Reference Manual material and other administrative approaches are being considered in light of a wider Tax Office review of issues involving trusts.
Responsibility	Karin Collinson
Due date	Next meeting

Action item	Agenda item 13/28Jun07 (Straddle contracts - NTLG Consolidation Sub-group issue 14.01a)
Description	Final Taxation Determinations (TD 2008/29, TD 2008/30 and TD 2008/31) issued on 17 December 2008
Responsibility	John Evans
Due date	Finalised

Action item	4/12Jun08 (Foreign hybrids)
Description	Lindsay Hanham provided an update on this item. Members of the Sub-group requested that a formal Tax Office view be provided as to whether a foreign hybrid could be a member of a consolidated group, given the view provided in Taxation Determination TD 2008/24 about the assessability of dividends paid by a non-resident company to a partnership. Members were invited to prioritise the issue via the Issues Registers such that appropriate Tax Office resources could be allocated.
Responsibility	Lindsay Hanham
Due date	Next meeting

Action item	6/12Jun08 (The implications for consolidation of the view expressed in Draft Taxation Ruling TR 2007/D10 - NTLG Consolidation Sub-group issue 17.21)
Description	Update provided by the Chair. Taxation Ruling 2007/D10 remains in draft form. It would be premature to pre-empt the final form of the TR and the implications of that Ruling on the consolidation cost setting process.
Responsibility	John Evans
Due date	Next meeting

Action item	7/12Jun08 (The treatment of convertible notes on entry and exit - NTLG Consolidation Sub-group issue 17.17)
Description	Lindsay Hanham provided an update on this item. It was noted the Tax Office has some concerns with non-share equity instruments and how they are treated in the tax cost setting process. These have been referred to Treasury. This is an issue where it is anticipated there may be a need to consult with external members before a solution might be arrived at.
Responsibility	Lindsay Hanham
Due date	Next meeting

To close, members discussed refreshing the Issues Registers for the Sub-group. It was stated that the Registers had been dormant with the focus shifting to the announced but un-enacted consolidation law amendments.

Action item	1/26Feb09 - re-examine Practitioner's Priority Issues Registers
Description	Sub-group members committed to discussing the status of issues on their Registers with a view to refreshing and re-prioritising these. Also consider whether the Tax Issues Entry System (TIES) register can assist in prioritising those issues requiring a technical law amendment.
Responsibility	Sub-group members
Due date	Next meeting

3. Multiple Entry Consolidated Groups - current issues - input requested

Lindsay Hanham from the Consolidation Centre of Expertise addressed this item.

Complexity burdens the administration of the tax system and the MEC provisions and their interaction with the wider Act are complex. The Tax Office is concerned as to the burden of compliance costs for MEC groups. Sub-group members have observed that the interaction of the MEC group rules and other income tax provisions introduce unintended ambiguity. There is open acknowledgement by Sub-group representative members of the need for legislative direction concerning MEC groups. Collaborative discussion of MEC group issues with members of the Sub-group would be welcomed and input was requested.

Action item	2/26Feb09 - MEC groups - current issues
Description	Sub-group members were requested to raise any MEC group interaction issues they have encountered in practice.
Responsibility	Sub-group members
Due date	Next meeting

4. Deferred Tax Liabilities (DTLs)- Deferred Taxes in the ACA and the Tax Cost Setting Process

Andy Milton from the Consolidation Centre of Expertise addressed this item.

A discussion paper entitled Deferred Taxes in the Allocable Cost Amount (ACA) and the Tax Cost Setting Process was circulated to Sub-group members prior to the meeting. Andy requested members' feedback on the content of the discussion paper in the hope that the Tax Office and members could agree on a way forward in dealing with DTLs.

Andy advised that DTLs were a challenging issue in the environment of new Accounting Standards.

Members agreed to review the discussion paper and provide comments to Andy by 30 May such that the findings could be presented to the Sub-group at the next meeting.

Action item	3/26Feb09 - Deferred Tax Liabilities and the ACA
Description	Present members' views on the content of the discussion paper and discuss a way forward.
Responsibility	Andy Milton
Due date	Next meeting

5. SER and foreign branches

Fiona Petterson from the Consolidation Centre of Expertise addressed this item.

A discussion paper entitled Interaction between the attribution rules applying to Offshore Permanent Establishments that are Branches and the Single Entity Rule was circulated to Sub-group members prior to the meeting. The discussion paper was confined to attribution in the context of consolidation and foreign branches. Fiona invited comments on the paper and advised that a further paper concerning thin capitalisation, transfer pricing and tax implications of attribution would be presented at the next meeting.

Action item	4/26Feb09 - SER and foreign branches
Description	Interpretative analysis extended and presented to the Sub-group in discussion paper format.
Responsibility	Fiona Petterson
Due date	Next meeting

6. McIntosh Decision - update

John Gleeson, Director - Debt Policy, Operations Policy & New Measures addressed this item.

John advised that on 19 December 2008 that Justice Graham of the Federal Court handed down his decision in M W McIntosh Pty Ltd vs Commissioner of Taxation [2008] FCA 1949. The taxpayer has appealed to the Full Federal Court with the hearing being set down for May 2009.

The decision affirmed the Commissioner's position that s388-55 of the Taxation Administration Act 1953 cannot be used to defer the due date for the lodgment of a notification of choice to form a consolidated group. Further, in Justice Graham's view, the last day for lodging a notification is by the earlier of either the day on which the income tax return for the year containing the chosen date of consolidation is lodged with the Commissioner, or by the due date of that income tax return. Having said that, it should be noted that where the Commissioner uses the discretion contained within s388-55 of the TAA 1953 to defer the due date for lodgment of the income tax return for the year, then this will also extend the due date for lodging the notification of choice to form a consolidated group.

It was stressed that the Commissioner strongly advises groups to notify early and not leave it to the last minute to lodge their notification of choice. This will allow time for any errors that may stop a group forming to be corrected.

7. Discussion of Members' views as to priority issues for Feb 2009 - June 2009

Members' agreed to re-prioritising the Issues Registers before the next meeting - see Action Item 1/26Feb09

8. Next meeting / other business

The Chair asked members whether potential TOFA/Consolidation interaction issues that may arise pending the enacted of the TOFA provisions should be discusses by the Sub-group. The consensus was that while the issues could initially be raised via the Consolidation Sub-group, these would also be referred to and considered by the TOFA working Party of the NTLG Finance and Investment Sub-group, such that a collaborative approach to solving those issues is encouraged.
Mark Kelly, Manager in the Operations Consolidation Implementation team advised members that the consolidation notification forms are being redesigned, using the GST grouping form as a model for redesign. The intention is to have one form cover several notification events rather than separate forms for each event. Mark advised he is seeking feedback from members on the initial design of the form and will be circulating a prototype of the form and the accompanying instructions soon. The aim is finalise the form design by mid-year.
The date for the next meeting was considered, and it was agreed that a date late in July would be appropriate.

Next meeting

7 August 2009

Last Modified: Friday, 21 May 2010

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