Head companies - dealing with intragroup transactions

A core principle of consolidation is that all transactions between members of the consolidated group, including distributions between group members, are ignored for income tax purposes. This means that the head company subtracts the impact of intragroup transactions from aggregated group data to give a consolidated position. This is particularly relevant to items 6 to 8 and 17 to 20.

In completing item 6 - Calculation of total profit or loss, for example, income from sales to and distributions from other group members should not be included. Similarly, the cost of sales to other group members should not be included under Expenses.

Specifically, in completing:

  • Item 2 - Main business activity: show the business activity from which the group derived the most gross income. Intragroup transactions should be eliminated but if this is not possible aggregated data can be used.
  • Item 8 - Financial and other information: show the amounts recorded in the financial statements, not those arrived at as part of the allocable cost amount calculation. Aggregated data is acceptable but only if consolidated data is not available.

The use of aggregated data where consolidated data is not available is only acceptable as an interim measure. We require consolidated groups to have systems in place to provide consolidated data for all income tax return items for the 2005-06 and later income years.

    Last modified: 20 Oct 2010QC 17844