• Dealing with errors in the calculation of tax cost setting amounts - requirements for head companies and provisional head companies

    Current requirements

    From 1 August 2007, where a head company becomes aware that one or more errors were made in working out the tax costing setting amounts of reset cost base assets of a subsidiary member, and it would be unreasonable to require recalculation of the amounts, the head company will be required to notify the Commissioner of the error(s) as soon as practicable.

    The relevant notification form must be completed and sent to the ATO in order to satisfy this requirement. There are separate notification forms for consolidated groups and MEC groups.

    What is required to be reported?

    The amount to be reported is the aggregate overstated or aggregate understated amount of the error(s) for the group. If the aggregate amount is nil, there is still an administrative requirement for the head company to lodge an approved form. This way the ATO can keep a record that the head company has notified the Commissioner of the error(s).

    Previous requirements

    Prior to 1 August 2007, when a head company discovered that it had made one or more errors in calculating the tax cost setting amount, the head company was required to keep a written record that it had made the errors, and the overstated or understated amount, so that it would be available on request. No notification to the Commissioner was required.

    Following consultation with industry during its review of Draft Taxation Ruling TR 2006/D12 'Income tax: consolidation: errors in tax cost setting amounts of reset cost base assets', the ATO accepted the Rulings Panel advice that a change of practice was necessary to ensure the administrative treatment for dealing with errors in the calculation of tax cost setting amounts properly reflects the legislative requirements where it would be unreasonable to require the recalculation of the amounts. These changes are addressed in Taxation Ruling  TR 2007/7 'Income tax: consolidation: errors in tax cost setting amounts of reset cost base assets'.

    Lodging the error notification form

    The head company of a consolidated group, or its tax agent, can notify the ATO of errors discovered in the calculation of the tax cost setting amounts by completing and lodging the Notification of error(s) in the calculation of tax cost setting amounts - Consolidated group form as soon as practicable after becoming aware of the error(s).

    For MEC groups, the provisional head company, or its tax agent, should notify by completing and lodging the Notification of error(s) in the calculation of tax cost setting amounts - Multiple entry consolidated (MEC) group form.

      Last modified: 17 Sep 2007QC 27145