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  • Consolidation

    Consolidation allows wholly-owned corporate groups to operate as a single entity for income tax purposes. Issues that attract our attention include:

    CGT consequences

    We focus on the reporting of capital gains or losses related to consolidation.

    Situations that attract our attention include:

    • corporate groups that restructure and have one or more consolidated groups within a private group
    • where multiple entities join or leave the consolidated group
    • incorrectly reporting capital gains or losses arising from the allocable cost amount (ACA) and allocation process on joining or leaving the consolidated group. For example, a head company has not reported a capital gain when a negative ACA occurred from an entity leaving the group.

    Cost-setting rules

    We focus on the:

    • allocable cost amount (ACA) calculation
    • allocation on joining or leaving a consolidated group.

    Situations that attract our attention include:

    • restructuring that may affect the ACA calculation, before joining, forming or leaving a consolidated group
    • on joining a group
      • miscalculating or overstating the ACA, for example, relating to the costs of membership interests or the accounting liabilities of the joining entity
      • inappropriately including or excluding assets before allocating the ACA to assets
      • incorrectly allocating the ACA to assets which results in increased revenue deductions or cost bases of CGT assets – examples include using inappropriate market values or incorrectly making relevant adjustments 
       
    • on leaving a group
      • incorrectly calculating the ACA, for example by excluding or understating liabilities
      • incorrectly allocating the ACA to the membership interests and treatment of pre-CGT shares (if any). 
       

    Membership

    We focus on the formation of a consolidated group and the eligibility of members.

    Situations that attract our attention include:

    • the incorrect formation of a consolidated group
    • incorrectly including or excluding an entity as a member of a consolidated group
    • late notifications of entries or exits from a consolidated group.

    Losses

    We focus on whether losses have been correctly transferred, the available fraction has been correctly calculated and losses correctly used.

    Situations that attract our attention include:

    • incorrectly including or excluding an entity as a member of a consolidated group, where it may cause unintended tax benefits
    • incorrectly transferring or using losses
    • high available fractions that, if incorrect, would allow a consolidated group to use transferred losses at an inappropriate rate
    • failing to adjust the available fraction as required.
    Last modified: 09 May 2022QC 69435