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The consolidation regime through the single entity rule ensures that only the head company of a consolidated group includes the foreign income of the consolidated group or multiple entry consolidated group in its assessable income. Once consolidated, only the head company is entitled to foreign income tax offsets for foreign income tax paid on an amount included in the head company's assessable income. The head company can use foreign income tax offsets to reduce its Australian tax liabilities that would otherwise be payable in respect of amounts included in the head company's assessable income to prevent double taxation of its worldwide income.
There are special transitional foreign income tax offset rules which apply to allow the head company to use pre-commencement excess foreign income tax credits - its own pre-commencement excess foreign income tax credits and any transferred pre-commencement excess foreign income tax from joining entities at the joining time, provided certain conditions are met.
Where an entity leaves a consolidated group or multiple entry consolidated group, it is only required to include foreign income in its assessable income for the period it is not a member of any consolidated group. The leaving entity will not have access to any pre-commencement excess foreign income tax credits from earlier years that it may have had before joining the consolidated or multiple entry consolidated group, or that arose to the head company during the entity's membership period after the leaving time.
Last modified: 05 Oct 2009QC 27953