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Only the head company of a consolidated group or multiple entry consolidated (MEC) group is entitled to a foreign income tax offset for foreign income tax paid on income or gains that are included in its assessable income under the single entity rule. Where a subsidiary member pays foreign income tax on income or gains included in the head company's assessable income, the head company is treated as having paid the tax.
The head company's foreign income tax offset is determined in the same way as for taxpayers outside the consolidation regime.
Special transitional rules allow a joining entity to transfer any unused pre-commencement excess foreign income tax to the head company at joining time. The pre-commencement excess foreign income tax transferred from the joining entity is pooled with any other pre-commencement excess foreign income tax of the head company and subsidiary members. If the head company has unused pre-commencement excess foreign income tax which arose in the same year as the joining entity's unused pre-commencement excess foreign income tax, the amounts are pooled. The head company is subject to the five-year limitation rule on using pre-commencement excess foreign income tax. Pre-commencement excess foreign tax in the pool must be separately identified according to the income years in which it arose.
The head company can apply pre-commencement excess foreign income tax transferred from a joining entity in an income year starting at or after the joining time, subject to the general transitional rules.
If an entity leaves a consolidated or MEC group, it will not have access to any pre-commencement excess foreign income tax that it transferred to the head company when it joined the group.
More detailed information on the operation of the foreign income tax offset rules for consolidated groups or MEC groups, including the special transitional rules for pre-commencement excess foreign income tax, is contained in the Consolidation reference manual.