The consolidation process may initially be costly (software changes, obtaining information, accounting/legal fees).
Some aspects of consolidation may involve up-front compliance costs. For example, determining the asset values of joining subsidiaries involves complex calculations and may involve market-valuing assets. Similarly, the use of transferred losses by the head company may involve complex calculations and valuations. To help minimise these compliance costs, there are some short cut options available for determining asset values.
- Intra-group transactions are ignored for income tax purposes.
- Losses, franking credits and foreign tax credits are pooled.
- Existing complex integrity provisions (such as those relating to cost base adjustments, loss deferral and debt forgiveness) do not apply to intra-group transactions.
- Tax related impediments to group restructuring are reduced (for example, shares may be bought back into a group company without giving rise to a capital gain or loss, the liquidation of a member company will not trigger a deemed dividend, and assets can be moved between group entities without any formal rollover requirements).
- Ongoing compliance costs are reduced, as the group has a single income tax accounting period, self-assesses a single income tax liability, makes consolidated PAYG instalments and maintains only one franking account.