The Government has announced that the deadline for revoking a choice to 'stick' or 'spread' is to be extended by 12 months to 31 December 2005. This extension is also to apply to revoking certain transitional elections.
Revoking the stick or spread choice
In forming a consolidated group during the transitional period (the first two years of consolidation, 2002-03 and 2003-04), the head company had the option of retaining existing tax costs for the assets of joining subsidiaries (sticking) or setting new tax costs by applying the cost setting process (spreading). Setting new tax costs is mandatory for groups forming after the transitional period.
The head company makes the choice to stick or spread in the context of lodging the first consolidated income tax return. An amendment enacted in March 2004 enables the head company to change its decision to stick or spread in relation to a particular subsidiary provided it amends its tax return by 31 December 2004 and gets the agreement of any entity (whether or not it remains a subsidiary member) owning an asset the tax cost of which is affected by the choice. The Minister for Revenue and Assistant Treasurer has announced that groups will now have until 31 December 2005 to revoke an election to retain existing tax costs for the assets of a joining subsidiary or to make an election to retain existing tax costs (if it previously chosen to set new tax costs). Further details are provided on the Assistant Treasurer's website press release No.023 of 20 December 2004.
Revoking elections in relation to losses
The Government has announced that the deadline for revoking the following elections will also be extended for 12 months to 31 December 2005:
- the election to utilise certain losses over three years rather than under the available fraction method
- the election under the value donor concessions for calculating an entity's available fraction
- the election to waive the capital injection rules where the value donor rules could apply
- elections by the head company of a consolidated or multiple entry consolidated (MEC) group to cancel a loss on its transfer.
Amendments to returns due to a revocation of an election will generally not attract penalties or GIC
The extension of time to revoke elections does not have any impact on due dates for income tax returns and for payment of income tax liabilities. However, if a revocation or change in election requires a taxpayer to amend their tax return and the amendment increases their liability, shortfall penalties and the GIC will generally not apply. On the other hand, if an amendment decreases a liability, the taxpayer may be entitled to interest on their tax overpayment.
We will observe the terms of ATO Practice Statement Law Administration PS LA 2005/9 in so far as it relates to amendments arising from the revision of elections. For example, provided a genuine attempt was made to correctly lodge the initial return, no shortfall penalty will apply to amendments made to the return because of a variation in the election. Similarly, no GIC will apply to that adjustment from the original due date until the return is lodged, provided the amended return is lodged within a reasonable period.