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Taxing wholly-owned corporate groups as single entities

If your business is a company that owns 100% of another company, trust or partnership, consolidation is an option.

Last updated 24 February 2016

Key question

Does your business structure consist of a company that owns 100% of another company, trust or partnership?

Yes: you may be eligible to consolidate

No: you can't consolidate and the overview is not relevant to your business

Where a wholly-owned group does not choose to consolidate, the income tax system treats each company in the group as a separate entity. Taxing member entities separately means that each member must separately account for all intra-group transactions and debt and equity interests.

For business, this imposes extra compliance costs and may stand in the way of the most efficient business structure. From the community's perspective, the previous grouping provisions for wholly-owned groups provided opportunities for tax avoidance through artificial arrangements.

Key points

  • Wholly-owned corporate groups may have the option of consolidating for income tax if they want all of their entities in their group to be taxed together.
  • Consolidation is optional but irrevocable.
  • The consolidated group operates as a single entity for income tax purposes, lodging a single income tax return and then paying a single set of pay as you go (PAYG) instalments.
  • One in, all in. If a group consolidates, all of the head company's eligible wholly-owned subsidiaries are members.
  • Most small businesses involve single entities and are not affected by the consolidation regime. Consolidation is not relevant to the business activities of individuals (such as sole traders).

The Australian Government has introduced consolidation to reduce compliance costs for business, remove impediments to the most efficient business structures and improve the integrity of the tax system.