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Consolidation

We focus on consolidation issues from inappropriate CGT reporting, cost-setting rules, membership and loss utilisation.

Last updated 21 May 2024

What consolidation does

Consolidation allows wholly-owned corporate groups to operate as a single entity for income tax purposes.

CGT consequences

We focus on the reporting of capital gains or losses related to consolidation.

Situations that attract our attention include:

  • corporate groups that restructure and have one or more consolidated groups within a private group
  • where multiple entities join or leave the consolidated group
  • incorrectly reporting capital gains or losses arising from the allocable cost amount (ACA) and allocation process on joining or leaving the consolidated group – for example, there were pre-CGT membership interests or a head company hasn't reported a capital gain when a negative ACA occurred from an entity leaving the group.

Cost-setting rules

We focus on the:

  • allocable cost amount (ACA) calculation on joining or leaving a consolidated group
  • allocation of the ACA to set the tax cost of assets on joining or membership interests on leaving a consolidated group.

Situations that attract our attention include:

  • restructuring that may affect the ACA calculation, before joining, forming or leaving a consolidated group
  • on joining a group    
    • miscalculating or overstating the ACA, for example, relating to the costs of membership interests or the accounting liabilities of the joining entity
    • inappropriately including or excluding assets before allocating the ACA to assets
    • incorrectly allocating the ACA to assets which results in increased revenue deductions or cost bases of CGT assets – examples include using inappropriate market values or incorrectly making relevant adjustments  
  • on leaving a group    
    • incorrectly calculating the ACA, for example by excluding or understating liabilities
    • incorrectly allocating the ACA to the membership interests and treatment of pre-CGT shares (if any).  

Membership

We focus on the formation of a consolidated group and the eligibility of members.

Situations that attract our attention include:

  • the incorrect formation of a consolidated group
  • incorrectly including or excluding an entity as a member of a consolidated group
  • late notifications of entries or exits from a consolidated group.

Losses

We focus on whether losses have been correctly transferred, the available fraction has been correctly calculated and losses correctly used.

Situations that attract our attention include:

  • incorrectly including or excluding an entity as a member of a consolidated group, where it may cause unintended tax benefits
  • incorrectly transferring or using losses
  • high available fractions that, if incorrect, would allow a consolidated group to use transferred losses at an inappropriate rate
  • failing to adjust the available fraction as required.

QC69435