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.