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The new consolidation regime ensures that only the head company of a consolidated group includes the foreign income of the consolidated group in its assessable income. Therefore, only the head company needs to use foreign tax credits to reduce its Australian tax liabilities to avoid double taxation. To enable the head company of the consolidated group to access the excess foreign tax credits carried forward by subsidiary members, the excess credits are transferred to the head company. Generally, the head company can only use the transferred excess credits at the end of the income year after the year the entity joined the group; however, transitional rules will apply to groups that consolidate within the transitional period of 1 July 2002 to 30 June 2004.
Where an entity pays foreign tax on foreign income while it is a member of a consolidated group, the head company will be assessed on the foreign income and will be taken to have paid and been personally liable for the foreign tax paid by the subsidiary member.
Where an entity leaves a consolidated group it cannot take any excess foreign tax credits with it and it is only required to include foreign income in its assessable income for the period it is not a member of any consolidated group.
The provisions relating to excess foreign tax credits became effective on 1 July 2002.
These provisions were contained in the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 which received royal assent on 24 October 2002.
Last modified: 05 Dec 2006QC 18000