• Protecting the corporate tax base - the consolidation regime

    As part of the 2013–14 Budget, the government announced it will improve the integrity of the corporate tax system by addressing a number of issues relating to consolidated groups that were identified by the Board of Taxation. These amendments will apply to transactions that take place after 14 May 2013.

    The law will be amended to ensure that:

    • nonresidents are not able to 'churn' – that is, buy and sell – assets between consolidated groups to allow the same ultimate owner to claim double deductions
    • certain deductible liabilities are not taken into account twice
    • consolidated groups cannot access double deductions by shifting the value of assets between entities.

    In addition, the government will ensure that only net gains and losses are recognised for tax purposes for certain intragroup liabilities and assets that are subject to the taxation of financial arrangements regime, upon exit of a member from a consolidated group. To preserve how taxpayers have applied the current law, this amendment will apply to all income tax returns and requests for amended assessments lodged from the date of announcement. The Commissioner of Taxation will not have the power to alter the treatment of affected amounts in assessments made before the date of announcement.

    These proposals are not yet law.

    Administrative treatment

    Consolidation amendments

    The ATO will accept tax returns as lodged during the period up until the proposed law changes are passed by Parliament. Past year assessments will not be reviewed until the outcome of the proposed amendments is known.

    After the new law is enacted, taxpayers will need to review their positions back to the 2012–13 income year. Those taxpayers who:

    • lodged in accordance with the changes do not need to do anything more
    • did not lodge in accordance with the changes should seek an amendment  
      • if an increase in liability results, no tax shortfall penalties will be applied
      • any interest accrued will be remitted to the base interest rate up to the date of enactment of the law change
      • any interest in excess of the base rate accruing after the date of enactment will be remitted if taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.
       

    TOFA - consolidation amendments

    In the case of the changes to the interaction of the consolidation regime and the TOFA regime, the government announcement provides that the changes will apply to all income tax returns and requests for amended assessments lodged from 14 May 2013. To preserve how taxpayers have complied with the current law, they should not take steps to change their previous tax positions.

    After the new law is enacted, those taxpayers who:

    • lodged in accordance with the changes do not need to do anything more
    • lodged their tax return or requested an amendment to an assessment from 14 May 2013 based on the original TOFA provisions  
      • will need to request an amendment to their assessment or amended assessment to reflect the new TOFA provisions
      • if an increase in liability results, no tax shortfall penalties will be applied and any interest accrued will be remitted to the base interest rate up to the date of enactment of the law change
      • any interest in excess of the base rate accruing after the date of enactment will be remitted if taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.
       

    If the proposed law change does not proceed, the ATO will issue further advice.

    See also

      Last modified: 11 May 2016QC 34693