House of Representatives

Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)

General outline and financial impact


Schedule 1 to this Bill amends the ITAA 1997 to improve the integrity and operation of the consolidation regime by implementing the following measures:

the deductible liabilities measure, which will remove a double benefit that can arise in respect of certain liabilities held by an entity that joins a consolidated group;
the deferred tax liabilities measure, which will simplify the operation of the entry and exit tax cost setting rules by ensuring that deferred tax liabilities are disregarded;
the securitised assets measure, which will remove anomalies that arise when an entity joins or leaves a consolidated group where the entity has securitised an asset;
the churning measure, which will switch off the entry tax cost setting rules for a joining entity where a capital gain or capital loss made by a foreign resident owner when it ceases to hold membership interests in the joining entity is disregarded in certain circumstances;
the TOFA measure, which will clarify the operation of the TOFA provisions when an intra-group asset or liability that is, or is part of, a Division 230 financial arrangement emerges from a consolidated group because a subsidiary member leaves the group; and
the value shifting measure, which will remove anomalies that arise when an entity leaves a consolidated group holding an asset that corresponds to a liability owed to it by the old group because the value of the asset taken into account for tax cost setting purposes is not always appropriate.

Date of effect: The dates of effect of the various measures are, broadly, as follows:

the deductible liabilities measure applies from 1 July 2016;
the deferred tax liabilities measure applies from the date of introduction of the amending legislation;
the securitised assets measure applies to ADIs and financial entities from 13 May 2014, and to all other entities from 3 May 2016;
the churning measure and the value shifting measure apply from 14 May 2013; and
the TOFA measure applies from the commencement of the TOFA regime (generally from 1 July 2010).

Where appropriate, transitional rules ensure that taxpayers who have entered into arrangements prior to commencement are not disadvantaged, are not able to obtain windfall gains, or do not have to change a position they have taken under the current law.

Proposal announced: These measures (except for the deferred tax liabilities measure and the securitised assets measure) were originally announced by the former Government in the 2013-14 Budget.

The application of the securitised assets measure to ADIs and financial entities was announced by the Government in the 2014-15 Budget.

In the 2016-17 Budget, as part of the Tax Integrity Package, the Government announced:

changes to the deductible liabilities measure to modify the approach for implementing the measure and to defer the start date for the measure until 1 July 2016;
the deferred tax liabilities measure; and
the extension of the securitised assets measure to all entities.

Financial impact: These amendments are estimated to have the following revenue implications:

2017-18 2018-19 2019-20 2020-21
$475m $200m $235m $260m

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - see Chapter 2.

Compliance cost impact: Minimal.

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