Draft Taxation Determination
TD 2005/D43
Income tax: consolidation: imputation: which entity in a MEC group is responsible for meeting obligations imposed by Part 3-6 (the imputation provisions) of the Income Tax Assessment Act 1997 in relation to a frankable distribution made to members outside the group by an eligible tier-1 company in the group that is not the provisional head company?
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Please note that the PDF version is the authorised version of this draft ruling.This document has been finalised by TD 2006/21.
FOI status:
draft only - for commentPreamble
| This document is a draft for industry and professional comment. As such, it represents the preliminary, though considered views of the Australian Taxation Office. This draft may not be relied on by taxpayers and practitioners as it is not a ruling for the purposes of Part IVAAA of the Taxation Administration Act 1953. It is only final Taxation Determinations that represent authoritative statements by the Australian Taxation Office. |
1. The provisional head company is responsible for meeting the obligations on and from the day specified in the choice made under section 719-50 of the Income Tax Assessment Act 1997 (ITAA 1997) to consolidate the MEC (multiple entry consolidated) group. Therefore, the provisional head company will be required to provide a distribution statement under section 202-75 of the ITAA 1997 in relation to each frankable distribution made by an eligible tier-1 (ET-1) company in the group on or after the day specified in the choice.
Explanation
2. Subsection 719-435(1) of the ITAA 1997 provides that where an ET-1 company member of a MEC group, other than the provisional head company, makes a frankable distribution to its members, Part 3-6 of the ITAA 1997 applies as if the provisional head company of the MEC group had made the distribution to one of its members.
3. That is, subsection 719-435(1) of the ITAA 1997:
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- treats the recipients of the frankable distribution (that is, the members of the ET-1 company that actually made the distribution) as if they were members of the provisional head company; and
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- ensures that the imputation provisions operate as if the provisional head company had made the distribution to them.
4. If two or more ET-1 companies of a top company make a choice to consolidate a potential MEC group under section 719-50 of the ITAA 1997 that choice starts to have effect on the day specified in the choice: section 719-55 of the ITAA 1997. Accordingly, the MEC group will come into existence on that day: subsection 719-5(1) of the ITAA 1997.
5. Consequently, from the day specified in the choice, subsection 719-435(1) of the ITAA 1997 will treat any frankable distribution made by an ET-1 company, other than the provisional head company, as having been made by the provisional head company. Therefore, from that day, the provisional head company of the MEC group will be responsible for imputation obligations arising in relation to frankable distributions made by the ET-1 company members of the group.
Example
6. A Co, B Co and C Co, each of whom are Australian resident companies, are wholly-owned subsidiaries of Top Co.
7. A Co, B Co and C Co are all members of a potential MEC group. A Co, B Co and C Co, being the eligible tier-1 companies of that group, jointly choose to form a MEC group. A Co is nominated as the provisional head company.
8. If either B Co or C Co make a frankable distribution, subsection 719-435(1) of the ITAA 1997 would apply so that the imputation provisions will operate as if A Co, the provisional head company, had made the frankable distributions to the members of B Co and C Co as if they were members of A Co.
9. Whilst A Co remains the provisional head company of the MEC group it will be required to provide distribution statements in relation to any frankable distributions made by B Co or C Co.
Date of Effect
10. When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).
Your comments
11. We invite you to comment on this draft Taxation Determination. Please forward your comments to the contact officer by the due date.
| Due date: | 11 November 2005 |
| Contact officer details have been removed following publication of the final ruling. | |
Commissioner of Taxation
12 October 2005
Not previously issued as a draft
References
ATO references:
NO 2005/14326
Related Rulings/Determinations:
TR 92/20
Subject References:
choice to form
consolidation - multiple entry consolidated group
consolidation - franking
eligible tier-1 company
employee share holding
foreign holding company
non-share equity interest
provisional head company
potential MEC group
subsidiary member of a MEC group
top company
transitional foreign-held indirect subsidiaries
transitional foreign-held subsidiaries
Legislative References:
TAA 1953 Pt IVAAA
ITAA 1997 Pt 3-6
ITAA 1997 202-75
ITAA 1997 719-5(1)
ITAA 1997 719-50
ITAA 1997 719-55
ITAA 1997 719-435(1)