ATO Interpretative Decision

ATO ID 2006/277 (Withdrawn)

Income tax

• This ATO ID is withdrawn because it no longer represents the ATO view.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a tax sharing agreement (TSA) covering a group liability made 'before the head company's due time' for the purposes of subsection 721-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if it is entered into after 1 December 2005, but prior to the date when the tax is due and payable for an amended assessment in relation to the 2005 income year?

Decision

Yes. For the purposes of subsection 721-25(1) of the ITAA 1997, the TSA for the group liability is made before the head company's due time for the amended assessment.

Facts

A holding trust qualifies as a public trading trust under Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) and is the head company of a consolidated group of entities for the purposes of Part 3-90 of the ITAA 1997.

The holding trust is a full self-assessment taxpayer, as defined by section 6(1) of the ITAA 1936. The holding trust has no taxable income or tax liability in respect of the assessment for the 2005 income year.

The holding trust did not make a TSA with the other consolidated group entities before 1 December 2005. Following this date, an amended assessment which raised a group liability was issued by the Commissioner for the 2005 income year.

A TSA in respect of the group liability is made between the holding trust and the other entities before the 21st day after the day on which the Commissioner gave the holding trust notice of the amended assessment.

Reasons for Decision

Section 721-25 of the ITAA 1997 specifies the requirements which must be satisfied for a group liability to be covered by a TSA. One of the requirements for a valid TSA is that it existed 'before the head company's due time' (paragraph 721-25(1)(a) of the ITAA 1997). The head company's due time is the time that a group liability of the kind described by subsection 721-10(2) of the ITAA 1997 becomes due and payable.

According to subsection 204(1A) of the ITAA 1936, the income tax liability of a full self assessment taxpayer with a 30 June year-end becomes due and payable on 1 December of the following income year. Subsection 204(2) of the ITAA 1936 states that an amount of tax that a taxpayer is liable to pay in respect of an amended assessment, is due and payable on the 21st day after the notice of assessment is given.

On the basis of subsection 166A(3) of the ITAA 1936, the Commissioner can make an assessment that a taxpayer has no taxable income or that no tax is payable on the taxable income in respect of an income year. In these circumstances, subsection 204(1A) of the ITAA 1936 will not apply to the head company, because it is has no tax liability under the assessment made for the 2005 income year.

If a group liability subsequently arises as a result of an amended assessment for the 2005 income year, the head company's due time will be determined in accordance with subsection 204(2) of the ITAA 1936, which specifies the date on which the resultant tax liability becomes due and payable. The head company's due time for the above group liability is then the 21st day after the notice of assessment is given.

Therefore, providing the TSA satisfies the other requirements of section 721-25 of the ITAA 1997, it will in this case be made before the head company's due time for the amended assessment.

Year of income:  Year ending 30 June 2005

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   subsection 166A(3)
   subsection 204(1A)
   subsection 204(2)

Keywords
Amendment of assessments
Consolidation - tax liabilities
Deemed assessments
Group liability
Head company
Head company's due time
Tax sharing agreement
Valid tax sharing agreement

Business Line:  Administration, Business and Personal Taxes Centre of Expertise

Date of publication:  29 September 2006

ISSN: 1445-2782