ATO Interpretative Decision
ATO ID 2004/295
Income Tax
Consolidation - GST input tax creditsFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Where a subsidiary member of a consolidated group is entitled to an input tax credit, is section 27-5 of the Income Tax Assessment Act 1997 (ITAA 1997) taken into consideration by the head company in working out the amount of the income tax liability or loss of the head company?
Decision
Yes. Section 27-5 of the ITAA 1997 provides in these circumstances that the head company of a consolidated group cannot claim as an income tax deduction the subsidiary's input tax credits in working out the amount of the head company's income tax liability or loss. The operation of the 'single entity rule' in section 701-1 of the ITAA 1997 treats the subsidiary as part of the head company for the head company core purposes.
Facts
Company A, a head company and its wholly-owned subsidiary company, Company B, are members of a consolidated group.
Company B carries on an enterprise and is registered for GST.
Company B makes taxable supplies, incurs GST liability and receives a credit for the GST paid on inputs ('input tax credits') as part of its normal operations.
Reasons for Decision
The 'single entity rule' in section 701-1 of the ITAA 1997 operates to treat the subsidiary members of a consolidated group to be parts of the head company, for the purposes of working out the amount of the head company's income tax liability or loss (see subsection 701-1(2) of the ITAA 1997).
Subsidiary members of the group are consequently treated as parts of the head company rather than as separate income tax entities. In this case, Company B is treated as part of Company A for the purpose of working out Company A's income tax liability or loss.
Section 27-5 of the ITAA 1997 provides that a taxpayer cannot deduct as an outgoing or loss any amount relating to an input tax credits to which that taxpayer is entitled.
Accordingly, amounts relating to input tax credit entitlements of a subsidiary company are not deductible to a head company of the group for the core purposes of working out the amount of the head company's income tax liability or loss. Thus, the outgoings giving rise to Company B's input tax credits are not an allowable income tax deduction for Company A.
Date of decision: 25 March 2004Year of income: 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Section 27-5
Section 701-1
Subsection 701-1(2)
Keywords
Consolidation
Consolidation - tax liabilities
Head company
Single entity rule
Goods and services tax
Input tax credits
Deductions
ISSN: 1445-2782