ATO Interpretative Decision
ATO ID 2003/965
Income Tax
Consolidation - assessability of liquidator's distributionsFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are distributions received by the head company of a consolidated group from the liquidator of a subsidiary member of that group, in the course of the subsidiary's liquidation, deemed dividends under section 47 of the Income Tax Assessment Act 1936 (ITAA 1936)
Decision
No. Distributions made by the liquidator of a subsidiary member of a consolidated group to another member of that group are not assessable because of the effect of the single entity rule contained in section 701-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Facts
Company A is the head company of a consolidated group.
Company B is a subsidiary member of the consolidated group and is wholly-owned by Company A.
Company B is placed in liquidation by its shareholder, Company A.
The liquidator makes distributions to Company A in the course of winding up Company B.
Reasons for Decision
Subsection 701-1(1) of the ITAA 1997 states that:
If an entity is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes covered by subsections (2) and (3) to be parts of the *head company of the group, rather than separate entities, during that period.
Note: * denotes a term defined in subsection 995-1(1) of the ITAA 1997
Paragraph 701-1(2)(a) of the ITAA 1997 includes the purpose of
working out the amount of the *head company's liability (if any) for income tax calculated by reference to any income year in which any of the period occurs or any later income year.
A distribution by a liquidator of a wholly-owned subsidiary member of a consolidated group to its shareholder company is treated as a distribution by the taxpayer to itself because section 701-1 of the ITAA 1997 treats the subsidiary as part of the head company (the taxpayer in question). As a consequence, the transaction is not recognised for income tax purposes and section 47 of the ITAA 1936 cannot be applied to the distribution.
Accordingly, the distribution made by company B's liquidator to Company A, in the course of winding up Company B, is treated as if Company A had made the distribution to itself. There are no tax consequences for the liquidator's distribution to Company A.
Date of decision: 1 October 2003Year of income: 30 June 2004
Legislative References:
Income Tax Assessment Act 1936
section 47
section 701-1
subsection 701-1(1)
subsection 701-1(2)
subsection 701-1(3)
Keywords
Company
Consolidated group
Consolidation
Consolidation - tax liabilities
Liquidation
Member of a group
Ownership, interests, control & rights
Single entity rule
Subsidiary company
Subsidiary member of a consolidated group
Voluntary liquidation
Wholly owned
Wholly owned subsidiary
ISSN: 1445-2782
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