Current as at 12 November 2020
With any corporate group there is always a need to continually review whether the structure still suits your needs, or whether there is a need to make changes to take into account a change in circumstances. In amongst this review is the tax consolidation decision! If you have a group of companies that are commonly owned by a parent company, and the group has not been Tax Consolidated, you should review whether you would be better off becoming consolidated.
The decision can be a very complex one, depending on the group’s circumstances, especially the level and type of assets owned within the group, and the possible effect on the cost bases of those assets if Tax Consolidation was to be undertaken.
To give you some background on the area, and to start your awareness of the parameters to be looked at when deciding, below are the generic advantages and disadvantages of tax consolidation
– Allows group to only have to lodge one tax return for the group (although accounts for each need to be prepared and consolidated to allow the consolidated figures to be incorporated into the tax return)
– Intra group transactions between the head company and any of the subsidiaries are disregarded for tax purposes – no need for management fees or intra group movement of profit
– Losses (either revenue or capital) can be offset against profits in other entities in the group
– R & D concessions can be offset against profits made in other entities in the group
– Franking credits and foreign tax credits (if there are any) can be pooled and used across the group. Only one franking account required to be kept
– Assets can be moved between group members without giving rise to a capital gain or loss and without any need for any formal rollover relief
– There is a very complicated calculation to be done when existing companies enter a group to work out the assets they bring into the group and what the tax cost base is. Depending on the circumstances, there can be some unintended adverse tax ramifications on the cost setting calculation of the newly tax consolidated group. This can be mitigated by starting the group before the new subsidiaries have any assets or liabilities in them.
– The choice to become a tax consolidated group is irrevocable and there can be tax issues if one of the group members tries to leave the group
– Tax liabilities can be jointly and severally between the entities. A Tax Sharing Agreement, prepared by a lawyer, is needed to ensure each entity is only liable for their own share of the taxes.
The above is a start. If you have a company group and want to review whether Tax Consolidation would be beneficial for you, please contact your client manager to discuss your circumstances.