Australian Tax Changes Target Consolidated Groups

by Mary Swire, Tax-News.com, Hong Kong

30 November 2011

The Australian government has decided to introduce changes to income tax law affecting consolidated groups. The changes relate to the way a consolidated group can deduct the costs allocated to some assets following a corporate acquisition.

Following the recommendations of the Board of Taxation, the changes ensure that companies inside corporate groups do not receive tax benefits which companies outside consolidated groups are unable to receive.

Assistant Treasurer Bill Shorten stated that: "The new laws will help protect potential threats to revenue by putting a limit on the scope of amendments to the consolidation regime made in 2010”.

According to Shorten, the amendments are designed to address problems in the policy proposed by the former government in 2005 (and 2007) and enacted in 2010 that affected corporate acquisitions from 2002.

The Board recommended that further investigation should be undertaken on two issues: the treatment of liabilities under the consolidation regime and capping the tax costs allocated to certain types of assets.

The proposed changes will depend on the time when the acquisition took place. Corporate acquisitions that took place before May 12, 2010 will be affected by the changes subject to the application of normal amendment periods. These changes, says Shorten, are necessary to ensure deductions are claimed only when intended and will "protect a significant amount of revenue that would otherwise be at risk".

Changes for the period between May 12, 2010 and March 30, 2011 will largely protect taxpayers who made business decisions on the basis of the current law before the Board's review was announced, Shorten explained.

For acquisitions after March 30, 2011 changes will be made "to increase certainty for taxpayers and apply a business acquisition approach in certain cases," Shorten stated.

He also announced that the government will also make changes to the operation of the taxation of financial arrangements (TOFA) rules for consolidated groups.

Shorten said that “These changes will ensure that, for consolidated groups, the TOFA Stages 3 & 4 provisions operate as intended and that the tax treatment of financial arrangements that are liabilities is appropriate. The changes also address the technical issues raised by industry as part of the post-enactment consultation on the TOFA Stages 3 & 4 regime and ease the transition of consolidated groups into the regime.”

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