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Consolidation: greater flexibility given.



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C116/03

4 December 2003

CONSOLIDATION: GREATER FLEXIBILITY GIVEN

After listening to the concerns of business, the Government will implement further measures to give taxpayers greater flexibility and certainty as they move into the new consolidation regime, Minister for Revenue and Assistant Treasurer, Senator Helen Coonan announced today.

“As the new consolidation regime has changed the taxation landscape for many corporate groups, the Government has continued its active consultation with business on its implementation,” Senator Coonan said.

Specifically, the Government has today introduced legislation that will allow taxpayers to revoke any of the following elections up to 31 December 2004:

● the election to retain existing asset tax values for cost setting purposes;

● the election to utilise certain losses over 3 years rather than under the available fraction method;

● the elections associated with access to the 'value donor' concessions for calculating an entity's

available fraction in relation to loss utilisation; ● the election to waive the 'capital injection' rules in cases where the value donor rules could apply;

and

● the elections by the head company of a consolidated group or a multiple entry consolidated

(MEC) group to cancel a loss.

The election to form a consolidated group or MEC group will remain irrevocable. Details regarding the circumstances in which an election can be revoked are contained in Treasury consolidation papers mentioned below.

To further assist business in managing the transition into consolidation the Federal Government has provided its response to a number of issues raised by business and has provided further details of how it intends to resolve these issues (see Attachments A).

The necessary amendments will be introduced as soon as practicable.

The Department of the Treasury has also released a number of detailed position papers concerning the issues for which business has requested clarification. These papers can be found on the Treasury webpage at www.treasury.gov.au.

Further papers may be released if it is found that there is a need to further finetune or clarify the law, given that the consolidation regime has only recently commenced. For example, work is continuing on the interaction between consolidation and the commercial debt forgiveness and demerger provisions.

“The Government is committed to continued active consultation with business on the implementation of the new regime,” Senator Coonan said.

The Commissioner of Taxation has also issued a press release providing further information to assist groups in the transition to consolidation. This material is available on the ATO's website at www.ato.gov.au.

“The Government supports the approach that is being adopted by the Commissioner in helping taxpayers during the transition to the consolidation regime. The Government also recognises the need for the Commissioner to remain vigilant that groups do not seek to obtain tax benefits beyond those intended by the law,” Senator Coonan said.

ATTACHMENT A

Issues raised that have been accepted

The date of effect of these amendments will be 1 July 2002, consistent with the commencement date of the consolidation regime. This will provide maximum certainty and minimise the risk of arbitrary outcomes from a later commencement date.

Where a number in brackets appears next to the measure further information on the topic is available on the Treasury webpage at www.treasury.gov.au the number represents the Treasury paper number.

● Allow certain irrevocable elections to be revoked. (1)

● Ensure that allocable cost amount is allocated to intra-group assets. (5)

● Treatment of deferred acquisition payments. (6)

● Treatment of allowable capital expenditure, transport capital expenditure and exploration and

prospecting assets. (7) ● Ensuring that an appropriate value for certain liabilities is taken into account when an entity

leaves a consolidated group. (8) ● Treatment of foreign losses of a partnership. (9)

● Adjustments to the cost base of partnership cost setting interests in certain depreciating assets.

(27)

● Capital gains tax: CGT event L7. (26)

● Treatment of distributions in the cost allocation process - Last-In-First-Out (LIFO). (24)

● Adjustment for changes in deferred tax liabilities in working out the allocable cost amount. (23)

● Ensure that undistributed taxed profits of the joining entity are appropriately included in the

allocable cost amount calculation. (29) ● Clarifying the interaction between the inherited history rule and the cost setting rules in respect of

certain capital allowances. (28) ● Clarifying beneficial ownership for consolidation membership purposes. (2)

● Ensuring the head company receives a credit in circumstances where amounts are withheld

where no ABN/TFN is quoted by a subsidiary. (25) ❍ This issue is addressed in the Treasury consolidation paper entitled 'Collection and

recovery rules'.

● Allowing a former contributing member to provide the ATO with a tax sharing agreement in

certain circumstances. (25) ❍ This issue is addressed in the Treasury consolidation paper entitled 'Collection and

recovery rules'.

● Interaction between consolidation and bad debt rules. (16)

● Consolidation interactions with the Financial Corporations (Transfer of Assets and Liabilities) Act

1993. ❍ Amendments are proposed to ensure that tax relief provided under the Financial

Corporations (Transfer of Assets and Liabilities) Act 1993 continues to be available where an asset or liability is transferred from a subsidiary member of a consolidated group.

● Privatised assets in the consolidation regime. (20)

● Uniform treatment for irrevocable elections that apply on an entity-wide basis under consolidation.

(22)

● Life insurance companies. (21)

● General insurance companies. (18)

● Treatment of finance leases under the cost setting rules.(3)

● Cost setting rules for partners and partnerships leaving a consolidated group. (4)

● Notice requirements under the inter-entity loss provisions. (10)

● Multiple entry consolidated (MEC) groups and section 701-1 of the Income Tax (Transitional

Provisions) Act 1997. (11) ● Refinements to the foreign dividend account provisions. (12)

● Refinements to the foreign tax credit provisions. (13)

● Transferring attribution account surpluses to provisional head companies. (15)

● 3 year continuity of ownership concession for transferred losses extends to foreign losses. (17)

● Application of irrevocable election in relation to interests in foreign investment funds that are

trading stock. (14) ● Research & development tax offset - consolidation interactions. (19)

● Collection and recovery rules. (25)

● Minor technical amendments. (30)

© Commonwealth of Australia 2000