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Consolidation legislation passed.

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6 March 2003


The last stage of consolidation legislation today passed through Parliament finalising the Government's consolidation package.

Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, said the delivery of consolidation legislation represents a major plank of the Government's business tax reform agenda.

"Consolidation will bring increased commercial flexibility to business and address integrity concerns in the taxation of corporate groups," Senator Coonan said.

"The new consolidation regime is the most significant change to the taxation of corporate groups in decades, freeing up companies to pursue business opportunities and become more competitive."

Special transitional rules, designed to reduce compliance costs on entry to consolidation, are available to groups who consolidate before 1 July 2004. The current grouping rules will generally cease to apply from 1 July 2003.

"Business now has the full consolidation picture and can proceed to finalise the steps required to enter consolidation.

"Given the importance of the consolidation legislation, the Government has undertaken unprecedented consultation with industry.

"The consultations have been open, given taxpayers a say in designing the new rules and resulted in legislation responsive to business needs.

"While not all of the submissions have been adopted, industry has had a large impact on forming this legislation.

"The Government is today announcing two further measures that will clarify aspects of consolidation and reduce compliance costs on entry to consolidation.

"Foreign losses transferred to a consolidated group will be treated the same as other losses using the three year transitional concession for continuity of ownership test losses.

"The Government will also introduce a transitional rule to exclude certain value shifts arising in 2002-03 year from the General Value Shifting Regime.

"While this is the final consolidation bill, some further interactions are still to be finalised including assets previously owned by exempt entities, finance leases, partners and partnerships, commercial debt forgiveness, bad debts and demergers.

"While we are now firmly into the implementation phase of consolidation, further fine tuning may be required as it is bedded down."

The ATO will continue to provide information and assistance to business, particularly small to medium

businesses, during the implementation of consolidation. Further information is available on the ATO tax reform website at

Attachment: Consolidation Legislation Passed

© Commonwealth of Australia 2000


Further details of the proposed consolidation amendments referred to in Media Release C014/2003 issued by Senator Coonan on 6 March 2003 are outlined below. A list of consolidation issues raised as part of the consultation process but not adopted by Government is also attached.

Treatment of foreign losses transferred on consolidation

The Government will address an unintended outcome in the existing consolidation legislation to ensure that foreign losses transferred to a consolidated group can benefit from the '3-year' transitional concession for continuity of ownership test (COT) losses. This will be achieved by aligning the recoupment tests for foreign losses with the tests for other losses in the Income Tax Assessment Act 1997.

Interaction with General Value Shifting Regime

To minimise compliance costs on the transition to consolidation, certain value shifts in the 2002-03 income year that involve services will be excluded from the operation of Division 727 of the general value shifting regime. Division 727 deals with indirect value shifts where services are provided for inadequate consideration between related entities not dealing at arm's length. Value shifts affected by this transitional rule will be those where at least 95% of the benefits provided by a losing entity comprise services as defined in Division 727. Protection against inappropriate exploitation of this transitional rule will be provided by the general anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936. The Government expects that the ATO will pay particular attention to revenue risks in relation to service value shifts during this transitional period.

Suggestions raised in submissions that have not been adopted

Membership rules

● Increase the limit on employee shareholdings in subsidiary companies of a consolidated group

● Allow an Australian branch of a foreign bank to be included in a consolidated group

● Ignore minority shares held to satisfy the laws of a foreign country in determining whether

Australian subsidiaries are wholly-owned by a foreign parent.

Grouping rules

● Provide an alternative set of consolidation provisions for family groups

● Maintain the grouping rules permanently for small and medium sized groups

● Allow loss transfers on an ongoing basis between separate foreign owned groups

● Allow an extension of the grouping rules beyond 1 July 2003 for groups with a substituted

accounting period where those groups consolidate on a day other than the first day of their income year or choose not to consolidate.

Cost setting rules

● Provide further alternatives to those already provided for correcting errors made in calculating the

allocable cost amount and emergent differences in the amounts of liabilities taken into account for

allocable cost amount purposes ● Allow a company entering consolidation outside the transitional period to elect to retain its

existing asset values ● Retain accelerated depreciation for assets that have their cost reset by consolidation

● Allow an increase in a joining entity's allocable cost amount for the retained earnings of 100%

owned offshore investments ● Provide a 'floor' on the amount of allocable cost amount that can be allocated to revenue assets.

Loss rules

● Allow continuity of ownership test (COT) losses incurred after 21 September 1999 to be used by

a consolidated group over three years ● Provide a separate available fraction or concessional rules for capital losses transferred to a

consolidated group ● Provide concessional rules for trust losses transferred to a consolidated group

● Replace the 'capital injection' rules or provide further exceptions to the rules.

© Commonwealth of Australia 2000