On 15 February 2018, the Government introduced the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018 into the House of Representatives, it passed the Lower House, without amendment, on 28 February 2018 and passed all stages on 22 March 2018.
There are around 12,000 tax consolidated groups in Australia, including the majority of the largest businesses. Under existing rules, multinational consolidated groups can, in some circumstances, achieve tax-free gains on assets by transferring entities between non-resident associates.
The changes in the Bill implement recommendations made by the Board of Taxation in its post-implementation reviews of the consolidation regime.
This Bill proposes to amend the ITAA 1997 to make a number of amendments to the consolidation regime that were announced in the 2013-14, 2014-15 and 2016-17 Federal Budgets – the amendments are:
- the deductible liabilities measure, which will remove a double benefit that can arise in respect of certain liabilities held by an entity that joins a consolidated group.
- the deferred tax liabilities measure, which will simplify the operation of the entry and exit tax cost setting rules by ensuring that deferred tax liabilities are disregarded.
- the securitised assets measure, which will remove anomalies that arise when an entity joins or leaves a consolidated group, where the entity has securitised an asset.
- the churning measure, prevent non-residents churning assets between different consolidated groups to access double deductions (by switching off the entry tax cost setting rules, for a joining entity, where a capital gain or capital loss, made by a foreign resident owner, when it ceases to hold membership interests, in the joining entity, is disregarded, in certain circumstances). This is design to prevent multinational groups sheltering future income tax by “churning” entities between related parties.
- the TOFA measure, which will clarify the operation of the TOFA provisions when an intra-group asset or liability that is, or is part of, a Div 230 ‘financial arrangement’, emerges from a consolidated group, because a subsidiary member leaves the group; and
- the value shifting measure, which will remove anomalies that arise when an entity leaves a consolidated group holding an asset that corresponds to a liability owed to it by the old group because the value of the asset taken into account for tax cost setting purposes is not always appropriate.
DATE OF EFFECT: The dates of effect of the various measures are, broadly, as follows:
- the deductible liabilities measure will apply from 1 July 2016;
- the deferred tax liabilities measure will apply from the date of introduction of the amending legislation ie 15 February 2018;
- the securitised assets measure will apply to ADIs and financial entities from 13 May 2014, and to all other entities from 3 May 2016;
- the churning measure and the value shifting measure will apply from 14 May 2013; and
- the TOFA measure will apply from the commencement of the TOFA regime (generally from 1 July 2010).
Study questions (answers available)
- Does this Bill introduce a range of tax ‘consolidation’ integrity measures, announced in three Federal budgets, the earliest of which was the 2010/11 budget?
- Does the Bill introduce five measures, being the ‘deductible liabilities measure’; the ‘deferred tax liabilities measure’; the ‘securitised assets measure’; the ‘churning measure’ and the ‘TOFA measure’?
- Was the earliest of the start dates: 14 May 2013?