Long Awaited Tax Consolidation Changes
The Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018 containing the long awaited amendments received Royal Assent on 28 March 2018. The bill contained a number of changes impacting the tax cost setting amount of a subsidiary member’s assets joining a tax consolidated group.
The main thrust of the changes focuses on Step 2 of the allocable cost amount (ACA) at the joining time. Before the changes Step 2 amounts included a joining subsidiary’s accounting liabilities in Step 2, however, under the new law, you only include liabilities that do not give rise to a future tax deduction.
The common liabilities that are now excluded from Step 2 include annual and long service leave provisions and superannuation accruals. It is at the time a subsidiary joins the consolidated group that you need to make an assessment of whether a deduction would arise in relation to all or part of the accounting liability at the joining time.
As a consequence of the changes, where the ability to include the liability has been removed the subsequent application o consequential provisions are not longer required. These changes apply in relation to entities that become a subsidiary member of a consolidated group under an arrangement that commences on or after 1 July 2016.
The second main amendment that affects the treatment of liabilities at Step 2 is the exclusion of deferred tax liabilities from both entry and exit tax cost setting rules. Historically, deferred tax liabilities were included and subject to iteration calculations, however, this requirement has now been removed. This provides a small simplification of the extremely complex calculations required on the entry of an entity into a tax consolidated group. The changes impacting deferred tax liabilities comes into effect on 15 February 2018.
These amendments will reduce the ACA and as a result post-consolidation asset tax costs will be lower. If you have undertaken ACA’s since 1 July 2016 then you should review these to determine what if any changes are required and how you need to reflect the amendments.