Bills Digest no. 92, 2017–18
PDF version [704KB]
Jaan Murphy
Law and Bills Digest Section
22 March 2018
Contents
The Bills Digest at a glance
Purpose of the Bill
Structure of the Bill
Background
Key rules underpinning the corporate
income tax consolidation regime
The single entity rule
The inherited history rule
The tax cost setting rules
Committee consideration
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Schedule 1, Part 1—deductible
liabilities
Current law—determining a joining
entity’s allocable cost amount
Proposed changes—preventing double
tax benefits
Current law—undistributed, taxed
profits and a joining entity’s allocable cost amount
Proposed changes—preventing double
taxation of undistributed, taxed profits
Current law—operation of current cost
setting rules
Proposed changes—operation of exist
cost setting rules
Application
Schedule 1, Part 2—deferred tax
liabilities
What are deferred tax liabilities?
Current law—commercial / tax mismatch
arising from deferred tax liabilities
Proposed changes—commercial / tax
alignment with regard to deferred tax liabilities
Application
Schedule 1, Parts 3 and 4—Securitised
assets
What are securitised assets?
Current law—commercial / tax mismatch
arising from securitised assets
Proposed changes—commercial / tax
mismatch arising from securitised assets
Application
Schedule 1, Part 5—churning of assets
between different consolidated groups
What is asset churning?
Current law—commercial / tax mismatch
arising from securitised assets
Proposed changes—assets churning
measure
Application
Schedule 1, Part 6—taxation of
financial arrangements
What is the TOFA?
Current law—TOFA rules
Proposed changes—TOFA rules
Application
Schedule 1, Part 7 – value shifting
measure
What is value shifting?
Current law—value shifts and
intra-group transactions
Proposed changes—value shifting
Application
Schedule 1, Part 8 – commencement of
arrangements
Concluding comments
Date introduced: 15 February 2018
House: House of Representatives
Portfolio: Treasury
Commencement: Various dates as noted in the ‘Key issues and provisions’ section of this Digest.
Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.
When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at March 2018.
The Bills Digest at a glance
Purpose of the Bill
The purpose of the Bill is to improve the integrity and
operation of the corporate income tax consolidation regime.
Background
The corporate income tax consolidation regime has been the
subject of a number of reviews since its introduction in 2002. The Bill gives
effect to most of the recommendations made by the Board of Taxation in those reviews.
Key elements
- A
deductible liabilities measure: removing certain double tax benefits that can
arise when an entity with a deductible liability joins a consolidated group.
- A
deferred tax liabilities measure: preventing commercial (accounting) /tax
mismatches arising that would inappropriately:
- reduce
the future tax liability when certain assets are sold or
- increase
the taxable gain made by a head company on the disposal of subsidiary
membership interests.
- A
securitised assets measure: preventing commercial (accounting) /tax mismatches
arising that would result in:
- the
tax costs of certain assets being overstated and
- a
head company realising an artificial capital loss.
- An
assets churning measure: preventing a consolidated group from shifting assets in
such a way as to avoid capital gains tax (CGT) or to artificially uplift the
cost base of an entity’s assets.
- A
taxation of financial arrangements (TOFA) measure: this will ensure that when
an asset or liability emerging from a consolidated group:
- a
lender is not assessed on a return of the principal of a loan and
- a
borrower cannot claim deduction for the repayment of that principal.
- A
value shifting measure: preventing a consolidated group from gaining a double
benefit from making a reduced taxable gain on sale of the encumbered asset and
at the same time recognising a market value cost base in the rights it retains.
Key issues
- Many
of the provisions in the Bill will operate retrospectively, commencing as far
back 1 July 2010.
Purpose of
the Bill
The purpose of the Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018 (the Bill) is to amend the Income
Tax Assessment Act 1997 (the ITAA 1997) to improve the
integrity and operation of the corporate income tax (CIT) consolidation regime
by:
- removing
certain double tax benefits that can arise when an entity with a deductible
liability joins a consolidated group
- simplifying
the operation of the entry and exit tax cost setting rules to ensure that
deferred tax liabilities are disregarded
- preventing
a double benefit from arising when an entity joins or leaves a consolidated
group where the entity has securitised assets
- preventing
non-resident entities from ‘churning’ assets between different consolidated
groups to access doubled deductions
- clarifying
the interaction between the consolidation regime and the taxation of financial
arrangements (TOFA) regime by ensuring the tax treatment of certain intra-group
liabilities and assets between a continuing member of a consolidated group and
exiting member of the consolidated group reflects the economic substance of the
relevant transaction and
- removing
anomalies that allow consolidated groups to access double deductions by
shifting value across entities within the consolidated group.[1]
Structure
of the Bill
The Bill has one schedule, which is divided into eight Parts:
- Part
1 deals with the deductible liabilities measure
- Part
2 deals with how deferred tax liabilities are treated in the consolidation
regime
- Parts
3 and 4 deal with how securitised assets are treated when an entity joins or
leaves a consolidated group
- Part
5 deals with the churning of assets between different consolidated groups
- Part
6 deals with the TOFA
- Part
7 deals with value shifting across entities within a consolidated group and
- Part
8 deals with the commencement of the various measures contained in the Bill.
Background
The 1999
Review of Business Taxation recommended the introduction of a system of tax
rules for wholly owned corporate groups to overcome efficiency and integrity
concerns that arose regarding the taxation of such groups under the previous CIT
system.[2]
The consolidation regime was introduced in 2002 in
response to that recommendation. Prior to the 2002 reforms, members of
Australian corporate groups were treated as separate entities for CIT purposes.
The current consolidation regime allows a wholly owned group of Australian
resident entities to choose to form a consolidated group for CIT purposes. A ‘consolidated
group’ generally consists of:
- an
Australian resident ‘head company’ and
- all
its wholly owned Australian resident subsidiaries.[3]
However, the ITAA 1997 contains specific rules that
also allow certain resident wholly-owned subsidiaries of a foreign holding
company to consolidate—this is termed a multiple entry consolidated group (MEC
group).[4]
Consolidation allows a wholly owned corporate group to be
treated as a single entity for CIT purposes. This in turn simplifies the tax
system as it applies to the consolidated group, reduces taxpayer compliance and
ATO administration costs, improves the efficiency of business restructuring and
strengthens the integrity of the tax system. More specifically the benefits to
business arising from tax consolidation include:
- allowing
intragroup transactions to be ignored
- allowing
losses, franking credits and foreign tax credits to be pooled and
- removing
certain impediments to group restructuring (for example, shifting assets
between members of the consolidated group).[5]
The Board of Taxation conducted a post-implementation
review of the CIT consolidation regime. As a result of that review, the Board
of Taxation issued two reports regarding the operation of the CIT consolidation
regime and made a number of recommendations.[6]
Those reports and recommendations form the basis for the majority of the
amendments contained in the Bill.[7]
The Board of Taxation’s recommendations are briefly
examined in relation to the measures proposed by the Bill under the heading ‘Key issues and provisions’ below.
Key rules
underpinning the corporate income tax consolidation regime
The CIT consolidation regime is underpinned by three core
rules:
- the
‘single entity rule’
- the
‘inherited history rule’ and
- the
‘tax cost setting rule’.[8]
This Digest does not provide a detailed explanation of the
operation of these rules. However to give context to the amendments proposed by
the Bill, a brief summary of each of the rules is provided below.
The single
entity rule
Under the single entity rule the members of a consolidated
group are treated as part of the head company of the group for income tax
purposes. This means that:
- a
single income tax return is lodged by the group and the group meets a single
tax liability as well as paying a single set of pay-as-you-go (PAYG)
instalments
- losses,
franking credits and foreign income tax offsets are pooled in the head company
- the
assets and liabilities (other than intra-group assets and liabilities) of the
subsidiary members are treated as if they were assets and liabilities of the
head company
- the
actions of the subsidiary members (for example, acquisition or disposal of
assets) are treated as if they had been undertaken by the head company and
- intra-group
transactions (for example, the transfers of assets between group members) are
treated as arrangements between divisions of a single company.[9]
The operation of the ‘single entity rule’ also means that
where an entity joins a consolidated group, the entity will cease to be
recognised (for tax purposes) as a separate entity, and its assets, liabilities
and other tax attributes will be treated as though they are those of the head
company of the group. Where an entity leaves a consolidated group, it will be
recognised (for tax purposes) as a separate entity distinct from the
consolidated group, and it will take its assets and liabilities out of the
group.[10]
The Board of Taxation identified issues arising from the
operation of the single entity rule including:
- the
acquisition and disposal of intra-group assets and liabilities
- value
shifting caused by the acquisition and disposal of encumbered assets subject to
intragroup rights and
- dealings
by third parties with a consolidated group.[11]
For example, the Board of Taxation concluded that
integrity issues arise when an encumbered asset’s market value has been reduced
(due to the intra-group creation of rights over the encumbered asset). In
simple terms it is possible for the head company to benefit from making a
reduced taxable gain on the sale of the encumbered asset at the same time it is
entitled to recognise a market value cost base in the rights it retains over
the encumbered asset. This means that the consolidated group effectively
receives a double benefit when it sells the encumbered asset and retains
certain rights in it.[12]
The Board of Taxation therefore recommended that integrity
rules should be designed and introduced to address and eliminate any such
double benefits arising from the sale of encumbered assets by consolidated
groups, whether that sale occurs directly or indirectly.[13]
The
inherited history rule
The ‘inherited history rule’ supports and complements the
single entity rule. The inherited history rule determines the tax history that
the head company of a consolidated group inherits from an entity that joins the
group. This is called the ‘entry history rule’. The inherited history rule also
determines the tax history that an entity inherits when it leaves a
consolidated group. This is called the ‘exit history rule’.[14]
The history that is inherited has an impact on the tax
implications that apply to the consolidated group after an entity joins or
leaves it. For example, under the entry history rule a consolidated group may
become entitled to certain deductions for expenditure incurred by an entity
before it joined the consolidated group.[15]
The entry history rule is affected by the tax costs setting
rule and rules for transferring and utilising losses.
The tax
cost setting rules
The ‘single entity rule’ is also supported by ‘tax cost
setting rules’ which apply to:
- the
assets of an entity which joins a consolidated group that then become assets of
a group and
- the
assets of an entity which leaves a consolidated group that become the assets of
the departing entity.
In either case, a question arises as to what tax cost should
be given to these assets. The current rules may not reflect the cost which the
group paid to acquire the joining entity, or the value of the asset to the
departing entity, which could result in the duplication of gains and losses.[16]
To eliminate the duplication of gains and losses, the Bill
seeks to make amendments to the ‘tax cost setting rules’ consistent with the
Board of Taxation’s recommendations.[17]
Committee
consideration
At the time of writing the Bill had not been referred to any
Committee for inquiry and report. The Senate Standing Committee for the
Scrutiny of Bills had no comment on the Bill.[18]
Policy
position of non-government parties/independents
The Opposition has indicated it supports the measures
contained in the Bill.[19]
The position of other non-government parties and independents on the measures
contained in the Bill was unclear at the time of writing.
Position of
major interest groups
Consultation regarding the measures proposed by the Bill was
conducted by the Board of Taxation and Treasury over a period of many years,
with consultation regarding some of the measures commencing in December 2009.[20]
However, at the time of writing, not all submissions made as part of those
consultation processes (and in particular, the consultations undertaken in 2015
and 2017 by Treasury) were publically available.
As such, because of the length of time the overall
consultation process has taken, the unavailability of submissions to the most
recent consultation processes and the risk that views of major interest groups
may have changed over the course of time, this Digest will not examine the
position of major interest groups.
However, broadly speaking it appears that the overall
response from stakeholders to the reforms is positive, or at least largely
non-critical of the Bill.[21]
However, the some tax professionals have expressed concern about the Bill’s
complexity and retrospectivity.[22]
Financial
implications
According to the Explanatory Memorandum,
the Bill is expected to result in the following revenue implications:
2017–18 |
2018–19 |
2019–20 |
2020–21 |
$475m |
$200m |
$235m |
$260m |
Source: Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 4.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[23]
Parliamentary
Joint Committee on Human Rights
At the time of writing the Parliamentary Joint Committee on
Human Rights had not considered the Bill.
Schedule 1,
Part 1—deductible liabilities
Schedule 1, Part 1 of the Bill contains the deductible
liabilities measure. This measure impacts on the tax cost allocation rule, as
it relates to the entry ‘allocable cost amount’ (ACA). The measure will remove
a double benefit that can arise in respect of certain deductible liabilities
held by an entity that joins a consolidated group by excluding the value of
deductible liabilities from the entry ACA calculated under the tax cost
allocation rules with effect from 1 July 2016.
Current law—determining
a joining entity’s allocable cost amount
When an entity joins an existing consolidated group, the tax
cost of each asset brought into the group is set at the asset’s 'tax cost
setting amount'.[24]
The relevant tax cost setting amounts are worked out by allocating the
consolidated group’s ACA for the joining entity to the joining entity’s assets.[25]
The ACA is supposed to broadly represent the cost of equity in the joining
entity and its liabilities. Depending on the type of asset, its original tax
cost can either be retained, or changed by resetting to a higher or lower
amount.[26]
Currently when an entity that holds deductible liability
becomes a member of a consolidated group for CIT tax purposes, a double benefit
arises because:
- the
liability increases the ACA amount of the joining entity and
- the
head company can claim a deduction in respect of the liability when the
relevant expenditure is incurred.
In simple terms the current law results in a double tax
benefit being realised by a consolidated group.[27]
Determining an entity’s ACA involves a number of steps. Step
two of the entry ACA calculation increases the ACA for a joining entity by,
broadly speaking, the amount of the joining entity’s ‘accounting liabilities’.
An ‘accounting liability’ is worked out according to the accounting principles
that the joining entity would use if it prepared its financial statements just before
the time it joined the consolidated group.[28]
Examples of accounting liabilities include loans borrowed by a company to
acquire assets, provision for employee benefits (such as long service leave),
provision for self-insured risks, a derivative liability that is out of money
(and not covered by TOFA), foreign currency liabilities that are a net forex
loss position and others (some of which may have little, if any, relationship
with the asset costs of the entity joining or leaving the consolidated group).[29]
Importantly, some accounting liabilities are deductible
liabilities, that is they can be claimed as a tax deduction and therefore
operate to reduce the taxable income of the consolidated group.
Currently, when an entity joins a consolidated group holding
deductible liabilities, the value of the joining entity’s liabilities is added
to step 2 of the ACA process using a complex calculation that results in at
least part of the value of the deductible liability being included in the cost
allocation for the joining entity’s assets.
This will usually result in a tax benefit to the head
company in the form of additional depreciation, a higher capital gains tax (CGT)
cost base (therefore reducing future capital gains and therefore CGT
liabilities). In addition, an additional benefit may arise because the head
company can claim a tax deduction for the liability when the relevant expense
is incurred.
Proposed
changes—preventing double tax benefits
The Bill will prevent most deductible liabilities from
increasing the entry ACA for a joining entity. It does this by providing that:
- if
the head company would be entitled to a deduction as a result of the discharge
of an accounting liability (or a part of the accounting liability) just after
the joining time, the amount that would be deductible is not added for that
liability at step 2 of the entry ACA and
- if
the head company would be entitled to a deduction for part of an accounting
liability, the net amount of the accounting liability that would be deductible
is not added for that liability under step 2 of the entry allocable cost amount. [30]
However, certain deductible liabilities listed in proposed
subsection 705-70(1AC) will continue to be included in the calculation of a
joining entity’s ACA:
- accounting
liabilities held by life insurance companies and that relate to life insurance
policyholders[31]
- accounting
liabilities held by general insurance companies and private health insurers
that relate to general insurance policyholders[32]
- accounting
liabilities that are financial arrangements covered by the TOFA rules[33]
and
- accounting
liabilities that relate to certain retirement village contracts.[34]
The result of this change is that tax benefits to the head
company from such liabilities increasing the ACA of a joining entity (such as additional
deprecation or a higher CGT cost base) will no longer be available in addition
to the tax deduction for the liability when the relevant expense is incurred.
Current law—undistributed,
taxed profits and a joining entity’s allocable cost amount
The purpose of step 3 of the entry cost tax setting amount process
is to prevent the double taxation of undistributed (but taxed) profits.
Currently step 3 increases the ACA of a joining entity to take account of any
undistributed, taxed profits of a joining entity that accrue to the
consolidated group before the joining time.[35]
Proposed
changes—preventing double taxation of undistributed, taxed profits
The Bill will prevent undistributed, taxed profits from
being double taxed by ensuring various amounts that impact on the entry ACA of
a joining entity are not double counted in determining the joining entity’s ACA.[36]
Current law—operation
of current cost setting rules
When an entity leaves/exits a consolidated group, it is
necessary to determine the tax exit costs of the leaving entity.
Currently step 4 of the exit cost setting rule involves
subtracting the leaving entity’s liabilities (including those owed to members
of the group) and certain interests that are treated as liabilities, from the
exit ACA. In essence, this reduces the consolidated group’s ACA for the leaving
entity by the amount of the relevant liabilities that the leaving entity takes
with it.
If the ACA remaining after step 4 is positive, it is the
leaving entity’s ACA. If it is negative, the ACA is nil and the head company
will make a capital gain equal to that amount at the time the entity leaves the
group.
Proposed
changes—operation of exist cost setting rules
The changes to the exit cost setting rules reflect the
changes to step 2 of the entry cost setting rules and are required to ensure
that the step 4 exit amount reflects the treatment of the liability on entry
(that is, in step 2 of the entry ACA process, as amended by the Bill).[37]
As such, the Bill will ensure that existing section 711-45
of the ITAA 1997 will operate to produce the appropriate outcome for
each category of deductible liabilities of the leaving entity, as set out in
table 1.1 on page 23 of the Explanatory Memorandum.
Application
These changes will apply to deductible liabilities of
entities that join or leave a consolidated group or MEC group from 1 July 2016.[38]
The changes therefore have retrospective operation.
Schedule 1,
Part 2—deferred tax liabilities
Schedule 1, Part 2 of the Bill contains the deferred tax
liabilities (DTLs) measure.
What are
deferred tax liabilities?
DTLs are an accounting concept that measure a future
tax liability. They represent the amount of (for example) income tax payable by
an entity in future periods on taxable, but temporary, differences between how
taxable income is recognised under accounting standards and tax law. DTLs are a
specific accounting liability recognised under Accounting Standard AASB 112 Income
Taxes.[39]
Current law—commercial
/ tax mismatch arising from deferred tax liabilities
Currently, there is a commercial (accounting) /tax mismatch
under the consolidation entry and exit tax cost-setting rules for DTLs, which
gives rise to both integrity concerns and uncertainty.[40]
As noted by the Board of Taxation in its 2013 Report:
... the Board observed that there is commercial/tax mismatch
under the entry and exit tax cost setting processes.
On entry, the mismatch arises because the deferred tax
liability relating to a reset cost base asset is included in step 2 of the
entry tax cost setting rules. As a result a higher tax cost is allocated to the
reset cost base asset. This has the effect of reducing the future tax
liability when the asset is sold.
A similar but converse mismatch arises on exit. That is,
under the exit tax cost setting rules, the terminating value of assets is
included in step 1. This value does not reflect the value of a deferred tax
liability relating to the asset. However, the deferred tax liability is
included in step 4 of the exit tax cost setting rules. This has the effect
of reducing the tax costs of the membership interests in the leaving entity,
thereby increasing the taxable gain made by the head company on the disposal of
those membership interests, by the amount of the deferred tax liability.[41]
(emphasis added).
Proposed
changes—commercial / tax alignment with regard to deferred tax liabilities
The DTLs measures in Schedule 1, Part 2 of the Bill are
consistent with the Board of Taxation’s recommendations. The amendments will:
- exclude
DTLs from an entity’s entry ACA calculations (step 2) and
- exclude
DTLs from an entity’s exit ACA calculations (step 4).[42]
These modifications will simplify the entry and exit tax cost
setting rules. The effect of the amendments will be to prevent such mismatches
from either reducing tax liabilities when an asset is sold, or increasing the
taxable gain on the disposal of membership interests on their disposal by the
head company.
However, the Bill provides that certain DTLs (ones that
are an accounting liability that relates to certain types of assets[43])
will continue to be recognised for tax cost setting purposes.[44]
This means that DTLs will continue to be recognised for tax cost setting
purposes if, for the reasons noted in the Explanatory Memorandum:
- the
DTL is an accounting liability
- it
relates to an asset that is a retained cost base asset of a life insurance
company and
- the
life insurance company leaves a consolidated group.[45]
The policy for this aspect of the amendments is that the
broad effect of the ITAA 1997 once amended by the Bill will ensure that
the tax outcomes for these policyholder assets are not affected when a life
insurance company joins or leaves a consolidated group.[46]
Application
These changes will apply to DTLs of entities that join or
leave a consolidated group from the date the Bill was introduced into the House
of Representative (that is, 15 February 2018).[47]
In that regard, they can be viewed as having retrospective operation in
that they will apply to transactions that were entered into before the Bill
became an Act.
However, whilst the Board of Taxation recommended that ‘the
changes should apply prospectively’[48]
it also noted that an alternative was:
.... applying the changes to joining events under transactions
that commence after the date amending legislation is introduced (rather than
the date of announcement).[49]
In that regard, the DTLs measure is consistent with the
Board of Taxation’s recommendation.
Schedule 1,
Parts 3 and 4—Securitised assets
Schedule 1, Parts 3 and 4 of the Bill contain the
securitised assets (SAs) measures.
What are
securitised assets?
Securitisation is a financing arrangement that usually
(but not always) involves the interest held by an Authorised Deposit-taking Institution
(ADI) or financial entity in certain financial assets (such as residential
mortgages) being equitably assigned to a special purpose vehicle (SPV). The SPV
then holds the mortgage assets and, due to particular accounting standard
requirements, accounting assets and liabilities are created.
The ADI or financial entity holds the residual income
rights in the SPV and gets a return equal to, broadly, the difference between
the payments due on the notes and the amounts receivable on the assets, net of
fees, associated with the securitisation arrangement. This has the advantage of
allowing the ADI or financial entity to diversify its funding.
While securitisation arrangements are common in the financial
industry, such arrangements can also be entered into as a means of financing by
entities that are not ADIs or financial entities in some circumstances.[50]
Current law—commercial
/ tax mismatch arising from securitised assets
Currently, there is a commercial (accounting) /tax mismatch
under the consolidation entry and exit tax cost-setting rules for SAs, which
gives rise to ‘distortions’ in the tax cost setting rules.[51]
This is because while the accounting liability created by
the securitisation of the asset is recognised in step 2 of the entry ACA
process, the accounting asset itself is not. This causes a mismatch in ACA
entry and exit calculations. As a result of this mismatch, when an entity that
has securitised assets joins a consolidated group, the value of the accounting
liability associated with the SAs is allocated to other assets held by the
joining entity. This outcome arises because the underlying securitised assets
have no or little value. As a result:
- the
tax costs of those other assets are overstated and
- to
the extent that there are insufficient assets to absorb the increased tax
value, the head company may realise an artificial capital loss.[52]
Further, when an entity that has securitised assets leaves
a consolidated group, the accounting liability reduces the tax value that is
allocated to the membership interests held by the group in the leaving entity. This
means the group will make a higher capital gain on the disposal of the
membership interests in the leaving entity because:
- the
tax costs of membership interests are undervalued and
- to
the extent that the accounting liabilities exceed the value of the leaving
entity's assets, the tax costs of the membership interests will be nil and the
head company will make a capital gain equal to the amount of the excess.[53]
As noted by the Board of Taxation in its 2013 Report:
The Board considers that, in accordance with its preliminary
view, modifications should be made to the entry and exit tax cost setting rules
where there is asymmetry in the recognition of assets and related liabilities.
This asymmetry can arise and result in anomalous outcomes in the case of, for
example, finance leases, securitisation arrangements and trading stock
consignment arrangements.[54]
Proposed changes—commercial
/ tax mismatch arising from securitised assets
The SAs measures in Schedule 1, Parts 3 and 4 of the Bill
are consistent with the Board of Taxation’s recommendations. The amendments
will:
- exclude
SAs from an entity’s entry ACA calculations (step 2) and
- exclude
SAs from an entity’s exit ACA calculations (step 4).[55]
These modifications will simplify the entry and exit tax
cost setting rules. The effect of the amendments will be to prevent mismatches
from either reducing tax liabilities when an asset is sold, or increasing the
taxable gain on the disposal of membership interests on their disposal by the
head company.
Application
The application of these changes varies according to the type
of entity:
- if
the entity is an ADI or financial entity, the changes will apply from 13 May
2014 or
- for
any other type of entity, the changes will apply from 3 May 2016.[56]
They can be viewed as having retrospective operation
in that they will apply to transactions that were entered into before the Bill
became an Act. In this regard, the Bill differs from the recommendation of
Board of Taxation which noted:
As a general proposition, the Board considers that any
changes to the consolidation regime arising from this report should apply
prospectively... The Board has been advised that the difficulties identified in
this chapter [dealing with assets and liabilities recognised on different
bases] have arisen in practice and that, while these issues are not common,
they are not rare one-off situations. More importantly, when the issues do
arise, the impact is material and can, in some cases, be significant. The Board
has also been advised that taxpayers may have taken different positions under
the current law. Therefore, the impact of retrospective changes (applying to
joining and leaving events that have occurred since the primary legislative
provisions were introduced) to the law on... [a] range of potential classes of
taxpayers needs to be considered... Although there is a case for applying
Recommendation 5.1 retrospectively, the Board is of the view that it is a
question for Government to determine whether or not a change to the law should
apply retrospectively. However, the Board considers that, except in highly
unusual circumstances, retrospective changes to the law should not disadvantage
taxpayers.[57](emphasis
added).
However, whilst operating retrospectively, the Bill
contains a number of transitional measures that are designed to ensure that
affected consolidated groups are ‘are not disadvantaged by the amendments’ but
also ‘to prevent taxpayers from obtaining unexpected windfall gains’.[58]
These are discussed on pages 35 to 42 of the Explanatory Memorandum.
Schedule 1,
Part 5—churning of assets between different consolidated groups
Schedule 1, Part 5 of the Bill contains the asset churning
measure.
What is
asset churning?
Broadly speaking, asset churning is moving assets between
members of a consolidated group or MEC group in such a way as to avoid CGT or
to artificially uplift the cost base of an entity’s assets.
Current law—commercial
/ tax mismatch arising from securitised assets
The Board of Taxation gave two broad examples of where
asset churning poses a risk to the integrity of the Australian tax system.
The first integrity issue was that, as a result of the
interaction between the consolidation regime and the non-resident CGT rules, a MEC
group can move Australian assets within its group and then dispose of them
without any capital gain being realised (and therefore no CGT being collected).[59]
In simple terms this means a MEC group can use its
structure and the consolidation rules to move assets within the MEC group and
then dispose of them without recognising a capital gain or loss. This has an
impact on horizontal equity as it allows MEC groups to receive benefits at a
cost to the taxation revenue which may create investment distortions. In
addition, foreign owned entities that form a MEC group have an advantage over
other Australian and foreign owned entities.[60]
The second integrity issue is the ability of consolidated
groups that are wholly-owned by a
non-resident entity or a MEC group to uplift the cost base of Australian assets
where there is no change in the underlying beneficial ownership of the assets,
and therefore without recognising a capital gain (and therefore no CGT being
collected).[61]
In simple terms the current laws provide that where an
entity joins another consolidated group or MEC group, the cost base of the
joining entity’s assets can be uplifted even though the vendor is not taxable
on the capital gain made on the disposal of the membership interests.[62]
The Board of Taxation therefore recommended in its 2012 Report:
... where the membership interests in an entity that are
transferred to a consolidated group are not regarded as taxable Australian
property under the non-resident CGT rules, the consolidation tax cost setting
rules should only apply to the transferred membership interests if:
- there has been change in the
underlying majority beneficial ownership of the membership interests in the
entity; or
- there has not been a change in
the underlying majority beneficial ownership of the membership interests in the
entity, but the membership interests in the entity were recently acquired by
the foreign entity (or the foreign group);
- membership interests in an
entity will be recently acquired if they have been majority owned by the
foreign entity (or the foreign group) for less than 12 months.[63]
The Bill is consistent with this recommendation.
Proposed
changes—assets churning measure
The asset churning measure ‘switches 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 and
- there
has been no change in the majority economic ownership of the joining entity for
a period of at least 12 months before the joining time.[64]
This will reduce the risk of the distortions and integrity
issues discussed above from arising in the future. A detailed explanation of
the various sub-measures that underpin the above is provided on pages 42 to 46
of the Explanatory Memorandum.
Application
The churning measure generally applies in relation to an
entity that joins a consolidated group or MEC group under an arrangement that
commences on or after 7.30 pm by legal time in the Australian Capital
Territory, on 14 May 2013 (the 2013 Budget time, the date of announcement of
the measure by the former Government).[65]
However, transitional rules modify its application. The
extension of the control test to cover participation interests of associates
applies only to an arrangement that commences on or after the start of the day
on which this Bill was introduced into the House of Representatives (that is,
15 February 2018).[66]
In addition, depending on the nature of the arrangement, other application
dates may apply.[67]
The churning measure can be viewed as having retrospective
operation in that it will (generally) apply to transactions that were
entered into before the Bill became an Act. Whilst the Board of Taxation did
not make recommendations as to the commencement of the provision, as noted
elsewhere in this Digest it consistently expressed a preference for prospective
application of changes to tax laws (that is, the measure should only apply to
transactions and arrangements entered into after the law commences, not when it
was announced).
The Board of Taxation’s general preference for prospective
operation of tax laws mirrors that of the Senate Scrutiny of Bills Committee,
which in relation to another recent tax Bill noted that retrospective
application of measures in a tax Bill amount to ‘“legislation by press release”
[and] challenges a basic value of the rule of law that, in general, laws should
only operate prospectively’[68]
and further noted that:
... in the context of tax law, reliance on ministerial
announcements, and the implicit requirement that persons arrange their affairs
in accordance with such announcements rather than in accordance with the law,
tends to undermine the principle that the law is made by Parliament, not by the
executive. ... in fact, where taxation amendments are not brought before the
Parliament within 6 months of being announced, the bill risks having the
commencement date amended by resolution of the Senate (see Senate Resolution
No. 44).[69]
Schedule 1,
Part 6—taxation of financial arrangements
Schedule 1, Part 6 of the Bill contains the TOFA measure.
What is the
TOFA?
Broadly speaking, the TOFA rules provide for the tax
treatment of gains and losses on financial arrangements.[70]
Current law—TOFA
rules
The TOFA rules are found in Division 230 of the ITAA
1997, which provides the methods for calculating gains and losses from
financial arrangements, and the time at which these gains and losses will be
brought to account.
Under the current law, the tax values of an intra-group
asset or liability that is part of a financial arrangement which is subject to
the TOFA rules is unclear when a subsidiary member leaves a consolidated or MEC
group. As a result, the application of the TOFA provisions to those financial
arrangements to an entity after it leaves a consolidated group or MEC group is
also unclear.[71]
For example, there is uncertainty as to how TOFA applies to
an intra-group loan between two members of the group, when one of the members
leaves the group. In the case where the loan originated within the group, it
has been argued that because the loan has no ‘cost’ (the initial drawdown being
ignored for tax purposes because of the single entity rule), the lender could
be assessed on the return of the principal of the loan, and the borrower could
claim a deduction for the repayment of that principal after one of the entities
exits the group.[72]
Proposed
changes—TOFA rules
The TOFA measure clarifies the operation of the TOFA
provisions. It does this by setting a tax value for an intra-group asset or
liability that is, or is part of, a financial arrangement covered by the
current TOFA rules when:
- the
asset or liability emerges from a consolidated group
- because
a subsidiary member leaves the group.[73]
This will ensure that, consistent with the application of
the single-entity rule prior to the asset or liability emerging from the
consolidated group:
- a
lender is not assessed on a return of the principal of a loan and
- a
borrower cannot claim deduction for the repayment of that principal.[74]
As noted in the Explanatory Memorandum, the broad
objective of the TOFA measure is to make the tax treatment of intra-group TOFA
financial arrangements consistent with the economic substance of the
transactions, in a manner consistent with similar rules that currently exist
for TOFA financial arrangements that are not intra-group financial arrangements.[75]
A detailed explanation of the various sub-measures that
underpin the above is provided on pages 51 to 58 of the Explanatory Memorandum.
Application
The TOFA measure applies retrospectively. This is because subitem
25(1) provides that it applies in the same way as Part 2 of Schedule 1 to
the Tax Laws
Amendment (Taxation of Financial Arrangements) Act 2009 (generally from
1 July 2010).
However, the transitional rules in subitems 25(2)
and (3) provide that the Commissioner cannot amend an assessment of an
entity for an income year in a particular way if:
- the
entity lodged its income tax return for the income year before the 2013 Budget
time (that is, before 7.30 pm, by legal time in the Australian Capital
Territory, on 14 May 2013, the date of announcement of the measure)
- the
Commissioner could not amend the assessment in that way if these amendments
were disregarded and
- the
entity has not requested the Commissioner to amend the assessment in that way.
As noted in the Explanatory Memorandum:
This transitional rule ensures that taxpayers who took a
position under the current law will not be disadvantaged by the amendments.
However, it also prevents taxpayers from obtaining a windfall gain by amending
prior year assessments in a way that takes advantage of a deficiency in the law.[76]
As noted earlier in this Digest, the Board of Taxation’s
general preference is for prospective operation of tax laws, and that
preference mirrors that of the Senate Scrutiny of Bills Committee.[77]
Given that the TOFA measure may apply to arrangements entered into from 1 July
2010 onwards, it would appear to have—despite the transitional rules—a
potentially significant likelihood of applying retrospectively to a large
number of financial arrangements entered into before the Bill became an Act, or
was even introduced into the House of Representatives.
Schedule 1,
Part 7 – value shifting measure
Schedule 1, Part 7 of the Bill contains the value shifting measure.
What is value
shifting?
Broadly speaking, value shifting is where a consolidated
group uses intra-group transactions to inappropriately shift or alter the value
of assets or liabilities by transferring them between members by taking
advantage of tax rules. For example, a consolidated group can benefit from making
a reduced taxable gain on the sale of the encumbered asset and at the same time
be entitled to recognise a market value cost base in the rights it retains. The
consolidated group effectively receives a double benefit.[78]
Current law—value
shifts and intra-group transactions
The Board of Taxation concluded that integrity issues
arise when an encumbered asset whose market value has been reduced, due to the
intra-group creation of rights over the encumbered asset, is sold by a
consolidated group. This could arise if the encumbered asset is sold directly
or indirectly.[79]
By way of example, under the current law when an entity leaves a consolidated group
or MEC group holding an asset which is a liability owed by a member of the old
group, the amount taken into account under the exit tax cost setting rules for
the asset is:
- the
market value of the asset or
- in
limited circumstances, an amount that reflects the tax cost of the asset.[80]
The ‘value shifting’ issue arises if the market value of
the asset ‘inflates’ the exit tax cost setting amount (thereby reducing the
gain made by the old group).[81]
In addition, when a third party encumbered asset which is
subject to rights held by a consolidated group is subsequently acquired by the
consolidated group, the rights held by the consolidated group become
intra-group rights, and the consolidated group effectively acquires full
ownership over the unencumbered asset. Under the current law, a consolidated
group which buys an encumbered asset will never be able to recognise the tax
cost it previously paid to acquire the rights which become intra-group.[82]
The Bill does not make any amendments dealing with this aspect of value shifting
identified by the Board of Taxation.
Proposed
changes—value shifting
The Bill deals only with value shifting related to the
disposal of encumbered assets by consolidated groups and MEC groups. It does
not deal with the acquisition of assets from third parties over which the
consolidated group has rights.
The amendments will ensure that the amount taken into
account under the exit tax cost setting rules for the asset is aligned with the
tax cost setting amount for the corresponding asset of the leaving entity, thus
removing the ability for the types of inappropriate value shifting identified
by the Board of Taxation to be conducted by consolidated groups. This is
achieved by providing that step 3 of the exit tax cost setting rules is
modified so that:
- the
amount included for an intra-group liability owed to the leaving entity by the
old group is equal to the tax cost setting amount for the corresponding asset[83]
and
- the
tax cost setting amount for the corresponding asset is set at:
- in
the case of an asset that corresponds to a debt owed to the leaving entity by
the old group: the market value of the asset
- otherwise:
an amount that reflects the cost of the asset.[84]
The proposed amendment to subsection 711-45(4) at item
29 of the Bill also operates with respect to the above two measures to
ensure that there is a clear alignment between:
- the
amount that is included at step 4 of the exit tax cost setting rules for
intra-group liabilities owed by the leaving entity to the old group and
- the
tax cost of the corresponding asset of the old group.[85]
A detailed explanation of the measures above is provided
on pages 58 to 62 of the Explanatory Memorandum.
Application
The value shifting measure applies retrospectively. This
is justified in the Explanatory Memorandum on the following basis:
In some cases these measures apply from a date prior to the
introduction of the amendments. This is necessary to:
- prevent
taxpayers from structuring their affairs to obtain unintended tax benefits or
to obtain windfall gains; and
- protect a significant amount of revenue that
otherwise would be at risk.[86]
The value shifting measure generally applies in relation
to an entity that exits a consolidated group under an arrangement that
commences on or after 7.30 pm by legal time in the Australian Capital
Territory, on 14 May 2013 (the 2013 Budget time, the date of announcement of
the measure by the former Government).[87]
However, subitem 30(2) provides that if an asset covered by the value
shifting measure is a financial arrangement, then consistently with the TOFA
measure, the amendments will apply from the commencement of the Tax Laws
Amendment (Taxation of Financial Arrangements) Act 2009 (generally from 1
July 2010).
The transitional rules in subitems 30(3) and (4)
provide that the Commissioner cannot amend an assessment of an entity for an
income year in a particular way if:
- the
entity lodged its income tax return for the income year before the 2013 Budget
time (that is, before 7.30 pm, by legal time in the Australian Capital
Territory, on 14 May 2013, the date of announcement of the measure)
- the
Commissioner could not amend the assessment in that way if these amendments
were disregarded and
- the
entity has not requested the Commissioner to amend the assessment in that way.
As noted earlier in this Digest, the Board of Taxation’s
general preference is for prospective operation of tax laws, and that
preference mirrors that of the Senate Scrutiny of Bills Committee.[88]
Given that the value shifting measure may apply to arrangements entered into
from 1 July 2010 (and certainly from 14 May 2013) onwards, it would appear to
have—despite the transitional rules—a potentially significant likelihood of
applying retrospectively to a large number of arrangements entered into before
the Bill became an Act, or was even introduced into the House of
Representatives.
Schedule 1,
Part 8 – commencement of arrangements
Schedule 1, Part 8 of the Bill deals with when arrangements
are deemed to have commenced. As the various measures discussed above are
triggered by entities or assets leaving or joining a consolidated group or MEC
group, it is necessary to have rules that determine when such events occurred.
Item 31 of the Bill provides rules for determining
when particular events or transactions occurred. These are summarised in the
table below.
Table 1: commencement of arrangements
Type of arrangement
|
Relevance
|
Time that the arrangement commences
|
Off-market takeover bid
|
An off-market bid can be used:
- by a consolidated
group to acquire an entity or
- by an
entity to acquire a subsidiary of a consolidated group.
As such, it is potentially relevant to both the entry and
exit cost setting rules.
|
The day on which the bidder lodged with the Australian
Securities and Investments Commission a notice stating that the bidder's
statement and offer document have been sent to the target — that is,
step 4 of the table in subsection 633(1) of the Corporations Act
2001 is completed.
|
On-market takeover bid
|
An on-market bid can be used:
- by a
consolidated group to acquire an entity or
- by an
entity to acquire a listed subsidiary of a consolidated group.
As such, it is potentially relevant to both the entry and exit
cost setting rules.
|
The day on which the bidder announces a bid to the
relevant financial market — that is, step 2 of the table in
subsection 635(1) of the Corporations Act 2001 is completed.
|
Scheme of arrangement
|
Relevant to both the acquisition and disposal of entities
by consolidated groups and hence to the exit and entry cost setting rules.
|
The day on which a company applies for a court order
(under subsection 411(1) of the Corporations Act 2001 ) for a
meeting of the company's members, or one or more classes of the company's
members, about the arrangement.
|
Other arrangement
|
Relevant to both the acquisition and disposal of entities
and assets by consolidated groups and hence to the exit and entry cost
setting rules, amongst others.
|
The day on which the decision to enter into the
arrangement (including an initial public offering) was made.
|
Source: Item 31; Explanatory Memorandum, Treasury Laws
Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 67.
Concluding comments
Whilst the Bill has been developed by successive
Governments over a long period of time, and with significant consultation, the
retrospective application of many of the measures (despite various transitional
rules) may raise concerns in some quarters.
[1]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity)
Bill 2018, p. 3.
[2]. Board
of Taxation (BoT), Post
implementation review into certain aspects of the consolidation regime: a
report to the Assistant Treasurer, BoT, Canberra, June 2012 (the ‘2012
Report’), pp. 11–12.
[3]. Ibid.,
p. 12.
[4]. Ibid.,
p. 12.
[5]. Ibid.,
pp. 12–13.
[6]. The
two reports were the 2012 Report and the Board of Taxation (BoT), Post
implementation review of certain aspects of the consolidation tax cost setting
process: a report to the Assistant Treasurer, BoT, Canberra, April 2013
(the ‘2013 Report’).
[7]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity)
Bill 2018, pp. 6–7.
[8]. 2012
Report, op. cit., p. 12.
[9]. Ibid.,
p. 13.
[10]. Ibid.
[11]. Ibid.,
pp. 39–40.
[12]. Ibid.,
pp. 48–49.
[13]. Ibid.,
pp. 48–49.
[14]. Ibid.,
pp. 13–14.
[15]. Ibid.,
p. 14.
[16]. Ibid.,
p. 14.
[17]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity)
Bill 2018, pp. 6–7.
[18]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 3, 2018, The Senate, Canberra, 21 March 2018, p. 58.
[19]. Dr
A Leigh ‘Second
reading speech: Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018’, House of Representatives, Debates, (proof), 28
February 2018, p. 35: ‘Labor supports the Treasury Laws
Amendment (Income Tax Consolidation Integrity) Bill 2018, which implements a
number of sensible amendments to improve the integrity and operation of the
consolidation regime.’; M Thistlethwaite, ‘Second
reading speech: Treasury Laws Amendment (Income Tax Consolidation Integrity)
Bill 2018’, House of Representatives, Debates, (proof), 28
February 2018, p. 38: ‘... this Bill has been on the table for many, many years.
It's something that Labor has supported for many years. It was in our policy that
we took to the last election.’
[20]. 2012
Report, pp. 9–10; 2013 Report, p. 13; The Treasury, ‘Consolidation
amendments in Schedule 1, ’ The Treasury website, n.d., consultation took
place between 18 April 2012 and 2 May 2012; The Treasury, ‘TOFA
consolidation interaction and TOFA transitional balancing adjustments
amendments in Schedule 2’, consultation took place between 18 April 2012
and 2 May 2012; The Treasury, ‘Restoring
integrity to the consolidation regime’, The Treasury website, n.d.,
consultation took place between 29 April 2015 and 19 May 2015 (submissions are
not publically available at this time); The Treasury, ‘Consolidation
integrity measures’, The Treasury website, n.d., consultation took place
between 11 September 2017 and 6 October 2017 (submissions are not publically
available at this time).
[21]. PricewaterhouseCoopers
(PWC), ‘TaxTalk
– insights corporate tax: consolidation integrity measures introduced into
Parliament’, PWC website, 16 February 2018: ‘tax consolidated groups
now have certainty in relation to the manner in which these integrity measures
affect the tax cost setting rules in respect of entities that either join or
leave their group. The measures broadly apply in the same manner as they were
previously reflected in the exposure draft law that was released for comment in
September 2017, but there has been some welcome changes.’; N McBride, R Leslie,
‘Consolidation
integrity Bill introduced’, Greenwoods + Hebert Smith Freehills website, 16
February 2018.
[22]. P
Hill, ‘Australia
pushes Bill to close tax-free gains loophole’, Tax Institute website, 16
February 2018.
[23]. The
Statement of Compatibility with Human Rights can be found at page 69 of the
Explanatory Memorandum to the Bill.
[24]. Income
Tax Assessment Act 1997, section 701-10.
[25]. Ibid.,
sections 705-20 to 705-55.
[26]. M
Chow, ‘[¶8-210]
Where single entity joins existing group’, Australian Premium Master Tax
Guide, 31 December 2017, CCH database.
[27]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, p. 8.
[28]. Income
Tax Assessment Act 1997, subsection 705-70(3). The term “accounting
principles” is defined in s 995-1: if it is in accordance with: (a) accounting
standards (the accounting standards made by the Australian Accounting Standards
Board (AASB) under section 334 of the Corporations Act 2001), or (b) if
there is no applicable accounting standard, the liability is determined in
accordance with ‘authoritative pronouncements’ of the AASB applying to the
preparation of financial statements.
[29]. A
Ting, ‘Australia’s
consolidation regime: a Road of no return?’, British Tax Review,
2010(2), pp. 162–193, p. 172; Explanatory Memorandum, Treasury
Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, p. 13.
[30]. Proposed
subsections 705-70(1AA), (1AB), (1AD) of the ITAA 1997, at item 1
of the Bill.
[31]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraphs 705-70(1AA)(a),
705-70(1AC)(b), subparagraph 705-70(1AC)(a)(i), subsections 705-75(1A) and
705-80(1A).
[32]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraph
705-70(1AA)(a), 705-70(1AC)(c), 705-75(1A)(a) and 705-80(1A)(a) and subsection
705-70(1AD).
[33]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraph
705-70(1AA)(a), subparagraph 705-70(1AC)(a)(ii) and subsections
705-75(1A) and 705-80(1A).
[34]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, pp. 15–16; proposed paragraphs
705-70(1AA)(a), 705-70(1AC)(d) and subsections 705-75(1A) and 705-80(1A).
[35]. Income
Tax Assessment Act 1997, section 705-90.
[36]. Proposed
subsections 705-70(1B), 705-90(2B).
[37]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018,
pp. 22–23.
[38]. Item
6.
[39]. Explanatory Memorandum, Treasury Laws Amendment (Income Tax
Consolidation Integrity) Bill 2018, p. 24.
[40]. BoT,
2013 Report, op. cit., p. 35.
[41]. Ibid.,
p. 37.
[42]. Proposed
subsections 705-70(1B) and 711-45(1B) of the ITAA 1997, at
items 7 and 8 of the Bill.
[43]. Those
referred to in paragraphs 713-515(1)(a) or (b) and 713-575(2)(a) or (b) of the Income
Tax Assessment Act 1997.
[44]. Proposed
subsections 705-70(1C) and 711-45(1C).
[45]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, pp. 25–26.
[46]. Ibid.,
pp. 26–27.
[47]. Item
9.
[48]. BoT,
2013 Report, op. cit., pp. 39.
[49]. Ibid.
[50]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, pp. 29–30.
[51]. BoT,
2013 Report, op. cit., p. 49.
[52]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 30.
[53]. Ibid.
[54]. BoT,
2013 Report, op. cit., p. 51.
[55]. Proposed
subsections 705-70(4) (at item 10) and 711-45(11) (at item
12), proposed sections 705-76 and 711-46 (at items
11 and 13).
[56]. Items
14, 15 and 19.
[57]. BoT,
2013 Report, op. cit., pp. 52–54.
[58]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 34.
[59]. BoT,
2012 Report, op. cit., p. 60.
[60]. Ibid.,
p. 61.
[61]. BoT,
2012 Report, op. cit., pp. 60, 62–63,
[62]. Ibid.,
p. 63.
[63]. BoT,
2012 Report, op. cit., p. 66.
[64]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 42. Proposed section 716-440 at item 20.
[65]. Subitem
21(1).
[66]. Subitems
21(2), (3).
[67]. Item
31.
[68]. Senate
Standing Committee for Scrutiny of Bills, Scrutiny
digest, 2, 2018, The Senate, Canberra, 14 February 2018, p. 61.
The Committee raised the same concern in Scrutiny
digest, 11, 2017, The Senate, Canberra, 13 September 2017, pp. 21–22.
[69]. Senate
Standing Committee for Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 61.
[70]. Defined
in sections 230-45 to 230-55 of the Income Tax Assessment Act 1997 (see
section 995-1 of that same Act).
[71]. Deloitte,
‘Tax
insights: long-awaited tax consolidation measures released’, Deloitte
website, 15 September 2017, p. 7; PWC, ‘Consolidation
integrity measures: a second look at proposed law’, PWC website, 14
September 2017, p. 4.
[72]. PWC,
‘Consolidation
integrity measures: a second look at proposed law’, op. cit., p. 4.
[73]. Proposed
sections 715-379 and 715-379A at item 24.
[74]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 51.
[75]. Ibid.
[76]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 58.
[77]. Senate
Standing Committee for Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 61.
[78]. BoT,
2012 Report, op. cit., p. 49.
[79]. Ibid.,
p. 48.
[80]. Income
Tax Assessment Act 1997, sections 711-40 (step 3 of the exit tax cost
setting rules) 701-20, and 701-60 (table item 3).
[81]. BoT
2012 Report, op. cit., pp. 48–49.
[82]. Ibid.,
pp. 49–50.
[83]. Proposed
section 711-40 at item 28.
[84]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 59. Proposed section 701-60A and table items 3 and 3A
of section 701-60, at items 26 and 27.
[85]. Explanatory
Memorandum, Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill
2018, p. 62.
[86]. Ibid.,
p. 64.
[87]. Subitem
30(1).
[88]. Senate
Standing Committee for Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 61.
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