The Government will introduce changes to income tax law affecting consolidated groups as part of its continued commitment to maintaining the integrity, equity and fairness of the tax system.
The changes relate to the way a consolidated group can deduct the costs allocated to some assets following a corporate acquisition.
The changes implement the recommendations of the Board of Taxation for future consolidations and seek to ensure that companies inside corporate groups don't receive tax benefits, which corporates outside consolidated groups are unable to receive.
"The new laws will help protect potential threats to revenue by putting a limit on the scope of amendments to the consolidation regime made in 2010," Assistant Treasurer Bill Shorten said.
"This demonstrates the Government's commitment to maintaining the integrity, equity and fairness of the tax system."
The changes affecting a corporate acquisition will depend on the time when the acquisition took place. This follows recommendations from the Board of Taxation's Report on the Review of the Consolidation Rights to Future Income and Residual Tax Cost Setting Rules and extensive consultation with a working group of tax experts and key industry bodies, including the Corporate Tax Association, the Tax Institute, the Institute of Chartered Accountants in Australia and CPA Australia.
The amendments address problems in the policy proposed by the former Government in 2005 (and 2007) and enacted in 2010 that affected corporate acquisitions from 2002. The changes proposed today by the Government will depend on the time when the acquisition took place. That is, different changes are proposed for acquisitions before 12 May 2010 (when the law was passed by both Houses of Parliament), after 30 March 2011 (when the Board of Taxation was asked to review the rules) and the intervening period (the transitional period).
Corporate acquisitions that took place before 12 May 2010 will be affected by the changes subject to the application of normal amendment periods. These changes are necessary to ensure deductions are claimed only when it was intended and will protect a significant amount of revenue that would otherwise be at risk.
Changes for the period between 12 May 2010 and 30 March 2011 will largely protect taxpayers who made business decisions on the basis of the current law before the Board's review was announced.
For acquisitions after 30 March 2011 changes will be made to increase certainty for taxpayers and apply a business acquisition approach in certain cases.
Private rulings sought and received by taxpayers from the ATO, including written advice under advance compliance agreements, will stand.
The Board recommended further investigation be undertaken on two issues: the treatment of liabilities under the consolidation regime and capping the tax costs allocated to certain types of assets. I look forward to the Board's further advice on these issues when it reports on its post implementation review of certain aspects of the consolidation regime.
The Board of Taxation's Report on the Review of the Consolidation Rights to Future Income and Residual Tax Cost Setting Rules is available at the Board of Taxation website.
Details of the Government's response, which were developed in consultation with the working group of tax experts and key industry bodies, can be found in Attachment A.
In addition to the changes to the income tax law affecting consolidation that I have announced today, the Government will also make changes to the operation of the taxation of financial arrangements (TOFA) rules for consolidated groups.
These changes will ensure that, for consolidated groups, the TOFA Stages 3 & 4 provisions operate as intended and that the tax treatment of financial arrangements that are liabilities is appropriate.
The changes also address the technical issues raised by industry as part of the post-enactment consultation on the TOFA Stages 3 & 4 regime and ease the transition of consolidated groups into the regime.
The changes will apply from the start of TOFA Stages 3 & 4 regime.
Details of the changes can be found in Attachment B.
Affected taxpayers should seek expert advice. Queries can be made by emailing [email protected].
The Government will undertake public consultation on draft legislation for these measures as a matter of priority.
Changes to the Income Tax Law Affecting Consolidated Groups
25 November 2011