The Government has released revised draft legislation and an explanatory memorandum for the proposed consolidation integrity measures, announced in various Federal Budgets since 2013. Are we finally seeing light at the end of the tunnel?
The current exposure draft proposes that:
- from 1 July 2016, future deductible liabilities of an entity that are not life insurance, general insurance or health insurance liabilities, Division 230 TOFA financial arrangements or certain retirement village liabilities will be excluded when resetting the tax costs of an entity’s assets when it joins a consolidated group;
- from the date of introduction of the bill, Deferred Tax Liabilities (DTLs) will be excluded when resetting the tax cost of an entity’s assets when it joins a consolidated group and when resetting the tax costs of shares in an entity when it leaves the group;
- liabilities relating to securitised assets will be disregarded when resetting tax costs on joining or leaving a consolidated group from (broadly) 13 May 2014 for financing entities and 3 May 2016 for all other entities;
- from 14 May 2013, tax cost setting will not apply where a non-land rich entity joins a consolidated group after being transferred from a non-resident associate in circumstances where the associate is not taxed on the transfer (unless there has been a change in the underlying majority beneficial ownership of the entity);
- from 14 May 2013, when resetting the tax costs of shares in an entity when it leaves a group, the value of any asset the leaving entity holds that corresponds to a liability owed by the group will be reduced from its market value to (in most circumstances) nil; and
- from commencement of the Division 230 TOFA rules, the law will be modified to ensure it operates as intended when resetting the Division 230 value of intra group financial arrangement liabilities of an entity when it leaves a group.
We will be making a submission to Treasury in relation to the draft legislation. Two key queries that we will raise relate to:
- clarification of the scope of the future deductible liability amendment for certain types of liabilities; and
- the transitional rule that provides that a DTL will be included on resetting the tax costs of shares in an entity where it leaves the group after the amending legislation is introduced but originally joined the group before the amending legislation is introduced. This transitional rule is unclear, and has the potential to significantly impact industries where assets are required to be fair valued regularly for accounting purposes.
These amendments do not include the announcement in the 2014-15 Federal Budget on 13 May 2014 regarding MEC groups. We do not have any information regarding the status of this measure. We suspect it is in the ‘too hard’ basket!
Submissions are due on 6 October 2017.