Review of the Consolidation Rights to Future Income and Residual Tax Cost Setting Rules

Background

On 30 March 2011, the Assistant Treasurer announced  that he had commissioned the Board of Taxation to undertake a review of the consolidation rights to future income and residual tax cost setting rules. The terms of reference for this review were released together with the announcement.

Terms of Reference

Under the terms of reference, the Board was requested to examine the operation of the rights to future income and residual tax cost setting rules with a view to defining and limiting their scope. From the Assistant Treasurer’s announcement:

The Board is requested to:

• examine the operation of the rights to future income and residual tax cost setting rules (the rules) with a view to clarifying their scope; and
• propose changes to limit the scope of the rules, if necessary, and advise on the date of effect of those proposed changes (including whether they should apply retrospectively).

In undertaking the review, the Board should also consider:

• the taxation outcomes that arise when assets of the type that are covered by the rules are acquired directly by a company as part of a business acquisition outside of the consolidation regime;
• whether there are any circumstances in which these tax outcomes should be different if these assets are held by a company that joins a consolidated group;
• if a difference in tax outcomes is warranted, the appropriate basis for recognising the tax costs of any assets that should be treated differently on entry into a consolidated group; and
• the revenue impact of any changes to the rules it proposes.

Consultation

In conducting the review, the Board was asked to seek public submissions and consult widely. After considering the views of all stakeholders the Board was requested to provide a final report to the Government by 31 May 2011.

The Board requested written submissions on the review of the consolidation rights to future income and residual tax cost setting rules by 20 April 2011. On 6 April 2011, the Board released additional guidance material which stakeholders were to take into account in preparing submissions.

All submissions received were acknowledged. Copies of public submissions made to the Board are available below.

Board report

The Board completed its review of the consolidation rights to future income and residual tax cost setting rules and provided its report to the Assistant Treasurer on 31 May 2011. In preparing its report the Board took into account the various submissions to the review and discussions with stakeholders and its expert panel.

Government response

On 25 November 2011, the Assistant Treasurer announced the release of the Board of Taxation’s report on its review of the consolidation rights to future income and residual tax cost setting rules and the Government’s response to the Board’s report. The Government adopted all four of the Board’s recommendations, with a modification to one recommendation. Details of the Government’s response can be found here.

The Board also 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 and the Government endorsed further investigation on these issues. For more information for these additional reviews, please see Post-Implementation Reviews of the Consolidation Regime.

The Government’s announcement of its response, which was developed through extensive consultation with a working group of tax experts and key industry bodies, was welcomed by the Chairman of the Board of Taxation, Mr Chris Jordan AO.

Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366 or at taxboard@treasury.gov.au.

Submissions received