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Consolidation

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  • part IVA anti-avoidance provisions and consolidating
  • extract from Tax Summary book on the effect from not consolidating
  • transferring losses to a consolidated group.
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One in, all in

Every small business has the potential to grow into a larger concern, both through the smart operation of the business owner and through the maturation of its market.

Either way, the small business owner who finds themselves to be in the enviable position of having an almost too-successful business to manage may one day find that the enterprise has evolved into a group of businesses. Or the original concern interacts with other small businesses to such an extent that each could not realistically function without the other. Or you may simply want to diversify the business lines you invest in – a 'don't put all your eggs in one basket' philosophy.

Eventually, consideration may need to be given to adopting a consolidated structure for otherwise separate businesses.

Consolidation of businesses was given a boost with the establishment 10 years ago of what has been dubbed the tax consolidation regime. The rules established allow for a consolidated group that consists of a head company and wholly-owned subsidiary companies, trusts or partnerships.

One in, all in
Although a consolidated group maintains separate legal existence of each member, it is treated as one entity for tax purposes. This of course means extra compliance costs.

The head company of a consolidated group must be an Australian resident company, and the subsidiaries of the consolidated group must also be Australian residents. Subsidiary members can be trusts or partnerships as well as companies.Only entities that are 100% owned by the head company can become part of a tax consolidated group.

Once consolidated, the resulting single 'taxpayer' (the consolidated group):
  • has all income, losses and deductions of each group member treated as belongoing to the one taxpaying entity
  • has any transactions between members of the group treated as internal activities between divisions of the one taxpayer, and ignored for tax purposes
  • can lodge a single tax return on behalf of the whole group, with any PAYG instalments also administered by the head company
  • can transfer assets from one business to another without any income tax consequences
  • may be entitled to increased depreciation deductions once the entities consolidate, since the tax values of some assets are amended when an entity joins a group.

Without consolidation, each business would be taxed as separate concerns, and even intra-group transactions and debt and equity movements attract a tax consequence.

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