In particular, taxpayers should be aware of the distortion to the tax cost setting rules that can arise where such assets are acquired through an entity vis-à-vis the position if an asset acquisition, as these differences can have a lasting impact for the acquirer.
The consolidation tax cost setting rules, which only apply to an entity acquisition, require a purchaser to treat the acquisition of the relevant entity as if the purchaser acquired each of the assets of the business as a 'going concern'. There is limited guidance on what is meant by this expression and there is a risk that it is interpreted as a very narrow concept. This statutory fiction does not apply where assets are acquired.
This means that there may be situations where certain RTFI and other intangible assets are not allocated tax cost where the entity is acquired, but may be allocated tax cost where the assets are acquired directly. This can have very significant tax consequences post-acquisition for the relevant acquirer.
We are aware of significant ATO activity in relation to RTFI claims by taxpayers. Accordingly, taxpayers who have made such claims, or who are undertaking or consideration undertaking transactions where such claims may be made, should be aware of the potential risks that can arise and carefully consider what is the most appropriate business acquisition structure to promote a closer alignment between the income tax outcomes and the intended commercial outcomes of a transaction.
Please contact your KPMG corporate tax specialist to discuss further.