Australia

Details

  • Service: Tax, Corporate Tax, Topics, Federal Budget
  • Type: Regulatory update
  • Date: 27/05/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Jenny Wong

Jenny Wong
Director, Tax

+61 2 9335 8661

jywong@kpmg.com.au

Tax consolidation changes – the new normal 

by Jenny Wong, Australian Tax Centre

A few weeks ago I attended the TEDxSydney event at the Sydney Opera House and one TED Talk resonated - by Nicole Vincent, a neuro-ethicist who spoke alarmingly on the use of cognitive enhancement drugs as the ‘new normal’, in the same way as drinking coffee, use of painkillers, or having a smart phone are considered ‘normal’.

When it comes to Australian taxation, the new normal is the need to consistently have your finger on the pulse on tax changes affecting foreign owned Australian tax consolidated groups. Underneath big ticket items such as the Temporary Budget Repair Levy for high income earners, the company tax rate cut and the Paid Parental Levy, there were a number of tax measures affecting corporate groups buried in a few press releases and Treasury papers.

 

One in particular relates to the review of the tax treatment of multiple entry consolidated (MEC) groups (foreign owned Australian entities with multiple entry points into Australia that are grouped together for tax purposes). In last year’s Federal Budget, the former government announced a review on the inconsistent treatment between MEC groups and ordinary tax consolidated groups which were highlighted in an issues paper released on 14 May 2013. I’ve had quite a few queries regarding whether the MEC group rules will go or are here to stay.

 

In this year’s Federal Budget, the Government has affirmed that MEC groups are here to stay, following a tripartite review between Treasury, the ATO and the private sector tax specialists. The review identified that MEC groups had 6 apparent tax advantages over ordinary Australian tax consolidated groups. Only 1 of the 6 tax advantages will be addressed. The proposal is to extend a modified form of the unrealised loss rules to MEC groups. This will have the effect of ensuring unrealised net losses of an entity (eligible tier 1 entity) reduce the tax value of its loss assets.

 

The start date of this change is not certain but Treasury will soon start consultation on this proposed amendment. Foreign owned Australian corporate groups should stay alert to these changes.

 

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